Focus: Manufacturing businesses face Brexit price hikes and freight delays, Barometer study reveals
Almost two thirds (65%) of small-to-medium manufacturing companies have seen negative price changes within their supply chain since leaving the EU, including companies operating within sweets and snacks markets, writes Neill Barston.
The results of the quarterly SME Manufacturing Barometer have pointed to ongoing concerns for industry, particularly surrounding logistics problems that have been compounded by extended volumes of paperwork under new ‘rules of origin’ documentation businesses now have to contend with since exiting the trading bloc.
Subsequently, less than a third believe they’re getting the right support and guidance from Government on how to navigate Brexit, with a number of business segments reporting additional costs that have emerged as a result of Brexit, rather than the ‘frictionless trade’ that was promised by the UK Government.
As previously reported by Confectionery Production, the situation is already impacting on many sectors, including within confectionery, as manufacturers of all sizes face potential additional rules of origin barriers – as seen with Marks & Spencer. Its famed Percy Pig sweets are made in Germany, but on arrival into the UK, and forwarding on to Ireland, it is technically exporting again, making it in theory liable for export duty, which has yet to be fully tested by customs officials.
Elsewhere, British confectionery firms sourcing ingredients from the EU have been among those many companies that have had issues with regards to freight problems – with anecdotal evidence of businesses facing delays totalling weeks, amid reports of some continental haulage firms unwilling to take on jobs to the UK with the additional paperwork now required.
Speaking to Confectionery Production for our present edition of the magazine, James Cadbury, founder of Love Cocoa confectionery business, expressed concern with logistics issues at the UK’s ports, which he confirmed had proved challenging for his business, yet he remained optimistic that conditions would eventually improve.
According to the latest Manufacturing Barometer study, which had 284 national respondents, availability of raw materials is an issue for 56% of firms, with a similar figure of 54% cited complications with exporting and 56% importing (lorries stacking up trying to reach the UK at Calais below), after December 31st.
Among those experiencing difficulties has been Nim’s Fruit Crisps, which employs 19 people at its production facility in Kent. The company, which also deliver infusions and edible teas, is stocked in Morrisons, Tesco and Waitrose.
“We have stopped exporting for this month at least and stopped importing directly from the EU. Instead, we are using other fruit importers/distributors to bring them into the UK and we then buy from them,” explained Nimisha Raja, founder of Nim’s Fruit Crisps, the UK’s only air-dried fruit crisp manufacturer.
“This is an added cost to us, but we are already playing catch up from the end of last year in terms of building up essential stock. Because we buy fresh produce, we are so very heavily reliant on seasons and are currently desperately trying to fit in production of several products.
“One example is that we have ordered 47,520 kakis to make into crisps and infusions. We don’t actually need the finished product until June, but the season ends in 2 weeks, so we will need to get these in and processed in the next 2 weeks. We also need to fit in processing of about 60,000 blood oranges before the season ends in the next 2-3 weeks. In order to cope with production demand, we have extended our daily shift by 4 hours and put on 2 weekend shifts so we can get everything processed. The only reason we are under all this pressure is because we had delays on the 40,000 lemons before Christmas.
“With all this going on, the last thing I need is to be dealing with customs, documentation, negotiating HMRC website and playing the game of risk with goods being held up at ports.”
Commenting on the situation, Nick Golding, Managing Director of SWMAS (South West Manufacturing Advisory Service), noted: “SME manufacturers have had to deal with unprecedented levels of change over the past 12 months and it is encouraging to see some green shoots of how the sector has adapted throughout this difficult time.
“However, despite signs of an initial recovery, firms have a new set of issues to contend with now the Brexit deal is done. Price hikes in the supply chain have been immediate, and we are hearing tales of lead times being extended on raw materials.
“Almost two thirds of respondents aren’t convinced that the Brexit guidance they have already received from the government is adequate and SMEs are asking for more clarity on key issues, such as logistics or freight forwarding (54%), sourcing components/services overseas (51%) and product markings (50%), including a CE replacement. These challenges need to be addressed and quickly.”
Despite such concerns from businesses, the manufacturing barometer revealed some tentative signs for an improving picture, with
just over a fifth feel there are reshoring opportunities (returning work back to the UK), with 31% of SME manufacturers increasing sales over past six months and 44% expecting further growth between now and August.
“Nearly a third of firms are planning to take on staff going forward, whilst 39% are planning to spend more on new machinery and capacity as they look to replace sales volumes lost in previous months,” added Martin Coats, Managing Director of MGP (the Manufacturing Growth programme).
“Many were unable to continue production during the first lockdown and, therefore, put contingency plans in place to help them operate safely going forward.”
As the study concluded, despite the ongoing challenges of COVID-19 and Brexit, there are some signs of optimism from businesses across the SME manufacturing sector. A number of respondents have reported steady trade since July 2020, and predictions for the future also appear to be improving slowly each quarter.
Furthermore, a total of 44% of firms expect sales to grow over the next six months in comparison to 29% who forecast a drop over the same period. This indicates that, for some manufacturing businesses, confidence levels are starting to stabilise, though there are still considerable issues to work through.