30 September 2020: As the Brexit transition period nears its end, manufacturers are working to get measures in place in preparation. Rittal UK’s finance and HR director explains some of the complications involved.

As the world's leading systems provider for power distribution, climate control and IT infrastructure, Rittal’s Brexit preparation is a puzzle that keeps shifting. The further they progress, the more knotty problems they unearth. One of the latest, explains the manufacturing company’s UK finance and HR director Martin Williams, is the problem with CE marking.

There will be a further year of using the European CE mark before manufacturers must switch to the new UKCA mark from 1 January 2022 (businesses have a one-year grace period to fully prepare). Rittal, like many manufacturers, has sites in various locations, with its head office in Germany, a manufacturing site in Plymouth and sales subsidiaries in Sheffield and the Republic of Ireland. That’s where the complications arise.

There are issues around printing, for one, and who owns the management of the marking system. Some of Rittal’s own-brand products are marked and quality controlled by the company’s German offices. After 1 January 2022, those products will need to be checked and marked twice, for both the UK and EU markets.

“Suddenly we, as a manufacturer in the UK, have to have a whole organisation in place underneath the central quality assurance process that we have to own,” Williams says. “We assure the quality, liaise with the government and do the quality control. But we also have to have the appropriate insurances in place under those requirements. It creates a whole governance structure within the organisation which is new to us.”

The Rittal UK team has estimated that about 1,200 products will need some degree of marking. Some might have to be dual marked; others might need a single UKCA mark. “You can see that there's quite a big level of added complexity just to assure compliance. That’s even if the standards remain the same.”

On top of that, Rittal UK’s subsidiary in Sheffield sells German Rittal imports to its industrial customers, so Rittal’s central German headquarters will also need to introduce UK standard assurance as well. There’s also the question of how the Northern Ireland market will work once the UKCA standard is introduced. 

“We believe that Northern Ireland will remain under the CE regime, which creates complications because they are technically part of the UK and therefore within our UK subsidiary,” says Williams. “Whether we actually have to start supplying them from our Republic of Ireland subsidiary, we don't know. This might form complications.”

Preparing for this change also requires some careful stock planning. The company needs to hold extra stock to mitigate any delays across the border, but any CE marked stock held after January 2022 will not be sellable. “There's a number of issues that come up for really just a little mark on a box.”

This CE mark issue is one tiny problem for manufacturers looking to prepare for the end of the Brexit transition period. Supply chains, for example, are highly integrated across borders. Many are used to working with suppliers outside of the EU, but the EU itself is, for many, the biggest import and export market. Rittal sells products from the UK internationally, but the volumes are small enough that the company could outsource that to freight forwarders and logistics companies. Those companies can’t deal with the sheer volume of transactions with the EU.

“Most manufacturing companies, including ourselves, are having to build up our own internal capabilities to deal with it,” Williams says. “That applies to a number of the areas that are being looked at within the Brexit planning process.”

While Rittal in Germany is taking a high-level, strategic approach to Brexit preparations, Rittal UK is taking a more project-based approach, currently working on a list of 31 actions, which is regularly reviewed. “Between that, we have weekly project meetings that cover import and export, systems requirements, changes in packaging, changes in materials, resourcing, etc.”

The company has recruited two permanent import/export managers. Packaging requirements are being handled in Germany. Internal processes are on hold until the business has more certainty as to what the UK-EU trading relationship will be post-transition period. “We are going through a feasibility study to see what the requirements actually are because it may be part of someone's job or it may be a whole job in its own right.” 

The company’s most immediate issues are import and export compliance, which has involved a lot of training, some recruitment and careful management of the stock profile, identifying alternative routes for shipments to address potential border delays. 

“We have upped our stock holdings to compensate for any delays across the border,” says Williams. “On this site, for example, if we shut down for an hour, it costs us thousands of pounds. So you don't want to stop your manufacturing or supply for any reason. There is a cost in terms of holding more stock in place but that gives you a bit more security.”

The other major cost is the import and export documentation, which can also be a bit of a minefield. Williams explains that they import goods from several suppliers across Europe which is then consolidated in a single shipment. However, as the goods have come from various suppliers at different locations, documentation will be needed for each one.

“We've had to put a different procurement route in place, where our German office does the procurement, consolidates them into one batch and sells them to us. Now, of course, to comply with transfer pricing rules etc, they have to charge us a fee for doing that, but it’s less than it would have been.”

It’s not all as gloomy as this seems, however. Rittal UK’s parent company has announced his intentions to continue investing in the UK. There are also potential opportunities, depending on what regulation is brought in after the transition period ends. 

“If the government does go down the free ports route and UK PLC becomes a trading hub for the world. If we can also put in other free trade agreements that weren’t possible under the EU. There could be the option to have a manufacturing site here in the UK with access to those free trade agreements for the group.”

At the end of the day, it depends on the direction the UK government decides to go in, and how the UK economy develops. “If the longer-term Brexit does turn out to be a boost for the UK economy, then we're, as a flexible manufacturing plant, well-positioned to take advantage of it.”

ICAEW has prepared a quick-start guide for businesses preparing for the end of the transition period. For more details click here.

Find a range of resources to help you prepare for future trade during the post-Brexit transition period on ICAEW’s Brexit Hub.

For finance professionals working in the manufacturing sector, join the ICAEW Manufacturing Community for free, for key information, technical expertise and networking opportunities.