Blog: The weak pound - a mixed blessing for UK marine manufacturers
UK-based manufacturers of marine products have had a bumpy twelve months since the value of the pound tumbled as a result of the Brexit referendum. Many businesses, however, say they are reaping the benefits.
The pound has lost 14% of its value against the dollar and 13% against the Euro since the Brexit referendum on June 23 last year. Nevertheless, Julie Lightfoot, MD of South Shields-based Solar Solve, says the weak pound has generally been positive for her business, which manufactures and sells flame-retardant sun shades and blinds for ships, oil rigs and shore-side installations.
“We still quote in pounds, as well as in Euros and dollars, which has made our prices cheaper for international clients,” Julie told us. “Our sales to Europe have increased by around 50%.”
Previously, Solar Solve used to offer discounts to encourage customers to buy. “Now we don’t have to give as much of a discount to our customers because they feel like they’re getting a discount anyway!” Julie said.
Sales to the US have been boosted by the competitive price, according to Solar Solve. A UK-based maker of monitoring and testing solutions said the same thing but wished to remain anonymous, along with several other companies contacted by the UK Chamber.
A manufacturer of interior equipment for vessels said its year-end results in March were “comfortably our best-ever year, also with a sizeable amount [of sales] in Europe” – largely thanks to the weak pound.
Companies that price their commodity products in US dollars (USD) and Euros have been better able to compete in price-sensitive markets, but this effect is being offset by higher purchase prices for imports, according to a UK manufacturer of navigation equipment, which imports “quite a lot” of content.
This phenomenon is affecting both suppliers to the boating industry, as well as shipping. “UK exports have been good value for money over the past six to twelve months,” says Howard Pridding, the CEO of British Marine, “but our members have seen an increase in the price of imported elements and components, for example, Volvo Penta engines for power boats.” British Marine represents around 1,600 UK-based boat builders, manufacturers of equipment for small craft and other companies involved in all aspects of boating.
A UK maker of vessel steering and control systems said it hadn’t seen any increase in export sales but was seeing the costs of components and materials creeping up, particularly for electronic components manufactured in the Far East, which are priced in USD
Solar Solve, for its part, doesn’t import many components from overseas, so its manufacturing operations have been insulated somewhat from more costly imports. The company’s UK-based suppliers have, however, raised their prices by between 3% and 5%, Julie said. This has meant that even little things like stationery have become suddenly more expensive.
Solar Solve’s sales to UK-based customers have also taken a hit, which Julie puts down to “Brexit uncertainty”. Luckily, the company uses dollar and Euro currency accounts to offset any adverse effect on its balance sheet.
The weak pound is a longer-term symptom of just how much uncertainty Brexit has created in the UK’s business environment, which some businesses say is affecting long-term contracting.
“Currency exchange is working well and adds significantly to our profit ‘at present’,” a UK manufacturer of marine engineering products said. “However, fixed-term contracts are requesting price reviews, which will lower our margin.
“The Euro/pound rate needs to settle so we can fix prices without arguments on levels. We lost a long-term contract because of Brexit (pound-related as well) because they did not know where UK will be post-Brexit and also where the pound will settle long-term,” the engineering products firm continued.
Making and selling equipment is one thing, but then there’s the aftermarket to consider. “The contracts we have signed in recent months have all been in Euro, whereby most of the equipment supply has also been in Euro, so back-to-back impact is immaterial,” said a UK-based marine systems integrator, which supplies equipment that is manufactured in the company’s China facility. “However, overall for the aftermarket, we are experiencing some difficulties in purchasing for long-term supply contracts.”
There does seem to be a sense among marine manufacturers that the weakness of the pound will be short-lived and that a ‘real’ upturn will come when the currency market becomes less volatile.
“For the national interest rather than my company’s interest, I would merely add that the inflationary consequence of devaluation will also be adversely felt,” said an exec from a supplier of monitoring and testing equipment. “Longer term I would hope that the ‘real’ level of our future exchange level will be found to reflect genuine economic fundamentals over sentiment.”
The weak pound has encouraged many visitors from overseas to visit the UK while prices are comparatively low. UK boating companies have been feeling the benefits of increased spending from tourism, either directly or indirectly, according to Howard Pridding from British Marine.
This is especially true for London, which has been renowned for being one of the world’s most expensive cities. Companies such as Thames Clippers and City Cruises, which operate riverboat services for passengers on the Thames, are particularly feeling the benefit of increased tourism to London from visitors whose spending power has been boosted by the weak pound.
From a wider perspective, the most important ingredient to boosting the export of UK products and services is to keep innovating and investing in the products and services that the world wants, according to Maritime UK.
“We offer a unique complete package for maritime business. Part of that package is manufacturing and the UK is home to some of the world’s most exciting and cutting-edge marine manufacturers,” said Ben Murray, Maritime UK's manager.
“Industry is investing in research and development, to deliver competitive advantage for the UK, and boost the export of our products and services,” he continued.
“Next week is London Tech Week and we’ll be telling the story of innovative and dynamic technology within the UK maritime sector. This technology is world-leading, and includes everything from autonomous vessels, to yachts, to renewable energy within shipping.”