If the start of America’s war for independence in 1775 was “the shot heard round the world,” the results of the 2016 Brexit referendum in the United Kingdom might be called the vote that shocked the world’s boardrooms.
Ever since voters in the U.K. chose to leave the European Union, executives at U.S. firms doing business there – and by extension the EU – have waited on a final date for dissolution of a 46-year-old partnership that provided an orderly and many times profitable framework for free trade on the continent.
Will the U.K. opt for a “no-deal” Brexit? Will future cross-border regulations and taxes post-departure help or hurt U.S.-based companies with operations in Britain and customers on the continent? Will Brexit lead to lost business?
One Upstate company hasn’t waited for Europe to provide answers.
“The customer impact was really the top priority,” said Brianna Woodsby, director of international trade at Duncan-based AFL, a more than $1 billion fiber-optic cable and accessories manufacturer and servicer with offices in the U.K. and clients across the EU and other parts of the globe. AFL is a subsidiary of Japan-based Fujikura Ltd.
“And that’s ultimately what was driving a lot of the chaos … How can we minimize the impact to our customers so that they’re not coming to us saying, ‘We’re concerned about Brexit. You’re in the U.K. We’re going to find another supply to mitigate our supply chain risks,’” Woodsby told a recent forum on Brexit held by Upstate SC Alliance.
AFL has two U.K. divisions, one for fiber-optic cable manufacturing that exports its product around the world; the other, for fiber-optic accessories used mostly in data centers and for other indoor purposes, with buyers across the EU.
In Britain, the accessories division engages in “quick turn” manufacturing, importing reels of cable from North America or Asia, cutting and connecting it to customer specifications, and then shipping the product across the English Channel to buyers in 27 countries. It also engages in imports of fiber accessories and related equipment.
Under Brexit, those quick-turn products – delivered to smaller businesses in the EU who buy smaller quantities, with duties already paid in Britain – would now be subject to a set of yet-unknown charges and regulations when Brexit kicks in.
“Now we’re talking about all of these 70 shipments a day … they have been imported, they’ll be exported, and they’ll have to be imported again” to the EU under a still-uncertain framework of duties, Woodsby said in explaining AFL’s decision-making process regarding Brexit. “This customer, the customer base that we have, when they come to us, they’re expecting a fully landed price … so there’s not as much incentive for them to come to us; they could just as easily go to another EU company,” she acknowledged.
As management at AFL’s U.K. operations conferred with company officials in Duncan during prolonged uncertainty, talks focused on the importance of being as geographically close to EU customers as possible while trying to reduce costs.
Ultimately, AFL’s working group estimated that import-export and logistical costs post-Brexit could amount to $1 million to $1.5 million annually, not including costs related to additional lead times. “And then there’s some unknown of what tariffs would be applicable to those items,” Woodsby added.
Given those facts, the decision was made to create a new warehouse on the continent to serve EU customers.
Located in the Netherlands, the new warehouse has been live since March, with accessory products completed in the U.K. moving mostly by ferry to the port of Rotterdam. Goods sourced outside the U.K. and headed for the EU go directly to the new warehouse, which is being managed by a third-party logistics firm.
Sales, marketing, customer service, and engineering staff will stay put in the U.K. while accessory products will now be held at and shipped to customers from a new warehouse that is closer to them.
“So as far as they can tell, there would be no impact to their lead times, they wouldn’t be expected to handle any customs clearance … and we were able to ship the good with the same speed that we were before,” Woodsby explained.
In addition, AFL is now enjoying enhanced cash flow by using a Dutch value-added tax (VAT) deferment when importing goods into the Netherlands “and that’s probably one of the biggest incentives,” she added. While AFL considered locating its new warehouse in Germany, with its air freight hubs, and France, with its strong business volume, the Netherlands won out with its combined tax and logistical advantages, she added.
Woodsby, a licensed customs broker who is responsible for export controls, import customs compliance, supply-chain movement and trade-related risk mitigation at AFL, joined the company in 2007.
As the long-running Brexit saga nears a conclusion, AFL and other companies may benefit from even closer economic ties between the U.S. and the U.K., said Jason Jones, an associate professor of economics at Furman University, who also spoke at Upstate SC Alliance’s forum.
Already, the United Kingdom is South Carolina’s fifth-largest export partner, with $2.4 billion in goods leaving The Palmetto State in 2018, including automobiles, aircraft, automatic data processing machines, paper and paperboard, and plastics.
“There’s actually opportunities that are opening up for the United States when trade deals fall,” Jones told the forum.
“So let’s say worst-case scenario, they crash out and the EU and the U.K. move to World Trade Organization standards for tariffs. That means tariffs will rise between those two countries.
“That opens up an opportunity for a U.S. firm that wasn’t competitive, say in intermediate-good trade or final-good trade because of the preferred trade status between a U.K. and a EU country … and so that’s a real possibility for U.S. firms to take advantage of in the mess that may come afterwards,” Jones said.