Via Logistics Management : While speculation and uncertainty abounds, freight transportation and logistics industry leaders contend that it’s important for all involved to keep a cool head and begin planning for the new phase after the U.K. leaves the EU.
The British vote on June 23rd to leave the European Union (EU) has created a lot of uncertainty within the freight transportation and logistics industry. In starting the legal withdrawal process, the United Kingdom (U.K.) will have to invoke Article 50 of the Lisbon Treaty, which officially signals the U.K.’s intention to leave.
From whenever that process begins, the U.K. and the EU have two years to negotiate the terms of exit, with the option of a prolongation. And with this backdrop, many shippers, logistics service providers and manufacturers in the EU and the United States certainly fear a drawn-out period of uncertainty and instability.
Understandably, there are many questions as to which direction the U.K. may take. Might, for example, Norway’s access to the European single market be a future model for the U.K. to guarantee a free flow of cargo and capital?
There are certainly more questions than answers at the moment, but the message that shippers and the entire logistics industry has for negotiators in London and Brussels is clear: The burden of trade barriers, tariffs and labor restrictions would damage competitiveness and limit growth for manufacturers, retailers and the entire freight transportation and logistics industry.
So what are the expectations and concerns on both sides of the Atlantic, and how will shippers, carriers and service providers face the challenges during this period of transition and beyond?
Strong commitment to the U.K.
Since the United Kingdom decided to leave the European Union, the pound has dropped to a 30-year low against the dollar. The fall has hit U.S. logistics service providers who have a direct exposure to Europe and the U.K., as well as their European counterparts.
However, despite an initial fall in their share values after the Brexit vote, most of the logistics companies announced that they will not change their commitment to the U.K. until the new trade relationship with the EU is sorted out.
“The U.K. is an important part of our network, and we also know that in the short term there was a slight softening of growth rates because of Brexit and the initial forecast,” says Richard Peretz, chief financial officer at UPS.
In August of this year, UPS celebrated the 40th anniversary of its operations in Europe. “Europe now represents 50% of our international business, and is one of the fastest growing regions for UPS,” says Nando Cesarone, president of UPS Europe. “We have committed to invest $2 billion in our European network from 2014 to 2019—a commitment that will help drive customer success for years to come.”
In the U.K., for example, UPS investment in the DP World London Gateway facility is reflective of the strength of the company’s growing logistics network there. At the same time, Deutsche Post DHL Group is also confident about being able to respond appropriately to changing market requirements caused by Brexit.
“We’re confident that we can make any necessary short- and mid-term adjustments that are needed to ensure that disruption to our operations is averted and customers continue to get the seamless service they expect from us,” says Frank Appel, CEO of Deutsche Post DHL.
In the short term, Appel says that he expects the vote to be rather neutral, with limited impact expected on the day-to-day operative business. “In the mid- to long-term, the impact will be very dependent on further political reactions—access to the single market, trade agreement—and resulting macroeconomic reactions,” he says. “It’s quite clear that the U.K. is to remain an important part of global GDP and trade, so we will make any adaptations to our business if needed; however, it’s too early to speculate now if this will be the case at all.”
Facing the challenges
The uncertainty is a major challenge for the logistics industry. Great Britain is not a Schengen area member and does not utilize the euro as currency. Nevertheless, there are regulations that facilitate trade with the EU—simplifications that will be lost with Britain’s exit, which might lead to delays and cost increases within complex supply chains.
Particularly in the initial period, the bureaucratic burden is set to rise. As a consequence of leaving the EU, the U.K. will no longer be able to rely on trade facilitation of the European Customs Union for almost half of its export activities. In the meantime, many logistics companies are concerned that the imposition of duties will lead to a substantial cost increase for the international movement of goods.
Furthermore, elaborate new bilateral arrangements between the U.K. and EU member countries might increase the complexity of the supply chains. Yet at this stage, speculations and uncertainties abound.
But whatever the outcome of the Brexit negotiations may be, British as well as European transport and logistics associations demand that the transitional period be used to analyze transport and supply chain networks without hectic activism and to develop scenarios of how the free movements of goods can be ensured under the new conditions. At this time, numerous discussion forums and surveys have been launched to support the government with proposals and priority lists.
FTA’s Brexit priorities
British Freight Transport Association’s (FTA) international haulage members were recently polled on a number of issues regarding the fallout of Brexit.
Their top three priorities were (1) continued full access to the European single market; (2) tariff-free access for goods; and (3) preservation of access to the single market for services. Members are also keen to retain the ability to hire non-U.K. drivers, who would have the right to work in both the U.K. and the single market.
“With the U.K.’s current driver shortage, it’s no surprise that labor mobility issues are at the forefront of international transport businesses’ minds, and this is certainly something FTA will be pressing the Government to prioritize when the negotiations begin,” says Chris Yarsley, FTA’s EU affairs manager. “These results reflect the fact that companies prefer certainty to the unknown, which is where we find ourselves at the moment.
Turning threats into opportunities
According to Guy Platten, CEO of the U.K. Chamber of Shipping, business thrives on certainty, but it also thrives on opportunity and, to some degree, risk.
“In the absence of short-term certainty, perhaps we can begin to look at what new opportunities will emerge—not least, the opportunity to reclaim center stage at the IMO and once again drive the future agenda,” says Platten.
Recently, Platten announced that the U.K. Chamber of Shipping has begun work on a new platform to be launched later this year. It will set out in clear terms what policies the new government should implement, based on the Chamber’s demand for a pro free trade and pro-immigration stance.
“Brexit, for all the concerns and worries, provides us with an unprecedented lobbying opportunity,” adds Platten. “Government’s minds will never be more open, and they will never be more willing to listen than in the next few months.”
The German Forwarding and Logistics Association (DSLV) sees the impact of Brexit in a less positive light. Frank Huster, managing director of DSLV, is expecting cuts in trade with the emergence of barriers that have to be overcome. “Forwarders with their customs expertise might help to keep these barriers as low as possible,” he says.
Furthermore, Huster thinks it’s conceivable that some British logistics centers may move to the European continent, thus benefiting the areas where they resettle. All in all, he believes, the Brexit referendum will not prove to be bad decision for the overall economy and the freight forwarding sector. “With that, logistics costs in trade with the U.K. will certainly increase,” he adds.
Germany’s economy will be affected by Britain’s decision to leave the EU, according to Raimund Klinkner, board chairman of Bundesvereinigung Logistik e.V. (BVL), the largest logistics association in Germany. He’s convinced that the flow of goods will initially continue after the withdrawal from the EU.
However, Klinkner contends that different scenarios are possible after the two-year period of transition. His outlook focuses on two possible extremes.
“In the case of an otherwise unchanged situation in the EU, this could result in considerable growth in the logistics industry in Germany, as logistics centers will move from the United Kingdom to the EU mainland,” says Klinkner. “However, if other EU member countries follow the British example and organize their own referendums, this would affect the export nation Germany negatively. Existing, but also already prepared contracts would become invalid, because the currently largest internal market in the world would no longer exist.”
Let’s stay calm
Carriers and service providers aren’t the only ones closely following developments in the U.K.. The news that the citizens of the U.K. had voted in favor of a Brexit also came “like a bolt out of the blue” for Mark Dijk, program manager for the EU and Germany at the Port of Rotterdam.
As a leading gateway for trade between the U.K. and other countries, Rotterdam does a lot of business with their friends in Britain. In fact, over 11% of the port’s total imports and exports—some 54 million tons—are shipped between the British Isles and the port of Rotterdam every year.
“British cargo” covers virtually all types of goods, and they are conveyed in all kinds of vessels. There are also concerns in the Netherlands that existing trade agreements with other EU members will be renegotiated with the British exit from the EU, and that higher trade tariffs may come into play, which could, in turn, translate into less movement across border—a domino effect, as Dijk believes.
When export levels shrink, the demand for professional logistics services also go down. “However, as it’s still unclear at the moment how this exit will be organized, we should keep our heads cool and not make any hasty decisions,” says Dijk. “Whatever the case may be, the Port of Rotterdam will be standing by to facilitate trade with the United Kingdom.”
Cool heads will prevail
While the Dutch will wait and see, the British ports are quite active in bringing themselves into a good position for the negotiation process. According to Associated British Port (ABP), Brexit will bring new challenges, but it also provides new opportunities for its ports.
“For the port industry, one of the immediate opportunities is to ensure that the U.K. is excluded from the damaging EU Port Services Regulation,” says James Cooper, ABP CEO and chairman of the U.K. Major Ports Group. “The EU rules encompass port services such as piloting, but include port charges and exemptions for state aid as well, making things more expensive for British operators and influencing their ability to control prices.”
Of course, adds Copper, ABP wants the best access to the single market as the U.K. can secure. “However, we also want to see a U.K. government seize the opportunity to close free trade agreements with the rest of the world faster than could have been achieved within the confines of the EU,” he says. “Excluding the U.K. from the regulation will be a key test of the government’s success in the Brexit negotiations that lie ahead.”
No matter what decisions the U.K. and the EU may ultimately make in regard to Brexit, they will transform Europe and redefine its role in trans-Atlantic trade in the post-Brexit era.
At the moment, things are still very speculative following the referendum, but as the first shock subsides, it will be important for all involved to keep a cool head and begin planning for the new phase after Britain leaves the EU.
The freight transportation and logistics industry will play a major role not only in economic restructuring, but also as important advisors in the negotiations between governments. No matter how the political framework is restructured, their interest is to guarantee and provide a free flow of goods throughout Europe in the future as well.
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