Trade update: Brexit vs. Reality

by Emily Atkins & Christian Siviere

Whether Brexit is hard or soft, with a “deal” or “no deal”, the impact on logistics will be very important, maybe even dramatic, and the UK government seems to have largely ignored the topic. There are still last-minute dramatic scrambles to work things out, even just days before the planned Brexit date of March 29, 2019.

As far back as 2017, a survey of found that 58 per cent of top UK executives believed Brexit had already negatively affected their business, and 66 per cent expected the situation to worsen.

Early reactions included delayed investments, and strategic decisions to move jobs out of the UK. Unilever, for example, moved its HQ to the Netherlands while Jaguar Land Rover moved some production to Slovakia, followed by Nestlé, which shifted jobs to Poland.

UK logistics

The EU27 represents by far the UK’s biggest export destination, absorbing 46.6 per cent of its exports, the biggest markets being Germany the Netherlands, France, Ireland and Belgium.

The UK imports about 30 per cent of its food from the EU. Approximately 76 per cent of UK vegetable imports and 41 per cent of its fruit imports come from the EU.

Therefore, having a border and re-introducing a Customs clearance process, with the additional steps, documentation, formalities, controls, inspections, checks, etc. that come with it, will greatly slow down the flows, create uncertainties as well as additional costs for all industries. In a worst-case scenario, the logistics impacts and costs could be catastrophic.

Aidan Flynn, general manager of the Freight Transport Association of Ireland (FTAI), said in March: “Whatever the outcome of the Brexit negotiations – deal or no deal – it will have a seismic impact on the UK’s trading environment and in turn, the freight distribution and logistics sector on both sides of the Irish Sea. By leaving the Customs Union and the Single Market, the UK will trigger notable friction in the supply chain. There will inevitably be multi-agency checks at ports and the administrative burden placed on the logistics industry – particularly road haulage – will hinder business development and, in some cases, cripple the small to medium enterprise sector.”

Up to 10,000 trucks roll on and off ferries on both sides of the Channel between Continental Europe and Britain every day, plus an additional 6,000 trucks cross via the Chunnel, the Channel’s Tunnel between Folkestone and Calais, France. At present only about 500 of these vehicles require checks as they make the crossing, but with all 10,000 suddenly needing to clear Customs it’s estimated the line-up of trucks could extend 17 miles from Dover into the UK.

According to a DHL report, regular delays of only 15 minutes would cost Honda operations about 850,000 British Pounds a year. Other scenarios suggest an immediate shortage of fuel in the UK as the trucks that carry it won’t be able to cross in a timely manner, and food shortages will follow.

Some have already started to stockpile products in anticipation, both on the consumer and industrial side. Industrial customers who operate just in time from automobile to aerospace are also trying to prepare. For example, the prospect of slowed-down flows has led to a halt in investments by Honda and Toyota, plus a threat by Airbus to move production of parts out of the UK.

An example of the lack of preparation is the new, untested processes just being put in place by H.M. Customs & Excise, to replace the EU’s Single Administrative Document. New processes, new forms, hiring of additional Customs officers and more importantly their training, seem to have been largely improvised at the last moment. Developing holding areas/parking lots for trucks awaiting export or import Customs clearance is lacking. There are many more unresolved issues, like cabotage rights for UK trucking companies, flying rights for UK airlines and so forth.

According to the British Chambers of Commerce, it will take the UK at least three to five years to develop and implement a new Customs IT system, as well as hire and train staff and create new border infrastructure.

The costs of this chaos are very hard to quantify but will be real. In the end, UK citizens will be the ones feeling the pain of layoffs, shortages and disruptions. That may be when those who voted for the departure may realize that Brexit wasn’t such a good deal.