Phil Tobin, Managing Director for Trade Finance at Bibby Financial Services discusses how and why importing is often overlooked in the UK.
Amid the backdrop of Brexit, the economic balance between imports and exports is a continuous juggling act for economies across the world.
In the three months to December 2017, the UK trade deficit grew by £3.8 billion to £10.8 billion. Figures became the latest rallying cry for businesses to ramp-up export volumes, while sterling’s devaluation seemingly remains in their favour.
While exporting undoubtedly presents growth opportunities, there is an equally important form of trade, which is often overlooked. Walk along the isles of any supermarket and you will find thousands of them. Take a trip to a local shopping centre and you will be surrounded by them. Even the cars we drive are either one, or most certainly made of them. I am, of course, referring to the wealth of goods and services imported each day.
Importing is a vital means of efficiency and growth for millions of businesses and supply chains throughout the world. It enables economies to expand customer choice, increase competition and reduce manufacturing costs. However, importing is frequently overshadowed by a national desire to focus on boosting the ‘Made in Britain’ brand. Among public and private sector organisations alike it is often viewed as the poor relation of international trade. Exporting by comparison has its own Government-backed campaign.
According to Bibby Financial Services’s Trading Places report, the average SME importer has ten overseas suppliers and purchases goods from five countries. Perhaps unsurprisingly, China is the top import market among UK SMEs, followed closely by Germany and the U.S. More than half of the top 20 import markets are within the EU, highlighting the importance of Brexit negotiations surrounding customs, duty and tax.
While importers and exporters are often considered as unique groups, these two forms of trade are not mutually exclusive. Our research shows that more than a quarter (29%) of those that import, onward sell goods or component parts overseas. While a weaker pound benefits those that manufacture domestically and sell overseas, the situation is far more complex for many businesses that are involved in trade flows both in and out of the country.
More than two-fifths (41%) of importers believe that Brexit has been bad for their business, compared with over a quarter of exporters (29%). Yet, it does not necessarily follow that exporters see Brexit as a positive outcome. Those selling goods overseas are only marginally more likely to believe the effects of Brexit have been positive for their businesses to date.
What is clear, is that the EU referendum and subsequent negotiations have had a profound impact on importers and exporters. More than two-thirds (67%) of businesses transacting in foreign currencies have been negatively impacted by fluctuations. SMEs estimate a financial loss to their businesses due to currency fluctuation over the past 12 months of £70,000. Despite this, almost a quarter have never reviewed their foreign exchange facilities.
Though managing currency risk is a challenge facing all those trading overseas, importers face a unique set of hurdles. Cashflow is a key concern for importers, many of which are often required to pay suppliers up-front and then wait for goods to arrive before fulfilling orders and receiving customer payment. Logistics and managing duty, VAT and freight payments are also key challenges faced, and each must be front-of-mind throughout the UK’s negotiations with Brussels.
However, while such challenges must be considered during the Government’s next round of Brexit negotiations, there are ways that importers can help themselves and protect their businesses from widespread uncertainty. Trade Finance, for example, is a funding and support solution for businesses buying goods for resale from UK or overseas suppliers. It helps by guaranteeing payment to suppliers before goods are in transit and making payment when items are dispatched. This enables businesses to develop relationships with suppliers through payment guarantees and helps them to negotiate early payment discounts with suppliers.
Furthermore, to protect against currency volatility, Trade Finance and Foreign Exchange providers can help importers to reduce exposure to currency fluctuations enabling them to lock in exchange giving businesses both control and protection.
While the UK hopes to have a formal withdrawal agreement agreed by mid-October this year, negotiations on a future trade deal are unlikely to start until the UK formally leaves the EU in March 2019. Undoubtedly, there will be much focus on positioning UK goods with new and existing trading partners as part of the EU divorce process.
However, as the UK enters a new world outside of the second largest economy in the world, it is time that the voices of UK importers are lifted out of the shadows and treated in equal measure to their exporting counterparts. In the meantime, more needs to be done to highlight the measures available to support UK importers both now and in the future.
Alternatively, find out more about Trade Finance here.