HALF THE BATTLE

Port of Dover The British Ports Association hints at a ‘double whammy’ as a result of the impact of COVID-19 and Brexit. Photo: Port of Dover

The British Ports Association (BPA) considers the downstream impact of COVID-19 on trade flows and its member ports, and underlines the need for Government action

As we gradually move towards successive countries coming out the lockdown, it would be a sizable understatement to say that the Coronavirus pandemic will be an economic game-changer for everyone, with a major impact on trade and ports.

Given the losses of loved ones and jobs, it might seem inappropriate to be talking about the trade impacts of COVID-19, however it is very clear that the health challenges of this pandemic will only be half the battle.

The pace at which COVID-19 spread illustrates how disruptions can rapidly permeate global trade and consequently port traffic flows. The coronavirus pandemic cut global trade values by 3 per cent in the first quarter of this year, according to the latest UNCTAD data and the downturn is expected to accelerate in the second quarter, with global trade projected to record a quarter-on-quarter decline of 27 per cent. As a result, supply chains have been severely disrupted with havoc also reaped in maritime passenger markets.

While the shipping of food and critical supplies has been essential in the UK’s lockdown, this is not enough to sustain Europe’s second largest ports industry. The potential depth of a global recession in 2020 does not bode well on so many fronts, including for UK ports.

Since the last recession which stemmed from the financial crisis in 2008, the volume of trade in goods handled since 2007 has reduced by 17 per cent at the UK’s largest ports and by 24 per cent at smaller ports. In 2009 itself UK ports’ cargo declined by 10.7 per cent (in tonnes) and container traffic (in TEU) by 15.4 per cent.

However, global, regional and national trade flows via UK ports comprise a multitude of products from North Sea oil to organic chemicals, from iron ore to motor vehicles, from grain to whisky and from sand to cement.

The impact of COVID-19 in its most simple terms is the reduction of market demand across this wide range of commodities and their supply chains. Indeed, the Bank of England has warned of a significant recession and decline in the economic performance of the UK in 2020 and this is being replicated elsewhere.

EVOLVING STORY

The full story continues to evolve but for UK ports and terminals largely engaged in handling bulk raw materials including agri-bulks, iron ore, aggregates and crude oil, and also break bulks including steel products and paper reels, the picture will vary depending on the key market drivers.

For example, government policies to invest in major infrastructure construction projects and offshore renewable energy systems are potentially of major benefit for ports servicing these markets.

However, the picture for crude oil exports and refined oil products (which together account for nearly 40 per cent of all UK export tonnage) is more complex and further complicated by the recent substantial plunge in oil prices.

For imported industrial components and consumer products, their market demand drivers will determine short term trends - demand for paper and paper products which has been in long term decline (attributable to a switch away from printed to digital media) but temporarily, at least, improved because of the COVID-19 related demand for toilet paper and tissues.

However, waning consumer demand has been apparent across non-food retail sectors in 2020 and this has been reflected in even lower shipping volumes of containers from Asian to European ports, a trend that started in 2018.

Commentators point to the slow recovery rate in China as a potential indicator of the delay before retail and manufacturing markets re-establish their positions.

The UK automotive industry has been instrumental recently in developing international trade by optimising cross-border supply chains for components required for manufacture, but also for growing exports of manufactured cars as now 81 per cent of UK car output is exported.

However, as Coronavirus dampens global and UK demand, port traffic in trade cars has weakened even further (the volume of vehicle exports declined by 14.7 per cent in 2019).

NEW THINKING

Supply chain disruptions, such as Coronavirus, can drive new thinking about future supply chain designs. For example, lead times of 6/8 weeks on ocean shipping routes from Asia to UK require higher levels of UK inventory, higher working capital and greater physical warehouse space. This was evident during the Brexit deadline sagas in 2019.

For some products alternative solutions include a move away from sole-country sourcing and/or to “near-shoring”, which involves using geographically closer manufacturing locations, for example in Eastern Europe where production costs may be higher compared to sourcing from Asian markets, but the lead times are significantly shorter, enabling faster stock replenishment and lower buffer stocks at UK plants and distribution centres.

These solutions will not meet every supply chains’ needs and do require a wider commercial review than simply selecting the lowest unit cost of supply, but the potential impact for UK ports could see switches from deep sea shipping to the growth of regional short sea shipping.

The Coronavirus pandemic is a game-changer in so many ways and can be expected to accelerate the pace of change, for example to near-shoring supply chain solutions.

PASSENGER PICTURE

UK ports engaged in providing ferry passenger services have experienced declining market share arising from cheaper low-cost airline tickets and Channel Tunnel competition. This competitive landscape is dynamic as illustrated by the recent wide-ranging flight cancellations, together with the demise of the airline Flybe.

Passenger traffic on ferries operating to mainland Europe declined by 6.3 per cent in 2019. The immediate challenge of government and passenger attitudes to international travel and enforcement of border restrictions and quarantine will hit non-essential travel.

Long term trends to reduce environmental impact via airline travel together with the reintroduction of post Brexit duty free travel may eventually help to reinvigorate the passenger ferry sector but the short-term impact of COVID-19 on leisure travel to mainland Europe can be expected to lead to further decline in ferry passenger numbers in 2020 and a period of limited or no activity in cruise and marine leisure activities.

The wide-ranging personal, economic and business disruptions caused by the Coronavirus pandemic are still not fully understood but it seems likely that the UK economy and traffic at UK ports will be far from immune. This throws a question mark over potential growth areas such as offshore renewables and over the commitments that the UK Government has given in relation to transport infrastructure investments, offshore wind and new initiatives such as freeports.

GOVERNMENT MUST ACT

The bottom line, however, is Government will need to act to help ports drive the recovery and in the spirt of this the BPA has recently launched proposals to help improve the forward position. Indeed, in a recent survey of UK ports the BPA found that 64 per cent are not confident about imminent economic prospects and this takes no account of the impact of Brexit.

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