How Brexit might affect the UK and Portugal

With Britain’s referendum on June 23 fast approaching, there are many opinions emerging supporting both sides of the debate. During recent years we have witnessed an incredible rise in the number of purchases via the internet and consequently a surge in parcel deliveries. According to research conducted by international shipping experts ParcelHero, a Brexit could have a tremendous impact on this kind of commerce between Britain and Portugal.

How Brexit might affect the UK and Portugal

With Britain’s referendum on whether to leave the EU rapidly approaching, it’s not just Brits who should be paying an interest. Research shows that a British exit (Brexit) could see a costly knock-on effect for many of Britain’s import and export partners, including Portugal.

Discussions around Brexit are reaching a fever pitch as we head ever closer to the referendum on June 23, and there are plenty of facts and figures being thrown around on both sides. International shipping experts ParcelHero have carried out their own research and published a comprehensive white paper showing the potential effects of a Brexit on importers and exporters across Europe. The results show that the outcome of the referendum could have some serious implications not only for Portuguese traders, but also consumers.

What is Brexit going to do to trade between the two countries?

The UK is one of the major export destinations for Portugal, with almost €3 billion worth of goods travelling to the United Kingdom every year. There are only a few countries that do more business with Portugal, so if the Brexit were to go ahead, the impact on this market could be huge.

It’s impossible to overstate the importance of EU to Portugal’s trade with the UK. The free movement of goods has allowed British companies to be competitive in the European market, and the cost of shipping in the EU is significantly lower than shipping to European countries that aren’t part of the Union, such as Switzerland or Iceland. Our research suggests that by leaving the EU, the cost of goods imported to the UK from Portugal could change by as much as 30%.

That price change comes from a variety of factors that include raised shipping costs, duties and taxes and handling costs.

This price change would make Portuguese goods less attractive to British consumers and reduce Portuguese manufacturers’ abilities to compete on price in the UK market.

We can already see from countries like Switzerland how the price of commercial goods is likely to change – a pair of Levi 501 jeans cost £25 more in Switzerland than in the UK. It’s also clear that small and medium sized businesses could be severely affected. One significant example of this is Amazon Germany’s marketplace – as much as 20% of the vendors on the site are based in the UK, as it allows them great profits. If Brexit were to occur, this would no longer be the case.

Our research also suggested that businesses were three times more likely to ship to countries within the EU than countries that aren’t part of the Union. It’s no great stretch to assume that this would be the case if the Brexit were to go ahead, so not only would goods become less readily available in the UK, Portuguese businesses would probably have to find new markets in which to sell their goods.

So what does Brexit mean for Portugal specifically?

As noted above, most Portuguese small to medium enterprises are likely to look elsewhere for their customers if Britain leaves the EU, but those who don’t will have all new challenges to deal with, among them paperwork, customs clearance and duties and taxes. Furthermore, the United Kingdom will no longer be a competitive target for the logistics industry, which is likely to mean that shipping costs will rise significantly.

Some of the main exports of Portugal include wine and port, both of which will likely continue to be sent to the UK. However, our research suggests that alcohol will be subject to higher duties and taxes than other commodities, which will further raise the costs for businesses hoping to sell in the UK, businesses could choose to eat these costs themselves, dramatically lowering profit margins, or pass them on to the consumer, reducing their competitiveness against other products.

And what does it mean for the UK in particular?

Should the UK decide to withdraw from the European Union, international delivery experts ParcelHero predict that not only will there be a typical rise of 30% in costs, but businesses will face masses of red tape – and that’s in the best case scenario, where the UK negotiates favourable trade agreements with key markets around the world.

According to our recent whitepaper, the average SME regular importer/exporter to the EU (excluding ‘one man bands’) will be spending around £163k extra annually, including duties and taxes, and a typical £150 purchase from the EU will now cost around £195, an increase of £45 or over 30%.

Shipping internationally would become significantly less convenient, as businesses would have to provide detailed customs information – every shipment coming into the UK would have to provide proof of origin, for example.

Another fallout from leaving the EU we expect to cause problems is the UK setting its own duties on over 19,000 individual tariff codes, which the European Union sets for all their members. If the UK cannot come to an agreement with the Union, these will all need to be set, which will likely lead to increased border delays and potentially higher taxes and duties.

In all, the UK will be separated from countries like Portugal by a lot more red tape, making it a much less attractive proposition for international businesses.

So what’s the bottom line?

There’s no arguing that a Brexit would damage the trade relations between the UK and the rest of Europe, and Portugal is no exception. Our data suggests that the UK’s departure from the EU would likely force many SMEs who trade in the country to find new markets for their goods or be forced to quite literally pay the price. Similarly, a Brexit would see the cost of importing in to Portugal from the UK increase, and as Britain is one of Portugal’s biggest importers, it could be the consumers who end up paying the price.

This article was written by Keegan Spindler, who is part of the consumer research team at Parcel Hero, and submitted by the British-Portuguese Chamber of Commerce.