Small firms are being held back from international trade by excessive customs paperwork, soaring costs and supply chain issues, according to new research by the Federation of Small Businesses (FSB).
The Customs Clearance report, which looks at small businesses' experiences of exporting and importing, finds that nearly one in ten (9%) small firms who used to trade internationally have stopped doing so within the past five years, in a real challenge to the UK's growth plans. The volume of paperwork (56%), overall cost burden (49%) and supply chain and logistical issues (29%) are cited as key drivers.
Small firms who have continued to trade internationally have to battle against stiff headwinds, with six in ten (61%) identifying high shipping costs as the top challenge, followed by losses and delays in transit (56%) and lack of guidance on customs procedures (45%). More broadly, as a result of severe disruption to the global supply chain caused by the Russian invasion of Ukraine, an overwhelming majority (81%) of small firms have been affected by cost increases and shortages of goods that originate from outside the UK. Two-fifths (40%) of small international traders have been forced to absorb extra costs of supply chain disruption, in addition to other cost pressures such as soaring energy bills and a record-high inflation at home, while a clear majority (56%) have raised prices as a result. Unlike big corporates, most small firms don't have specialised in-house resources to deal with customs paperwork.
Only 9% say they have a dedicated employee or team. Seven in ten (71%) small traders use an intermediary for at least some of the process of handling customs declarations, while six in ten (61%) use a large fast parcel operator.
In terms of trading partners, Europe continues to be the top export and origin market by global region for small firms: 93% of small exporters and 87% of small importers move goods between the UK and other European countries. Ireland is where UK small exporters trade with the most, followed by Germany and France. When it comes to imports, Germany, the United States and China are the three most popular origin markets for UK small firms.
In light of the findings, FSB urges the Government to lower the overall costs of trade and deliver a small business-friendly customs declaration by: Delivering an effective and small business-friendly Single Trade Window, an online portal that will bring in a 'once and done' approach to Government collection of the data traders need to provide to export or import. Targeting further resources towards small businesses with high export potential. More detailed resources should be developed for businesses in sectors that say they find a lack of guidance particularly difficult.
Committing to passing and implementing the Electronic Trade Documents Bill. The Department for Business and Trade should raise awareness of and promote the advantages of digital trade documents via its new Help to Grow site. Adopting a 'think small first' approach to customs policy development. Policymakers must place small businesses at the heart of new trade and customs structures to avoid disproportionate cost or administrative burdens. This should include commitments to robust piloting and staggered implementation timelines. Government should also commit to raising the de minimis customs duty threshold to £1,000.
FSB Policy Chair Tina McKenzie said: "Small businesses are eager to grow their businesses overseas, but our findings show there are undeniable tariff and non-tariff barriers that prevent these firms from reaching their full potential and deter potential high-growth exporters.
"Our members consistently tell us the costs, time and administrative burden of trade are the reasons why they give up overseas markets. Complex customs procedures and high costs also put foreign consumers out of reach and create an uneven playing field for small firms. "But on the bright side, this means with the right structure in place and clear guidance on navigating the customs procedures, small businesses will thrive and flourish in the global market.
"The UK's new status as an independent trading nation gives policymakers a unique opportunity to build an effective and streamlined trade infrastructure from the ground up, with the need to place small business' interests at its heart.
"You can't grow the UK economy without growing international trade. And at a time when the domestic economy is in a slow-down, small firms should be looking to tap into countries that have much better growth rates. UK success overseas helps the economy here at home.
"The customs package as outlined in Spring Budget is welcomed as an important step towards simplifying small firms' interactions with the border. Our recommendations, adopted as a whole, will create a seamless road for under-resourced but ambitious small firms to trade beyond the UK."