Brexit deadline extension could cost firms big

The European Union has given the UK a bit of breathing room to continue negotiating over Brexit. For Britain’s lawmakers, that meant they could enjoy an Easter holiday but for firms it has paved the way for another six months of uncertainty, graft and – ultimately – expense.

Most large companies prepared for the worst, in some cases stockpiling food and medical supplies, in case of a no deal Brexit that would see the UK leave the bloc without negotiated terms for ongoing trade. As a result, the cost of renting cold storage units to house those supplies has soared.

Companies have borne the elevated storage cost and the upfront expense of buying the surplus stock because it was for a finite period. But last week’s extension means some of the perishable goods in cold stores around the UK could go to waste. Meanwhile, companies face the prospect of paying a further six-months’ worth of exorbitant rates to store another batch of contingency supplies – that they again will have to fund upfront – in case of a cliff-edge Brexit.

The higher costs will continue for an even longer time - and I don’t think that any of the politicians have taken into accoun

And all the while, in the background, lawyers and advisors have been pouring over the details of a deal proposed by British prime minister, Theresa May, which gave only scant suggestions of how international trade would be conducted after Brexit. However, after being repeatedly voted down by Parliament, all indications suggest that preparations made for May’s deal were also in vain.

Carl Leeman, the chief risk officer for logistics firm and port operator Katoen Natie, says the extension until 31 October is better than no deal at all. But he warns that it just increases the cost for firms and all the while, a no deal Brexit still remains on the table.

“So the costs will remain,” Leeman says. “The higher costs will continue for an even longer time - and I don’t think that any of the politicians have taken into account.” And firms can’t keep it up forever, he adds.

No room here

And those who were the best prepared, by building up significant stockpiles, are now stuck with the surplus stock for even longer - plus they are paying even more to store it, he says.

All the uncertainty over Brexit has led to speculation - and Leeman says that has only served to increase the cost for business.

“For example if you want to find space in a cooled - a temperature-controlled - warehouse, it’s virtually impossible because they’ve all been rented,” he explains.

“People are just speculating on the whole thing, so they’ve hired them because they say: ‘Well there will probably be shortages so we will at that time, at the times that we want, provide capacity’.”

Fortunately, for Leeman, his firm has a vast geographic spread and the UK is only a small part of that global network. But Brexit has seen Katoen Natie put at least one project on the back burner until the period of uncertainty passes.

Ready to rock and roll

Nevertheless, Leeman says the company has a customs department that is “ready to rock and roll”. However they can’t do anything until they know the rules that they’ll be working to enforce.

“If there’s a hard Brexit, that’s clear,” says Leeman. “Then the UK will just be treated as any other country that is not in EU.”

“But then you have the deal that they were going to make - when nobody knows what would come out of that deal,” he goes on. “That could be anything.”

Leeman says he has spoken to the group’s customs department to ensure that they can handle the extra paperwork that would inevitably be associated with a UK departure from the EU.

“They’re not afraid, they have additional capacity,” he says. “Their software could easily accommodate additional amounts of transit documents that would be issued or import-and-export documents.”

Nevertheless, Leeman says the financial impact on the group has been limited. “It’s just man hours,” he explains, referring to the cost of time spent by staff contacting suppliers to understand what components are manufactured in the UK, and therefore likely to impact the supply chain.

SMEs don’t have the financial strength. They sometimes are just focusing on one or two countries or markets, so for them, their life is really at stake

But Leeman is relatively relaxed. “We don’t see too much of an issue,” he says. Nevertheless, he warns: “But again, a lot will only be clear the day that decisions have been made.”

And it’s not all bad news for all firms in Leeman’s eyes. “Lawyers and the consultants, they’re dancing because they made a lot of money on the whole thing, so for them the year is exceptional.”

“I think they would wish for a Brexit every year,” he says before noting that small- and medium-sized companies are the real victims of the uncertainty over Brexit.

“For the large corporations, most of them have global activities and yes, they will feel it but it will not kill them.” The smaller firms are much more sensitive to shocks, he says.

“They don’t have the financial strength,” he explains. “They sometimes are just focusing on one or two countries or markets, so for them, their life is really at stake.”

“They will be the big victims and they are the guys who today have the big issues. But of course the politicians are only worried about themselves and their own career.”