A major trading company seeking a “Brexit-safe” solution; an automotive supplier concerned about financial complexity; a big FMCG player with questions about its logistics and supply chain.
These are among the corporate clients in close discussion with HSBC as they seek out post-Brexit opportunities and strive to mitigate any impacts of the UK’s withdrawal from the EU.
Chairing the webcast conversation, Andrew Betts, Regional Head of Global Trade & Receivables Finance, Europe, said clients were currently preoccupied with two main themes: digital disruption and regulatory changes, Brexit being one of the latter.
The forthcoming Brexit changes have triggered open and wide-ranging discussions between businesses and banks, according to Ian Tandy, Head of HSBC Global Trade & Receivables Finance, UK.
While much uncertainty remains, the potential transition period is widely seen as good news by businesses, he noted. They welcome the prospect of limited immediate impact for a period after March 2019.
However, Tandy urged corporates to make good use of that period: “It gives a little extra time for companies to prepare. The winners from Brexit will be those who plan most effectively.”
Braced for tariff changes
The panel emphasised that the importance of planning applies equally to EU-based as to UK-based corporates. Beatrice Collot, Head of HSBC Global Trade and Receivables Finance in France, said some France-based businesses were wrongly considering Brexit’s impact as falling purely on the UK.
This point was underlined by a recent report1 cited by Tandy, that calculates the costs of red tape if the UK is forced to fall back on World Trade Organisation rules after Brexit. This report predicts that this scenario would cost the UK economy £27bn, while its EU trading partners would lose £31bn.
Tandy pointed to the huge variations in tariffs that different sectors would be subject to: “A UK grocer importing vegetables from France would see the costs rise by 7.3%; UK fishing businesses exporting to Germany would see extra costs of 10.8%, affecting both partners,” he added.
Collot saw sectors responding in different ways. “In luxury goods, where margins are high, businesses are more able to increase prices to offset the cost of the customs tariff,” she said. “In the automotive industry and other sectors where margins are thinner, it’s more complex to absorb the additional cost.”
Facing up to complexity
Besides potential extra costs of border controls and warehousing, businesses are considering whether they need to source suppliers in new countries, or to seek business in new markets. Talent flow is a concern for some UK-based businesses, while licensing arrangements are an issue in sectors such as pharmaceuticals.
As part of their preparation, clients need to examine their entire supply chain with “intellectual curiosity”, Tandy said. He pointed to one major FMCG (Fast-moving consumer goods) business which had outsourced some elements of manufacturing. It is now working to track and understand every player involved, to ensure future compliance.
Alex Mutter, Head of HSBC Global Trade and Receivables Finance in Germany, said one automotive supplier with a huge European operation asked HSBC to help it reduce complexity, in readiness for any impact on areas such as foreign exchange and financing.
Another client, a major trader operating from the UK and Germany, was working to secure a “Brexit-safe” solution, Mutter said: “We have been able to help them achieve their objectives on balance sheet optimisation and risk mitigation as well as funding sources.”
Finance: the future is flexible
Clients will require flexible finance options in the post-Brexit era, the panel noted. Solutions will need to alleviate the impact of border controls on cost and working capital cycles, and to mitigate payment risk where businesses decide to seek out new markets beyond Europe, for example.
The panel’s trio of trade finance experts from across Europe underlined HSBC’s capabilities here, said Andrew Betts.
“With an established European network on both sides of the channel, and working with over 6,500 multinationals across Europe, we’re confident that we’re in a strong position to support customers regardless of the Brexit outcome,” he said.
Trade and technology
Brexit is far from the only issue on corporates’ agendas, Betts acknowledged, with regulatory changes and digital disruption also prominent. The webcast took place shortly after HSBC completed its first-ever distributed ledger trade transaction.
Collot, who leads a Paris-based innovation hub in trade finance, sees potential for big efficiency gains: “At present, financial and physical supply chains don’t talk to each other much. Convergence is an opportunity to gain full transparency and suppress the current inefficiencies of trade finance.
“It’s difficult to know where we will be in 10 or 15 years – but there’s a huge opportunity to change a paper-based business that has not evolved much in the past 30 years.”
1Oliver Wyman-Clifford Chance, The ‘red tape’ cost of Brexit