UK Brexit transition and uncertainty for the heating industryFebruary 2021

The UK is a significant heating market, the biggest in Europe as a continent – not just the European Union. Just under 50 percent of boilers and around two-thirds of heat pumps installed in the UK in 2020 were imported. It goes without saying that all players still plan to stay in the market. The one fear they would have is if it becomes more difficult as an international company to deal in the UK. However, whereas the Brexit transition may vary from company to company, international companies are all in the same boat, they are all affected in similar ways; some common challenges emerge.

Paperwork

There is additional paperwork in terms of customs declarations and waiting time at the border required for products to enter the UK, and heating manufacturers are expecting merchants – the dominant sales channel – to take the cost of this paperwork. But of course, merchants are not happy about this and do not want to incur additional staff and costs to deal with this. What may happen is that some product lines will become unavailable and some brands will lose share. The smaller boiler manufacturers will be more vulnerable to this, while the larger ones will be better prepared and able to take on the cost of additional paperwork.

Stock holding

Manufacturers trade using large hubs in the Netherlands, for example, which is no longer possible, with goods now coming directly from the manufacturing plants. Mostly we see larger stock holding, with significantly increased stock, sometimes amounting to several months of stock, to prepare for likely delivery delays or even shutdowns. However, existing distribution channels still apply. Boilers are by majority manufactured in the UK and heat pumps sales are still limited, so we see AC products as more affected, being difficult to stock effectively with their main components and configurations.

Transportation and delivery times

Transportation and delivery times are another issue. Movement of goods is the biggest problem. For example, major hauliers were found not be ready with the right paper from the beginning of the year. The firms that were ready were then inadvertently overwhelmed with deliveries, but things are already improving. Most companies have been trading in the UK for so long that unless their deliveries take weeks instead of days, it should not cause major issues. They would just need to get their partners in the sales channels to order the products slightly earlier than they would normally.

There is, of course, a benefit for companies that manufacture their products in the UK. Delivery will not be much of a problem for them, but then, their problem instead will instead be exporting.

Prices

Expectations from many manufacturers is that prices are likely to go up as a result of the added costs, but we have yet to see a major reaction in the UK market.

Tariffs

The level of prices hikes will depend on possible future tariffs and duties. The industry was concerned about tariffs of 3% to 4%, but this is no longer the case. What probably is still an issue is when smaller companies need to use external companies to deal with any tariffs.

Exchange rate risk

So far, the impact has been minimal, but it is still early days.

Certification

Certification is an issue, after the failure to sign the mutual recognition agreement as part of the Brexit deal, so that UK and EU standards would have been interchangeable. CE marking will no longer be relevant, being replaced in the UK by the UKCA mark which will not be recognised in the EU market. To allow businesses time to adjust to the new requirements there is a transition period until the end of 2021 – a rather short window – and importers of heating equipment must get CE marking from a UK approved body. In addition, products sold to Northern Ireland still need to have the CE marking. A new UK ErP label will need to be present to be accepted in the UK. For products manufactured in Europe and destined for the UK and Republic of Ireland, both the EU and UK labels must be present.

The main concern is whether the UK government will bring in different legislation to the basic principles of European legislation, which would mean the need to create UK-specific products.

Remapping the routes

Talking of Ireland, European manufacturers of boilers are seen now to export their boilers directly to Ireland from the EU. In addition, they may sell to Northern Ireland through the Republic of Ireland. This means a significant loss of turnover for their UK branch.

Overall

All the above are issues, from a practical point of view, that create additional problems for companies already burdened with the problems of recovering from the pandemic. The industry is trying to adjust to working around these issues and becoming more efficient at it and will soon get to grips with the exact needs of the carriers, the clients, and the customs. The biggest issue is making sure to offer the same level of service irrespective of terms imposed, and be very quick to act, to make sure to provide continuity of service. There are likely to be bumps along the road over the next couple of years while people get to grips with it.