Spaced out on Brexit plans

Could unaccompanied trailers help take the edge off Brexit issues?
Could unaccompanied trailers help take the edge off Brexit issues?
Post-Brexit cargo could be diverted via ports like Heysham, UK,
Post-Brexit cargo could be diverted via ports like Heysham, UK,
Roll-on, roll-off ports such as Dover look to face the biggest problems post-Brexit. Credit: cat_collector, Flickr, CC BY 2.0
Roll-on, roll-off ports such as Dover look to face the biggest problems post-Brexit. Credit: cat_collector, Flickr, CC BY 2.0
Industry Database

With the growing expectance of a ‘no deal’ Brexit, ports now need to weigh preparations against commercial practicalities, explains Stevie Knight.

Brexit promises profound, and very physical, implications for the UK's ports. One of the most significant is that land – and lots of it - will be needed near roll-on, roll-off ports as the time taken to process both passenger and freight vehicles increases.

Martin Mannion, AECOM ports and marine director for Europe, the Middle East, Africa and India, warns that the timescale for necessary upgrades versus the status of the negotiations “remains a key risk” for the UK's ports sector.

The politics aren't, at time of writing, providing much in the way of comfort and Mr Mannion adds: “It is difficult to see how ports could possibly be ready within the timeframe.”

Some have projects underway that might help. For example, Dover has plans which he says provide “some breathing space” for future changes (including, potentially, growth) as it will increase the available area initially by moving fruit cargo from the Eastern Docks and, later, providing growth space in the Western Docks.

However, rather than supporting change, there will likely be raised competition for land in some quarters. Michael Sheary, Dublin's chief financial officer pointed out in an ESPO Brexit working group meeting that UK trade accounts for two-thirds of the port's cargo, ro-ro constituting 86% of the total. Reintroducing customs controls, therefore, would need an estimated three hectares dedicated to this purpose, problematic as the port already has space constraints even when it comes to more commercially motivated projects.

In short, ports are facing the implications of swallowing a very hard Brexit, while also not tying themselves into costly measures that stand to lower competitiveness if, against the odds, the UK manages to retain border fluidity. However, ‘fluidity' is beginning to look like a forlorn hope. The present state of negotiations indicates that borders may well be a lot stiffer than hitherto — and that means queues.

As a result, it does look as if “an increase in unaccompanied freight via cross-Channel ferries is highly likely, with some consequential changes away from Dover to other ports”, says Mr Mannion.

Supply chain options

Is there a bright side to any of this? Some believe that this might open up other possibilities for the UK's supply chain. According to Stephen Carr of Peel Ports, facilities like Medway or Heysham would be a useful alternative to Dover: “It makes for a longer sea leg, but we've worked out that the cost is offset by the drop in haulage costs.” Further, he adds that less time-sensitive unaccompanied goods can sit at the port, giving customs a smoother, less harried checking process that can wait till the accompanied trailers have poured through. “Unaccompanied cargo also means that drivers can be used more flexibly, instead of waiting around on the ferry,” adds Mr Carr.

Moreover, he adds that spreading the cargo around is a good idea: “Diverting the UK's spread of risk across a number of ports is a good thing, it reduces the impact of unplanned blockages. That improves the resilience of the country.”

This paves the way for another strategy that could soften the blow for Britain's supply chain. It now seems likely that if the UK wants to retain a diverse range in the shops, there will be a pressure on manufacturers to create a buffer stock of less time-sensitive goods: here, ports can help.

“Holding stock in a warehouse will cost probably around £6 per pallet, that is, in excess of £150 per trailer full... but, typically, it only costs £70 for a trailer parking space and you can use it between two or four times per week with multiple kinds of cargo in there,” says Mr Carr. He adds: “There may well be pressure on warehousing, and there could be a lengthy contract involved. Trailer parking at a port is a much more cost-effective and doesn't need as much notice: it's booked as-and-when.”

He concludes: “While it's not a big cost-saving exercise, it allows you to build a contingency plan without huge expense — if you need one.”

No viable alternative

However, while this strategy might be able to take the edge off some stock pressures, Richard Christian of the Port of Dover strongly disagrees that this approach could do much for the UK's looming Brexit issues. He points out that the port is “the closest and most efficient crossing to Europe”, seeing around 180 kilometres of freight vehicles daily.

According to Mr Christian, "diverting a bit of Dover's traffic elsewhere would still leave the majority of important UK and European Union (EU) 'just-in-time' goods held up if Dover becomes subject to delays”, adding that there's just “no substitutable capacity” that can handle the type and volume of traffic.

Most importantly, it could cost the UK's economy dearly. Instead of just finding another route recent announcements by Jaguar Land Rover, BMW and Airbus indicate that major exporters are more likely to relocate their manufacturing operations outside the UK altogether, says Mr Christian. Given this, he's very clear that both industry and government focus “should remain on maintaining the fluidity of this vital cross-Channel link rather than diverting attention to less efficient routes".

Despite concerns, some believe we should embrace Brexit. Member of Parliament Rishi Sunak, writing for the Centre for Policy Studies, argued that EU tariffs actually suppress local manufacturing because it makes it pay to import completed products: he holds up a number of examples — for example, cables and batteries attract a 4% import tariff where the finished computer has none. Plastic and glass containers have a 6.5% tariff — but again, there is zero charge on bottled water or perfume. It is even higher on some foodstuffs like oranges.

By contrast, he points out a free trade zone (FTZ) allows a company to import components duty-free and then use domestic manufacturing for the final product. In China the FTZ programme “is 40 years old; the Zones account for 20% of China's GDP, 30 million jobs and around half of all FDI”.

Apples with apples

But before there is a clamour that the UK is nothing like China, his report points out it doesn't just make sense for emerging economies which are typically focused on exports — it also is a useful tool to support domestic industry with helpful tax breaks. He points to the experience of the US' Nissan plant in Tennessee (which, as part of an FTZ, has the flexibility to apply the most competitive rates, whether import or finished goods) and the Wabasha Motor company, its FTZ-status allows it to escape US$750,000 of duties per year, clawing back competitiveness with overseas manufacturers.

Most importantly, Mr Sunak believes free zones could be a very large carrot for the UK's north as it would go some way to “rebalancing the economy”, that is taking back some of the wealth concentrated in London and the UK's southeast. This is just because most of the UK's large ports are disproportionately located further up the country, typically in areas of higher unemployment and deprivation.

Could it work? Mr Mannion comments: “Ports already delivering port-centric solutions will be well positioned to move into free zone opportunities.” He adds that the development of new port hubs and logistics facilities in places like Liverpool as well as London could alter trade flows.

This could provide a large boost, according to MACE's Jason Millett and Caroline Lassen. The impact of what they call “supercharged free ports” (that is, those with special economic zones) “once matured, could boost trade by nearly £12bn a year and create over 150,000 jobs in the North [of the UK]”.

However, a lot comes down to connectivity. The pair say the region “already has 'growth estuaries' but these currently operate in relative isolation”.

So, it's not all down to free port status. In fact, according to Ms Lassen and Mr Millet, while that could reasonably generate an additional 2% to 3%, they are clear “it is unlikely that such large impacts could come through price response effects alone”. They say “the missing ingredient” is improved infrastructure.

Mr Mannion underlines this point, adding pragmatically: “There is likely to be the need for supporting infrastructure which should come through as part of regional development plans.” It won't, therefore, come without investment.

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