Today we begin the first in a series of interview with the bosses of distribution businesses operating in the UK cycle market. With the forecast of a ‘No Deal’ Brexit growing, we hear the implications from those on the front line of importing.
Interview with Col Williams, CEO at Fli Distribution
- Should ‘no deal’ materialise, what will be the consequence for most distributors importing from Europe?
Its not a unique position I’m sure, but we here at FLi work as both distributors and agents for brands from Europe. The consequences for both business models are similar, essentially more costs, more barriers, and a more competitive, challenging market place in the UK.
The Agency model will see the biggest impact. Brands who work with this model ship directly from mainland Europe to UK bike shops and pay their UK agents commission on the sales. Currently these sales take place as simply as sales within the UK.
In the event of “no deal” the UK becomes a third country, and with that change comes a host of border issues, tariffs etc. along with issues with the legislation that effects our industry. Essentially all the bike shops that currently buy brands in this manner (and there are lots of brands that work this way) will move from simply being a customer, to being the importer. So, if nothing else changes, those bikes shops will have to deal with all the admin that comes with moving product across a border under WTO rules, which means payment of tariffs and admin fees before the goods can be released.
Our assessment is that most shops won’t be able to cope with this change, the costs and the delays they will face. Ultimately, we are not sure the agency business model will be able to survive; changes will have to be made. All changes add costs into the supply chain that aren’t currently there.
An additional cost is that we (as agents) expect to have to deal with is to do with the movement of currency. Currently agents can invoice the brands in Europe for our commission. This movement of currency is currently easy because we’re all in the single market. In the event of no deal, it won’t be so easy. The brand will have to move its income from all sales out of the UK, both of these movements of cash will become more expensive, and those costs have to be passed up the supply chain.
The distribution model will see increased delays and costs. The model itself will still work, it just won’t be as easy to move stock across the border and each movement will take longer and cost more.
- Have businesses that you are linked with taken any steps to hedge against such an outcome both for yours and your customer’s benefit?
This has been the biggest shock to us; most of the shops we know (some of whom are our customers) don’t seem to have realised that they will become the importer for the brands they buy via agents and the costs and responsibilities that are associated with this new role.
On the other side of our supply chain, the brands we work with in the EU (Italian, Austrian and German) all, without hesitation, don’t understand why the UK is doing this. As such they don’t honestly have to do much to prepare. They also all seem to appreciate the UK really doesn’t have any other supply options; we love German e-Bikes, Italian road bikes and like EU build quality. If the price goes up by 20%, we’ll still buy the brands we love.
The only steps being taken are essentially trying help get as much stock into the UK prior to any deadline as possible, and then also crossing fingers and hoping it doesn’t happen.
- Temporarily we will see a 0% tariff on bike imports – cue mad scramble to buy before a hike, or is it not as simple as that?
Yes, whilst we’re in the EU, we benefit from two things: free movement of goods into the UK, from the EU and all the other countries the EU has agreement with. So lots of businesses including ours are planning to protect ourselves and our customers by stock piling. We’ve just moved to a new warehouse to help with this.
The other thing the UK currently benefits from is the protection of the EU’s anti dumping duties on the Chinese bikes. My understanding is that in the event of “no deal” the EU made bikes that are sold in the vast majority of IBDs will become more expensive because the WTO tariffs will be applied, along with all the administration costs of dealing with them. At the same time, the anti dumping duty will cease to be in place, so the UK bike industry could suddenly be flooded with cheap Chinese imports of bikes. This impact could be huge and dramatic.
- With the pound and USD’s value currently looking volatile what does this mean for forecasting and potentially stock levels down the line?
The lead times on most bike parts are so long that we’re protected from major spikes, which are the hardest to manage. However, we are seeing things being c20% more expensive than before the 2016 vote already, and this can’t be helping anyone in retail ( Editor’s note: it seemingly isn’t, adds the BRC).
There has been no corresponding rise in household income. Like everyone, we’re trying to minimise risk and overheads whilst also trying to we have enough stock to see us though any problem times.
- Financial implications aside, what else is there to consider when it comes to safety standards and regulations?
Everything we’ve done in the bike industry over the past 20+ years has been within the context of being part of the EU. There are many examples of things that need sorting out that don’t appear to have been considered.
EN 14766 for Mountain Bikes, for example, sets out the standards that we’ve all be working within, so what are we going to do after no deal brexit? Simply copy the EU standard, I suspect.
But then what? For every single product sold in the UK are we going to have to keep track of the changes the EU make, and mirror them so we’re not damaging our market, or indeed putting barriers in place for the companies that export from the UK to the EU? Look at the success of e-Bikes once the UK laws finally aligned with the EU standard. Is the UK really going to create its own standard? What brands are going to bother making something especially for our small market?
This series will run bi-weekly on CyclingIndustry.News for the foreseeable future. If you would like to have your say on what a no deal brexit means for your business we’re taking soundings from across the trade and from any level of the supply chain.