Freight firms fearful of a Brexit cliff edge

3/30/2017

Cargo owners and their logistics partners remain concerned about a whole series of issues related to Brexit, including delays at ports, increased complexity and costs, and difficulties in recruiting good staff. But among the biggest concerns is the potential of a ‘cliff edge’ if no new trade agreement is reached between the UK and the EU – or even if it is.

Representatives told the Freight Transport Association (FTA)’s ‘Keep Britain Trading’ conference in London that reaching an agreement on a new trading relationship was of critical importance, along with frictionless processes that would allow shipments to move between the UK and the EU as simply as possible.

British Ports Association (BPA) chief executive Richard Ballantyne said the number one concern of his organisation’s UK port members was in the area of facilitation, for example relating to border checks. “That is magnified in the ro-ro sector,” he observed. “Ports are natural bottlenecks, so as soon as we start checking (cargo and vehicles as they arrive or depart), that could cause a lot of problems at the ports. And there would be costs. The government has within its control to employ a light-touch system at the border.”

He said tariffs were less of a concern for ports, “as long as they are collected away from the port”. But he was concerned about possible complications in Ireland. “On the Irish sea, the common travel area excludes immigration checks, and there is the potential for new checks where they have not been any,” he observed.

In the absence of free movement of goods, the thing that will be essential will be simplified customs – “and not treating each other like a third country”, said Richard Currie, director of public affairs at UPS. The second issue is maintaining connectivity, and the third priority is to maintain the ECMT permit system for HGVs that are registered going into ECMT countries, he added.  

Kevin Lucas, supply chain operations director for Neovia Logistics, whose clients include Jaguar Land Rover, commented: “I think the biggest thing is the uncertainty in terms of the workforce.”

He acknowledged that immigration was a key thing in the UK’s referendum, but the logistics sector remains highly reliant on non-UK EU citizens, particularly in warehouses and road freight drivers. “And so we need clarity and certainty. There is already a shortage, and there could be an exodus.
With less than 5% unemployment, where are we going to get people to fill these gaps?” he asked.

Zoe Heason, regional category lead buyer, Logistics & Automotive, for BOC Gases, commented: “As a priority, the logistics industry must be able to continue doing what it does best. We must be able to trade internationally and we must be able to move our talent around. We must not have delays at borders. For example, our gas has a limited shelf life, much like apples. And medical samples may only have a life of a few hours.

“We are also concerned about driver shortages and ADR handlers. We want to avoid Irish land borders, and therefore we are very keen that the common travel area is maintained.

“And we are concerned that if there is a cliff edge, we need service providers to come to us and say this is a service that we can deliver.”

Terry Murphy, director for national distribution operations at retailer John Lewis, said he had similar concerns. “The key objectives are to avoid disruptions to the movement of goods and of people,” he said.

One key thing that was required was clarity and surety, in order “to get a feel for what is going to happen. But then also a grace period if things need to change.”

He continued: “Because the UK is the leading economy for online sales and fulfilment, we sell al lot to France and Germany, and Canada et cetera. There, the customer has placed the order and it has to get there fast. And with online fashion, we also have a percentage of returns.”

He summarised: “Therefore, there is a people implication, a cost implication, and a customer implication.”

Neovia’s Lucas commented: “Whether we agree with the decison, we have to evolve to make sure we are agile enough to deal with it. We have to look at how to make things more responsive. How do we bring in autonomous vehicles? This gives us the opportunity to bring some of these things in to free people up.”

He said that assuming the UK will have a different tariff framework in the future to that of the EU customs union, rules of origin will be become increasingly important – and the standard operating procedures required to keep track of all the origins of every component within products.

“In the US, we have had to do EDI customs entry,” he noted. “It was difficult, but we are in a much more agile state to do that now. That has given us the platform, and we need to replicate that. If we have that set up, we will naturally be market leaders. Therefore, innovation does give us opportunities.”

Lead-in time
Currie from UPS agrees that companies have to be positive. “But we have to have a lead-in time after we have agreed the FTA, because if there are customs systems to be built, buildings will have to be retrofitted to become customs compliant, for example.

“Coming off a cliff edge will potentially stop the trade with the EU. It is not just the people in this room (that will have to adapt), or our counterparts in France and Germany. It will be in customs (authorities) - not just our customs, but also those in France and Germany and other EU member states.”

James Hookham, deputy CEO at the FTA, noted that there were some government representatives in the room we were able to take note of these observations about the requirements for changes within customs organisations, adding: “But just because we are going back 20 years in reintroducing customs (requirements between the UK and the EU), let’s not go back to the way that we did things in 1992. And there are probably lots of things that can be engineered outs of the current system so that could be improved.”

Currie noted: “There is also an opportunity for us to work with the authorities to make sure that the system that we have is better.”

But a representative from the European Shippers’ Council (ESC) commented: “We have this kind of discussion in continental Europe, and these often refer to VAT. If we don’t have harmonisation, this can lead to a lot of hassle at the border – and also the entry summary declarations. If we don’t find a solution, this can be a problem.”

Currie commented: “If there was some kind of deferred-payment system, especially for low-value shipments, that would be very good.”

BPA chief executive Richard Ballantyne highlighted the challenge of knowing what is in the road freight vehicles on ferries. “How do we know what is on the ferry? At the moment, they just don’t have that information.”

Higher inventory and costs
Neovia’s Lucas added: “Because if we don't have that ro-ro flow at the port, that requires us to hold more stock, because we can't reduce service levels, and that adds cost.”

Murphy emphasised the importance of knowing exactly where stock and freight movements are, in order to minimise these additional inventory needs and costs.

And there is also a space element, Ballantyne noted, adding: “Dover does not have much space. This could be an opportunity for other ports that do you have space, but there will be a cost to that.”

Cliff edge
Addressing concerns about a possible cliff edge, David Jones MP, Minister of State at the Department for Exiting the European Union, in a keynote speech at the conference, was clear that there would be an “implementation period” to allow adjustments to the new regime. But he was less clear about the possibility of a “transitional arrangement” – an extended period of time, after the UK’s initial two-year exit negotiations, in which to negotiate an EU-UK trade deal.

Jim Rollo, deputy director of the UK Trade Policy Observatory at the University of Sussex and former chief economist of the Foreign Office, along with other commentators, have argued that the likelihood of a meaningful trade deal being negotiated within the initial two-year window was low, believing that a transition period would be necessary to avoid a situation where UK-EU trade is forced to revert to WTO rules – at least until a free trade agreement can be negotiated. But Rollo said that the current political climate in the UK meant that this transitional negotiation period was looking less unlikely.

With Theresa May's government apparently being led towards a so-called ‘hard Brexit’ by Eurosceptic members of her own party and government, policed by a predominantly right-wing tabloid media in the UK attacking anything except a hard Brexit, logistics observers fear that the most likely scenario now is that the UK will leave the EU without a free trade agreement and be forced to revert to WTO rules, including tariffs and non-tariff barriers.

Although there will be a implementation period to soften the cliff edge, that is perhaps the scenario that the freight transport and logistics industry and its customers, import and export companies, should prepare for – while still lobbying hard for a transition period to allow further negotiation towards achieving a more stable and favourable long-term agreement between the UK and the EU.