International trade: manufacturers have the whole world in their hands

Posted on 16 Jan 2023 by Joe Bush

The tumultuous impact of the COVID-19 pandemic, Brexit and war in Ukraine has made international trade, and how it is conducted, ever-more crucial to the future of UK manufacturing. Here, The Manufacturer Editor Joe Bush speaks to Paul Brooks, UK Manufacturing Trade Lead at The Institute of Export & International Trade (IOE&IT).

As an island nation, how the UK interacts with the wider world has always been integral to its prosperity. However, as mentioned above, the last few years have thrown up some unique challenges that have disrupted the flow of international trade.

IOE Paul Brooks
The more a business can trade internationally in different markets, then the more sustainable, successful and resilient it will be in the long-term

As strong advocates of being a force for good, the IOE&IT helps empower organisations and individuals, equipping them with the expertise to trade effectively, sustainably and competitively on the world stage. The institute was founded as a charity in 1935 to enhance the UK’s export performance and professionalise those involved through training and education.

Its rapidly growing, 7,000-strong membership base (of which 53% are directly involved in the manufacturing sector), represents the complete supply chain, from the manufacturers of goods to the logistics firms tasked with their delivery. “We represent manufacturers of all sizes,” said Paul, “But typically, small and medium sized enterprises rely on our services more than bigger corporates.

“We offer support and consultancy services to our members based around the technical aspects of international trade. We help businesses to understand how they should be trading internationally, which incoterms (international commercial terms) they should be using, how they should navigate customs, dealing with problems at the border, and certificates of origin – all the technical aspects of either getting into a new market or helping to navigate the changes that are happening in many regions across the world.”

Challenges to exports and international trade

On the whole, international trade is now more difficult for manufacturers than ever before. Brexit has, of course, had various impacts and every international trading business has their own story to tell. “Generally, manufacturers have focused on the areas that they can influence and where they can make some progress,” Paul added. “And they’ve retrenched from the areas where it’s become more difficult, exacerbated by cost challenges, supply chain disruptions, etc.”

Indeed, the growth in IOE&IT membership is due in no small part to the increasing number of UK SMEs needing support to overcome these challenges.

They may well have been trading with a particular overseas business for a number of years without any problems; then overnight, issues were redefined and goalposts were moved.

“It’s been a hugely challenging time. However, it’s amazing how resilient UK manufacturers are; they’re resourceful and they always find a way. I’m actually surprised at how positive the current sentiment is from UK businesses and the wish to push trade boundaries – it gives me a lot of heart that the ambition and drive is still there to trade internationally, despite all the obstacles that have been put in the way.”

Regional nuances

There is no easy fix, or one-size-fits-all solution to the current challenges, as each trading corridor or sector changes depending on the type of goods or services being traded. In some cases UK manufacturers have found it far more challenging to export their goods into Europe than the Middle East, for example. And even in the US, where there are less cultural differences and no language barriers, companies have encountered issues with having local supply chains attested and approved.

“China is a market that’s commonly referenced as having become incredibly difficult to deal with over the last couple of years, starting when COVID struck,” Paul continued. “While other markets around the world have opened up post-pandemic, there doesn’t seem to have been any opening from that marketplace in particular. I’m increasingly seeing businesses looking elsewhere as that market is just proving too difficult to access in the short-term.”

The shifting landscape of international trade

Paul explained that some challenges, such as Brexit, are here to stay and manufacturers will have to adapt as a result. It is unlikely that a situation will arise where we will go back into the European Union and have a frictionless border. However, it is a state of affairs that businesses are getting used to and is now very much part of day-to-day business operations.

Furthermore, he is also seeing a number of businesses looking at new markets further afield, such as the Middle East. “Opportunities are opening up there,” he said, “and some of the more established, bigger markets that are closer to home are proving a little too challenging at the moment.”

The reshoring trend

For some engineering and manufacturing businesses, reshoring, onshoring or nearshoring are strategies that make sense, as they de-risk the supply chain and bring it more under control. However, Paul added that he would encourage businesses to look to internationalise as much as possible as there’s significant evidence that the more a business can trade internationally in different markets, then the more sustainable, successful and resilient it will be in the long-term.

Paul Brooks, UK Manufacturing Trade Lead at The Institute of Export and International Trade (IOE&IT)
Paul Brooks, UK Manufacturing Trade Lead at The Institute of Export and International Trade (IOE&IT)

He added: “We’ve seen a number of major issues over the last couple of years, the pandemic being the most obvious, but there’s also been a number of shocks in global markets, and there’s nothing to indicate that those shocks won’t continue at regular intervals over the coming years.

“We were probably treated to a period of relative stability for a number of years. The last three to five however, have taught us that if a business needs to be anything it needs to be resilient, sustainable and operating in as many markets as possible. We’ll probably go through these issues at various times and in various cycles so businesses will have to be able to ride out these problems.”

The role of digital

An incredibly poignant moment for international trade took place in October as the Electronic Trade Documents Bill began its journey through parliament.

International trade has traditionally been heavily paper-based and the documents concerned with bills of lading, commercial invoices and letters of credit are largely unchanged since the 1700s. “The whole gamut of international trade has to go through huge change,” Paul added. “It has to be brought into the modern era in the same way that manufacturing is doing with Industry 4.0; with the digitalisation of operations and utilising the Internet of Things.”

Over the next few years there will be huge changes. Overall, the World Bank estimates that the cost of international trade is around seven percent of the whole value of international trade. Therefore, if the cost of trade can be reduced by a relatively small percentage, it will still mean a huge impact.

The government has announced that it wants the UK to have a digital border for goods, services and individuals from 2025. That means that all trade will need to change, adapt and become digitalised over that timeframe. And that presents massive opportunities for improved productivity, reduced errors and rekeying, and to potentially increase security and decrease fraud, which will be welcomed by manufacturers with extended supply chains.

Paul continued: “All businesses, whatever they do today, won’t be doing the same thing in international trade in 12-18 months, so they will need to adapt and get on board with things like the single trade window which the government will be demonstrating over the next few months. This will be a precursor to the complete digitalisation of international trade.

“What I would say to manufacturers is that the digitalisation of their business is only part of the journey; and the international trade element is potentially going to have to play catch up with the digitalisation of their business. It’s important that the people within businesses that deal with international trade, stay informed, understand the changes that are happening and take advantage of them by becoming an early adopter and getting involved in digital trade scheme pilots; they will ultimately prove very beneficial to the business in the long-term.”

The IOE&IT is now working with manufacturers to do just that and take advantage of digital trade corridors and remove as much duplication and paperwork from the process as possible. However, this will need to occur within the constraints of where we are currently and will still have to rely on paper documents until the Electronic Trade Documents Bill is passed through parliament and enacted.

Common pitfalls of international trade

When businesses initially encounter a problem, Paul explained they often struggle and assume it’s unsolvable. However, because a business is experiencing something for the first time it doesn’t mean they are alone and other companies are not going through the same issues. “It’s amazing how common some of these problems are,” said Paul. “And if they reach out for help, there are solutions available and ways around a lot of the problems that they encounter.

“There’s a lot of help out there, so reach out, whether it be to the Institute of Export, the Department of International Trade or other organisations, trade bodies etc. We work together, and we’re interlinked in a number of areas. And we’re all driven by the common aim of helping businesses and wanting to see them succeed internationally.

“That would be my plea. Plan and do as much research as you can to understand the market you’re going into. Make sure there are good growth opportunities and talk to market and industry experts in that particular country; even if that means paying for some services, because it will be money well spent.”

The future of international trade

It is quite clear that there will be some short-term bumps in the road, but longer-term, Paul is optimistic and believes some great opportunities exist. New regions are opening up such as an eagerly anticipated free trade agreement with India which is a huge market.

It will, however, be vital for manufacturers to keep abreast of the changes that are coming; as well as India there will be numerous free trade agreements negotiated over the course of the next 12 months, which is a direct response to the departure from the European Union.

“There will be opportunities but it’s about finding the right niche for the business that you’re in,” Paul concluded. “Opportunities are there but are sometimes difficult to find. I’m confident that UK manufacturers will find them.”

UK trade goes digital

The Electronic Trade Documents Bill will change the game for cross border trade transactions and finally enable companies to remove archaic paper processes and scale technology solutions across global supply chains. The bill fits into the broader work that the UK is pioneering to encourage greater adoption through its FTA programme and is also a cornerstone to promoting a more sustainable trading system. A digitalised system will generate real-time, transparent data for decision makers.

At present, trade suffers from fragmented, unconnected systems and billions of paper documents which results in an overly complex system, unnecessary delays and high trade costs, especially for SMEs who feel the pain of inefficiency the most. This acts as an unnecessary barrier and disincentive for SMEs who are looking to trade overseas. A typical paper-based transaction can involve 27 documents and 35 government agencies causing a wait of up to three months and imposing a cost as much as £80,000 for those involved. Today, less than one percent of bills of lading are handled in digital form with 188 countries requiring all commercial trade documents to be on paper.

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