Dividends and A year of Brexit brought UK companies higher costs and endless forms

In England, similar to every other country in the world, part of the economy is based on trade with other countries. For a long time, England had a number of colonies around the world within its orbit India, Australia and Canada were some of the biggest countries and British merchants had the ability to sell at preferred status. Eventually India had its independence and Australia and Canada lessened their dependence on England. England moved to the European Union and many British companies sold their goods throughout Europe. Then Brexit vote happened and England decided to drop out of the European Union for various reasons.

In an article by Eshe Nelson of The New York Times News Service, the question is how has the process been going. For it is one thing to say you want to drop out, it is another thing for reality to happen.

For the first months after Brexit, the system collapsed because no one knew what the rules were. Perishable goods got stuck at ports, retailers discovered their supply chains were obsolete and trucking companies stopped delivering to Ireland. It took a couple of months to become somewhat back to normal. But what remains is higher costs, time-consuming paperwork and countless lost opportunities.

An example is Netherton Foundry run by Neil Currie. Prior to Brexit he could sell his black iron pans and cookware from Shropshire, the birth place of the Industrial Revolution to customers in Berlin as easily as Birmingham which is located about a hour away. Post Brexit, every item leaving his shop needs a 4 page customs form which takes up to 20 minutes a shipment. In addition, every item is $15 higher in price to cover the additional administration of customs checks and taxes. Plus it will take longer to arrive at the independent shops in Europe. The shops are asking themselves it is worth it to stock Netherton Foundry’s products?

In the first 7 months of the new trade deal Britain’s exports fell by 14% and imports by 24%. The UK Trade Policy Observatory research group estimates that means $44 billion in lost trade.

For Netherton Foundry, one of their biggest customers in Germany does not want to deal with all the paperwork so their solution is for Netherton to send the products to a distributor in Belgium who then distributes to Germany.

Marks and Spencer, a large British retailer operated a chain of stores in France and decided to sell them because of supply chain complexities.

A company called Luceco which makes and imports lighting and wiring products from China and sells them to retail stores. Between $3 and $4 million in sales were stores in Ireland but tariffs have to be paid twice – when they enter Britain from China and leave for Ireland. (Ireland remain in the European Union). Similar to customers around the world, container prices have increased. Luceco used to spend $2 million on containers from China, that has increased to $16 million. Prices have increased.

2022 promises more custom checks from products brought into Britain.

Linking to dividend paying stocks, every company has to deal with supply chain operations. Where do the raw materials come from? where and how is the product manufactured? how is sold? Some products it is easier to cross borders such as software, but when a product has physical characteristics it is subjected to more restrictions because people can see it. We have seen supply chain problems happen because of the weather, COVID, and a host of other concerns. The issue is can the company retain sales and grow them as well as pass on costs to retain their margins? If the answer is no, then find alternatives and come back to the company in 6 months to evaluate how they are doing. Although it is ideal to buy and hold, love people not your stock holdings.

There are more questions than answers, till the next time – to raising questions.

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