The business of Brexit

If shock was the first reaction to the ‘leave’ result of the UK’s June 23 referendum on whether to stay in the European Union and a plummeting pound was the second, what comes next and what will be the impact on the ports and logistics sector, in the UK and across Europe?

Early in July, James Cooper, chief executive of Associated British Ports and chairman of the UK Major Ports Group, urged the UK Government to be ‘bold, ambitious and visionary’ in its response to Brexit – Britain’s exit from the EU – and said the UK’s maritime industry was “ready to support Britain’s transition and capitalise on the opportunities Brexit presents”.

Yes, he said, investment decisions would be “paused while people get their bearings”, and some might end up being cancelled. Indeed, an early victim appears to be the four-floor super distribution centre planned at Felixstowe by Uniserve, which has put the development on hold for up to two years, blaming escalating construction costs and the Brexit vote.

If there is a real or perceived positive for the UK ports sector, it is the hope that it can finally shrug off the controversial Port Services Regulation – this, said Mr Cooper, would be “a key test of the Government’s Brexit negotiations”.

Brexit raises some formidable challenges for the UK Government, according to Rodney Lunn, chairman of the British Ports Association. Ports are going to play a key role, whatever the outcome, he said: “It is they who are at the sharp end, the locations where border controls for freight and passengers are carried out.”

He referred to the chaos caused at the UK port of Dover in July, when vehicles queued for up to 14 hours because of extra French security checks. “Anyone who has witnessed the disruption recently to cross-Channel services as a result of border control issues will see how important facilitating the movement of people and freight is, and how interruption and delay can have major implications for us as a leading trading nation,” he said.

He urged the Government to ensure “as far as possible” that Brexit would not result in extra red tape and bureaucracy at borders.

Cross continental

And this is far from a merely ‘British’ issue. Mark Dijk, EU and Germany programme manager at the Port of Rotterdam, considered the consequences of Brexit for Europe’s largest port in a recent article. More than 11% of Rotterdam’s total imports and exports, some 54m tonnes, are shipped between the British Isles and Rotterdam every year, he said, and as part of the EU’s internal market, Rotterdam benefits from trading with the world’s fifth largest economy.

In terms of European legislation and regulations, the UK’s membership of the EU is also an advantage for the port, he said. The question remained, how severe would the consequences be for Rotterdam if the UK did leave. But: “It is unimaginable that the UK – a service economy that is home to some 60m consumers – would suddenly no longer require products from abroad.”

Many people take the prosperity brought by the European internal market as a given and they have developed the idea that global economic developments can be handled more effectively by countries on their own rather than in partnership with each other, he warned.

Nick Lowe, UK managing director for Dachser, agrees: “We are the fifth or sixth largest economy in the world because of the EU, not in spite of it. Trade within the EU has been made much easier in the last few years,” he says. “We have had 40 years of cross-border co-operation and investment – it is impossible to unpick all of that.”

Seamless borders and swift supply chains are crucial for Dachser, particularly as it moves large amounts of groupage by trailer between the UK and Europe. “The whole groupage service offering is predicated on the fact that there is borderless transport within the EU and you can define transit times just like domestic business,” he says. “The big elephant in the room is customs clearance – would we have to fill out Customs forms for every shipment?”

If the groupage model of being able to ship one pallet at a time becomes more difficult, with less reliable transit times, then Dachser would expect more UK exporters to keep more stock for Europe in Europe. “On the UK import side, the same thing will work in reverse; companies that currently send all their pan-European distribution, including the UK, from one or two stock holdings in the Netherlands or Germany might look to hold more stock in the UK, which would give more opportunity for contract logistics, warehousing and organised distribution throughout the UK from central points. We expect some companies will want to talk to us in due course about increasing stock holdings here,” says Mr Lowe.

The ‘positive’ from his point of view is being part of a big organisation; Dachser employs 360 people in the UK but 27,500 across its European and global network. “Our UK business has so far mainly focused on Europe but we are growing our ocean and air freight business and our strategy is that we can also accelerate that development.

“We think our diverse business model is an important strength – and we will be ready to adapt quickly to what’s needed.”

Lack of upside

Business is booming right now – but that’s no reason to be cheerful, says Peter Aarosin, managing director of Danbrit Shipping and chief executive of the RMS Group, both on the Humber.

“Overall, the problem is that no one knows what is going to happen – it is all speculation. What is going to happen with Customs clearance, what trade agreements will there be?” he says. “Nobody wants to negotiate a trade agreement with the UK until the UK has given notice of Brexit. The EU has 95 bilateral trade agreements with the world and they have all taken between three and seven years to negotiate. How can anybody expect that the UK is just going to sort it – one, two, three? People seem to think that everyone will want to make trade agreements, but this could be a show stopper.”

Mr Aarosin, who is Danish by birth but has lived and worked in the UK for more than three decades, warns: “At the moment, exports are booming because of the low pound and that is giving people a false sense of security. As shops in the UK come to the end of their stock which was imported at the old prices, consumers will find that 75% of goods will cost 10%-20% more than before Brexit.”

On the positive side, he says: “We really have to push UK exports. That is what we can actually do. We are seeing industries that haven’t done very well in previous years suddenly starting to do very well in terms of exports. We have to do as much as we can between now and Article 50, if it is ever invoked.”

FACING A BUREAUCRATIC NIGHTMARE

Could Brexit deliver a bureaucratic nightmare for UK imports and exports? It was only in May that the new Union Customs Code (UCC) entered into force. The UCC is designed to simplify and modernise Customs procedures, says Customs and freight security consultant Miles Vartan.

If there was a wholesale stripping out all of the harmonised EU systems and regulations, that would inevitably lead to major new costs and delays in the supply chain, with those costs necessarily passed on to consumers – but Mr Vartan doesn’t believe that will happen.

For a start, he says, HM Revenue & Customs and Border Force would be stretched to find the resources to check every item that crosses the 11,000 miles-plus of UK border, and the UK Government may not have the money to employ huge numbers of extra Border Force staff.

“But in any case, there is no reason why the UK could not continue to operate within a European Union Customs Code,” he says. “The UK needs to remain competitive and the remaining countries within the EU need the UK as a purchaser of their goods.”

Mr Vartan, who guides companies through the Authorised Economic Operator certification process, says AEO status – which is a World Customs Organization creation – will become more desirable as an internationally recognised tool to smooth the flow of cargo, whether to and from Europe or in trade with the US.

“We believe HMRC will encourage people to go for AEO, which provides companies with a ‘trusted trader’ status so that the UK’s regulatory policing authorities can concentrate on the criminal elements, unpaid duty, contraband, drugs, etc.”

He also raises issues such as the negotiated preferential rates of duty charged on various items imported from outside the EU for use by manufacturers in the EU. “If we come out of the EU, would UK manufacturers run the risk of missing out on competitively better value raw materials? Might they relocate?

“Think of the logistics projects supported by the European Regional Development Fund and other European funding. Think, for example, of the work that the Suffolk Chamber has done to bring together the British Chamber of Commerce in Belgium with British shippers. If we take a pair of scissors and cut off all the relationships, then both sides would be disadvantaged.”