When the result of the EU referendum was announced at 4.39am on 23rd June 2016, the price of bike parts probably wasn’t the first thing on your mind. As we reach the most crucial part of the Brexit process so far, let’s first look at what has already come to pass for the world of cycling, and what the implications of Boris Johnson’s No Deal Brexit strategy could be.
The currency conondrum
‘There weren’t any immediate consequences,’ says Dominic Langan, CEO of Madison, the UK’s largest distributor and importer of cycling products.
True enough, prices stayed largely the same and retailers are trading just as before. But what we in the consumer world are blissfully unaware of is the intricate nature of how currency works in the bike industry, and how it has led to prices creeping up over the past year.
‘The main issue is that the entire industry pretty much buys everything in US dollars,’ Langan says. The reason for this is a little complicated, but it revolves around Taiwan and the Far East being the centre of global bicycle production.
‘Almost all high-performance bikes are made in factories in the Far East,’ says Cam Whiting, an industry veteran and commentator who runs market intelligence site CyclingiQ.com.
‘When you buy from a European brand such as Scott or Cannondale Europe, they’ll generally buy in US dollars from Taiwan or China.’
The dollar is king even with wholly EU-based brands, but the dollars that the industry was buying stock with immediately after the Brexit vote are not the same dollars against which the pound crashed as the drama around the vote unfolded.
Whiting says, ‘Cycling companies will usually buy currency using something called hedging. You’re basically locking in an exchange rate for a certain period of time, which gives you some security in what you’ll be paying over the term you’ll be paying for.’
As a result, much of the stock of bikes and parts bought since the Brexit vote was bought using dollars purchased before the referendum took place.
When companies had spent all of their dollars, so to speak, those companies then had to buy more at a higher rate, which saw prices edge up over the last 18 months.
‘Basically the customer is going to see changes on pricing and obviously, it’s going the wrong way,’ says James Backhouse, marketing director at Evans Cycles.
The extra cost to distributors will in most cases continue to be passed on to retailers and consumers, which can only mean a steady increase in prices. But what does the more pressing prospect of a no deal Brexit mean for cycling in the long term?
Building barriers
In theory, the EU is a trade bloc at heart, geared towards removing trade barriers, customs duties and general import taxes between states.
For cycling that’s hugely beneficial as stock and components can move freely from one country to another.
If the Withdrawal Agreement drafted by Theresa May was ever passed in Parliament, we would see little change to that pattern of trade, and the only significant effects to the market would be the result of further change to the value of the pound.
Outside of the customs union, however, a brand running out of a certain type of shoes, tyres or wheels in the UK won’t be able to react with the same fluidity to meet demand.
Even test bikes for Cyclist will require complex temporary export permits to avoid hefty customs charges, as bikes from the USA or Switzerland currently require.
Stepping back, though, it’s worth noting that the cycling industry hasn’t always taken advantage of the greatest opportunities of a free trading bloc. It has often operated as if these free trade opportunities were not in place.
‘Clearly a single market makes life easier, but my hunch is not much will change,’ Langan says. The structure of the UK cycling market is that importers, or distributors, bring in products from overseas and sell them in the UK.
The EU means it is much easier for a European company to sell directly to UK consumers, which is a key factor in the success of direct-to-market brands such as Canyon.
Despite this opportunity, however, many brands have stuck to the more traditional model of using UK distributors.
‘I think it’s fair of us to ask – why aren’t more European brands selling in the UK directly?’ says Whiting. The extra links in the supply chain from the EU has left open goals for some opportunists – most obviously online retailers such as Wiggle.
‘Wiggle can buy grey market stock from a factory that has surplus or approach a brand and offer to sell directly into their UK distributors’ territory,’ Whiting explains.
‘And in desperate times people have elected to take that option.’
It seems the days of Wiggle and Chain Reaction’s pricing dominance could be limited outside of the EU, but it could be some time before we see how Brexit will affect the future of e-commerce sites.
One conseuqence of leaving the customs union is that giants such as Wiggle CRC also often keep stock delivered to the UK overseas for cost-efficiency.
Should Britain fall into recession, one comforting reminder is the success of the UK bike industry the last time the economy went into decline.
‘We performed well during the 2008 recession,’ says Evans’ Backhouse. ‘There could be a number of theories behind that but generally cycling is a fairly recession-proof industry because cycling is a very cost effective means of transport and leisure.’
And there’s something else. Amid the risks and complications, Brexit does present some great opportunities.
It’s a free country
There was a lot of talk during the run-up to the Brexit vote about the prospect of trade deals with countries such as China. For the world of cycling products, such deals could have significant consequences.
That’s all because of the intricate world of anti-dumping duties, which the prospect of a no deal departure could change substantially.
‘The Chinese anti-dumping duty is basically a protective measure by the EU to prevent China, where the bicycle industry is assisted by the state, from making really cheap cycling products and dumping them in other countries,’ says Whiting.
‘So the EU put in place a 48.5% tariff on Chinese bicycle imports as a punitive measure.’
As a result of that duty, few brands are able to manufacture bikes entirely in China, which could otherwise offer much cheaper bikes to UK consumers.
Whether the UK would still wish to (or even be able to) implement this anti-dumping duty if it resorted to WTO rules is unclear.
The WTO has more stringent criteria for applying anti-dumping measures than the EU. Of couse that could spell problems if China were to engage in damaging dumping practices – loading the UK market with such cheap bikes that UK industry is completely eroded.
But for now, we’ll focus on whether this could have beneficial effect of reducing prices.
While anti-dumping measures should increase the price of Chinese bikes sold in the UK, it’s worth noting that most brands have already devised methods of limiting the effects of anti-dumping tarrifs under current trading patterns.
For instance, even recent Chinese crowd-funded start-up SpeedX established a German facility to assemble its bikes to bypass the enormous tax.
Despite that, some still believe that the duty does little for the UK economy.
‘Many of the duties we have to pay on products coming into the UK are there to protect manufacturing in Europe,’ argues Langan.
‘It certainly helps Germany, France and some of the eastern European countries. As we don’t have a great deal of manufacturing in the UK within the bicycle industry, and we now import most of our bikes subject to those duties, it isn’t such an advantage to us.
‘Trade deals could result in duties being reduced or removed and this would allow us to lower pricing to benefit the consumer.’
These duties have also influenced the geography of the bike industry itself. The prospect of anti-dumping duty has kept much of the higher end of the industry in Taiwan, but China is a giant of production.
Whiting suggests China could be eager to steal more of the share of the global bike-building business if the UK were suddenly able to import Chinese products more freely: ‘I tend to think whenever there’s an opportunity for a business to make more money, Chinese firms will do whatever it takes to increase their profits.’
There’s a chance, then, that a total departure from the EU could affect the balance of the global industry.
The stage is no longer set
Perhaps the last worry for the UK cyclist is the professional sport of cycling. Should customs charges and visas come into the equation, suddenly hosting a stage of the Tour de France or Giro d’Italia in the UK could become a costly and burdensome prospect.
‘Would that be as appealing if you could no longer freely move goods and transport people between economies?’ Whiting asks.
Indeed, before the extension of Article 50, the UCI has already highlighted some potential issues with the World Championships in 2019 in Yorkshire.
‘It’s going to be a lot more complicated in the future,’ Whiting adds.
At present we can only speculate on what will happen, but a Brexit which sees the UK leave current customs and trade arrangements will impact the bike market heavily, not only on prices but on which brands are most readily available and on the nations that make up the industry. Will that be for better or worse?
‘I’m confident that in the long run it will all be OK,’ Langan thinks.
It can’t hurt to be optimistic.