Imports and exports: Supply chain disruptions for UK SMEs

In this series of articles, we aim to provide a brief overview of the UK economic outlook and the potential implications for small to medium owner-managed businesses. Utilising Business Insights and Conditions Survey (BICs) data from October 2022, we will be looking at a variety of topics across five weekly articles. Our first article looked at the impact of rising input costs for businesses on their prices to customers, and our second article provided an overview of the current challenges facing UK businesses.

In our third article, we will review the current supply chain issues faced by UK businesses whilst addressing the prevalent underlying import and export-specific problems.

Our fourth and final article will cover UK businesses’ future turnover expectations

Recent data suggests that the majority of UK businesses can access the supplies they need through domestic supply chains. However, a troubling picture is shown for the accessibility of global supply chains. Unfortunately, nearly half of responding businesses have reported a lack of accessibility to global supply chains, with close to a quarter of respondents reflecting uncertainty. This is a widespread issue for UK companies and has significant implications for turnover performance by hindering production capacity and straining production costs.

For businesses that rely on global supply chains, disruptions are being felt to a reasonable extent across all industries. Wholesale and retail trade, manufacturing, and accommodation and food have faced the greatest disruptions overall, which is unsurprising given the disruption and supply shortages experienced as a result of Russia’s war on Ukraine, global labour shortages, particularly among hauliers, and import duty changes into the UK following Brexit.

Interestingly we are witnessing some polarisation within these hard-hit industries. A significant portion of businesses in these sectors are not experiencing global supply chain disruptions. This may be the result of a greater reliance on global supply chains in some subsectors or divergence in supply models, e.g. some larger businesses may have their own distribution networks and overseas factories that are not as readily impacted by external factors.

Uncertainty surrounding global supply chain accessibility is present across UK industries, with significant variance in severity. However, of interest is also the proportion of UK businesses in each industry who are unsure as to their susceptibility to global supply chain disruptions. Perhaps suggesting that, for between 10-20% of UK businesses, supply or operational difficulties cannot be pinpointed to one particular cause. This is supported by the findings in our previous article that illustrated the multiple demands on business owners’ time that all require consideration and agility in order to succeed – and some are faring better than others are.

Below we will review the extent of supply chain disruptions by considering imports and exports in turn. We will discuss:

1. A review of current export and import activity;
2. UK trading activity with international markets;
3. Current export and import challenges; and,
4. The effectiveness of current UK support measures available to UK import and export businesses.

Export and import activity

The most recent data suggests that the impact of Brexit on UK businesses’ global trade and activities have not been as strong as originally anticipated. The latest BICs data finds that 91% of UK small businesses have not changed the markets that they export to. 88% of the same group have also not changed the markets that they import from. This is optimistic news for UK global trade statistics and relations.

However, while the markets that UK businesses are trading with have not changed, the level of trade has shifted in the last 12 months. A quarter of all businesses are reporting to be exporting (26%) and importing (25%) less than they were a year ago. While 42% of businesses are reporting to be exporting at the same level compared to last year, and 44% said the same was true for imports. What we can take from this is that global trading activities have not increased in the last 12 months for two thirds of all UK businesses that rely on imports and exports as part of their trading activity.

International Markets

34% of UK small businesses continue to export exclusively to EU countries; once again, illustrating that the impact of Brexit on UK to EU trade has not been dampened to the extent predicted. However, only 18% of UK businesses are exporting to territories outside of the EU, indicating that UK businesses’ ability or incentive to trade with non-EU countries still has some way to go. The trade deals with jurisdictions such as Japan, New Zealand and Australia agreed in 2021 have perhaps not yet trickled down to UK small business activity.

Export challenges

Recent figures suggest that the UK goods segment is currently facing greater export challenges relative to UK services, with almost two-thirds (65%) of businesses that export services reporting no increase in challenges in the last month. Comparatively, only one third of goods export businesses reported experiencing no challenges. For businesses exporting goods, the main increase in challenges stemmed from added paperwork, changes in exchange rates and changes in transport costs.

91% of goods businesses have reported some level of disruption in exports during this time, with a quarter of all goods businesses saying they have caused major disruptions. These challenges will come as no major surprise given the number of businesses exporting into the EU. However, what is encouraging is that only 11% of businesses exporting goods reported a reduction in demand for their goods and services; once again highlighting that Brexit has perhaps not impacted demand as drastically as previously predicted, even if the hurdles to trading are
higher.

For service businesses, there has not been as much of an increase in challenges faced in recent months. Most concerning, among the one third of businesses reporting challenges, is exchange rate changes which are likely to impact pricing and the value of services provided in certain jurisdictions. Despite the sentiment of the comparatively lessened challenge for services businesses, 84% of businesses exporting their services have experienced disruption in the same time frame. With 64% of those reporting moderate to major disruption.

Import challenges

The UK goods market has faced substantially greater import challenges both in quantity and severity relative to imported services across September 2022 relative to August 2022. The above data shows that, similarly to those businesses exporting goods, changes in transportation costs, exchange rate changes and added paperwork are presenting an increasing challenge for UK business imports.

Interestingly, despite these challenges, the importing of goods during this time has not been subject to the same severity of disruption as exporting has. While 88% of businesses importing goods have reported some disruption, major disruption is only experienced by 17% of this category (compared to 25% for exports), perhaps indicating that post-Brexit goods out of the UK are subject to the challenges highlighted, far greater than goods coming into the UK. Whilst perhaps good news for the UK’s ability to access the goods it needs for use domestically, for businesses reliant on export trade, there is increased risk to operational efficiencies and ongoing demand from overseas.

For service businesses, however, we are seeing a similar trend as for businesses exporting services. A staggering 81% of UK businesses importing services have reported no increase in challenges during September 2022 compared to the previous month. Exchange rate changes are the greatest cause of concern for any business importing services from overseas, and with the rising cost of labour both in the UK and overseas, this is unsurprising as access to specialist skills or ‘affordable’ labour is becoming more expensive. It is interesting that visas, work permits and recognition of qualifications does not feature as part of the import questionnaire, despite elevated requirements in the UK for specialist workers.

Despite fewer businesses reporting an increase in challenges, disruption was felt harder by UK businesses importing services than both goods imports and other service exports. 90% of businesses importing services reported disruption in the last month, with 44% saying they experienced major disruption.

Effectiveness of support options

In an attempt to counter the challenges faced by UK businesses when importing and exporting goods to and from the UK, a number of support options have been developed and made available to them. Such support options include legal support, export and import licenses, customs and tariffs, education measures and developing new alternative supply chains.

Despite the numerous options available, in October 2022, 33% of all UK import businesses and 64% of all export businesses reported that none of the support options available benefitted them and their operations. While numerous options are available, in a significant number of cases, these measures have not been good enough. This indicates that more needs to be done by the state to support UK international trade. Where value has been felt is in customs and tariffs, education, and transportation and distribution support. The value perceived in these options is unsurprising, given the challenges surrounding increased paperwork and transportation costs, so an opportunity exists to develop and improve these support options further.

Key findings

• 91% of small businesses in the UK that export goods or services and 88% of small businesses that import goods or services have not changed the markets that they export to;
• Two thirds of UK export businesses have not seen an increase in trade in the last 12 months, with 25% exporting less than a year ago;
• One third of UK exports still go to the EU only, and 40% of UK imports still come from the EU only;
• For businesses exporting goods, the main challenges in September 2022 were added paperwork, changes in exchange rates and changes in transport costs. 91% of goods businesses have reported some level of disruption in exports during this time, with a quarter of all goods businesses saying they have caused major disruptions.
• One third of service export businesses reported challenges. Exchange rate changes were the greatest challenge. Despite the sentiment of the comparatively lessened challenge for services businesses, 84% of businesses exporting their services have experienced disruption in the same time frame. With 64% of those reporting moderate to major disruption.
• Similarly to those businesses exporting goods, changes in transportation costs, exchange rate changes and added paperwork are presenting increasing challenges for UK business imports. However, major disruption was only experienced by 17% of this category.
• A staggering 81% of UK businesses importing services have reported no increase in challenges during September 2022 compared to the previous month. However, 90% of these businesses reported disruption in the last month, with 44% saying they experienced major disruption.
• The support options available to businesses involved in imports and exports as part of their trade are proving ineffective, indicating a need for improved and heightened support measures in order to combat the challenges and disruption felt.