Shippers in worst-case-scenario mode before pivotal Brexit talks

Shippers in worst-case-scenario mode before pivotal Brexit talks

Dover port, United Kingdom.

Brexit negotiations between Brussels and London have reached a decisive stage with significant progress required in the coming weeks to ensure a deal is struck ahead of the UK’s departure on March 29, 2019. (Above: Dover port, United Kingdom.) Photo credit:

The fate of a sizeable chunk of Europe’s supply chain — from sea, air, road, and rail transporters to shippers — could become a little clearer Thursday when EU leaders meet in Salzburg, Austria, to discuss Brexit, the United Kingdom’s fast-approaching exit from the 28-nation bloc.

The negotiations between Brussels and London have reached a decisive stage with significant progress required in the coming weeks to ensure a deal is struck ahead of the UK’s departure on March 29, 2019.

Michel Barnier, the EU’s chief negotiator, says an agreement by early November is “realistic” and “possible,” which is good news for the transport industry, arguably the sector that would be the hardest hit by the Brexit-propelled changes.

‘...if we act responsibly, we can avoid a catastrophe’

But a deal is not guaranteed. “Unfortunately, a no-deal scenario is still quite possible,” according to European Council president Donald Tusk. “But if we act responsibly, we can avoid a catastrophe.”

Even with an agreement, the transport sector faces a mountain of challenges as the United Kingdom will exit the EU’s customs union and its single market. However, a deal would be accompanied by a 21-month transition period until the end of 2020 that will give the industry time to prepare for a wave of new regulations.

And it’s not just British shippers and transporters that are being impacted by uncertainty over the outcome of the negotiations. “Shippers and logistics operators all over Europe and globally are spending time and money analyzing the possible consequences of Brexit: congestion at ports, impact on transshipment operations, and new barriers to trade,” according to the European Shippers’ Council.

“Contingency plans can be made, but each one is very time-consuming to develop, and in the current climate of uncertainty there could be many scenarios that need to be considered,” the council said.

But right now, shippers exporting from and importing into the United Kingdom face a more immediate problem that has nothing to do with Brexit — rising ocean carrier rates and delays due to internal transport issues that show no sign of easing anytime soon.

Maersk Line attributes a planned rate increase in mid-October — which comes on top of new inland haulage tariffs at the beginning of the month — to road congestion, a shortage of qualified truck drivers, fully utilized rail capacity across the country, lineside engineering projects, congested inland depots, and port congestion, particularly at Felixstowe, the UK’s top container hub. (Felixstowe’s teething problems with its new IT system has forced ocean carriers to divert vessels to other British ports.)  

HMM: many container delays are structural, not seasonal

What’s more, the declining reliability and punctuality of all UK export collections and import deliveries is likely to continue as many of the market restraints are ongoing or long term, rather than seasonal, according to HMM. “Haulage is undertaken at [the] customer’s risk, and HMM accepts no responsibility for costs resulting from failed, late, or cancelled deliveries,” HMM said, adding that increased container volumes also play a role in the delays.

Meanwhile, the port of Dover continues to dominate the headlines amid fears of congestion and massive vehicle traffic jams at the UK’s top roll-on, roll-off (ro-ro) hub, which handles up to 10,000 trucks a day, alongside the 1.4 million trucks a year that are transported on rail shuttles at the nearby subsea Eurotunnel. The area almost certainly would become a major bottleneck in the event of a no-deal Brexit.

If that happens, shippers should consider employing the “services of a customs broker, freight forwarder or logistics provider to help, or alternatively secure the appropriate software and authorizations,” the UK government said in a series of technical papers published last week; more than 100,000 companies export goods to the European Union every year.

This provoked a skeptical response from various transport sectors, highlighting the industry’s cynicism about the government’s awareness of the potential impact of Brexit on the nation’s supply chain.

“As most of the visible trade that takes place between the EU and the UK is managed by freight forwarders and logistics professionals, some of the content of the information could be regarded rather patronizing, as those freight forwarders are already aware of many of the issues of concern to businesses trading with the EU in the event of a no deal,” said Robert Keen, director general of the British International Freight Associations (BIFA).

BIFA has been vocal in its concerns about the capacity and readiness of UK customs systems and port infrastructure to cope with a no-deal Brexit but says the government has not given these issues a high enough priority on its public policy agenda.

“While it is encouraging to finally see some of the government’s plans for a no-deal Brexit, which provide helpful clarifications in some areas, there are still key processes to be agreed if the UK logistics sector and the ‘just in time’ economy is to be protected,” said Pauline Bastidon, head of European policy at the Freight Transport Association (FTA), which represents air, sea, rail, and road transporters.

Dutch, Belgian, French ports

Dutch, Belgian, and French ports with strong links to the UK waterfront are also anxious regarding the Brexit negotiations, as they enter the make or break phase.

Europe’s largest port, Rotterdam, which relied on the United Kingdom for about 40 million metric tonnes (44 million tons) of its 465 million tonnes of traffic in 2017, also risks post-Brexit congestion, with the Dutch Foreign Ministry saying just 18 percent of firms in the Netherlands have made Brexit preparations. The Dutch customs authority also noted that 35,000 of the 80,000-plus companies that do business with the United Kingdom have never had to complete paperwork that will be required following the UK’s exit from the European Union.

Moreover, all of this occurs as Rotterdam is on a roll, with container traffic soaring 10.9 percent to a record 13.7 million TEU in 2017. But that doesn’t ease its Brexit uncertainty. “Tens of thousands of Dutch firms trading with the United Kingdom via Rotterdam have never known an import or export document,” according to Allard Castelein, CEO of the Rotterdam Port Authority.   

Meanwhile, Antwerp, Europe’s second-largest container port, is also in the firing line of Brexit, with UK traffic already slipping slightly. “The UK is an extremely important market for the port of Antwerp, generating an annual freight volume of more than 14 million tonnes. Unfortunately there was a drop of 8 percent in our trade with the UK last year, probably due to the uncertainty surrounding Brexit,” according to Jacques Vandermeiren, the CEO of the Belgian port authority.

The Belgian government has warned that Antwerp, the neighboring port of Zeebrugge — which does 45 percent of its business with the United Kingdom — and the nation’s exporters face “an array of potential problems” if Brussels and London don’t cut a deal. “At present businesses export without hindrance,” said Geert Bourgeois, the first minister in the Flemish parliament. “In the future every truck and ship could have to be checked. I believe that many businesses don’t comprehend how much red tape will be involved.”

France, whose top ro-ro port Calais risks Dover-like gridlock in the event of a no-Brexit deal, has slammed plans by the European Commission, the EU’s executive agency, to fund a sea route between Ireland and North Europe to avoid customs controls after the UK’s departure.

French Transport Minister Elisabeth Borne has told the commission its plan is “unacceptable” as it favors Belgian and Dutch ports and bypasses western French ports, including Le Havre and Cherbourg.

Shippers are preparing for the worst

While Brussels and London haggle over the Brexit divorce, shippers are already preparing for the worst, and are expected to stockpile around 40 billion pounds ($52.8 billion) of imports — mainly raw materials such as chemical feed stocks and ores and semi-manufactured goods, including auto and aircraft components — to prepare for a possible no deal, according to the think tank Centre for Economics and Business Research.

Rail freight companies have called on the government to establish cargo terminals around the United Kingdom, rather than at the entry to the Eurotunnel — the underwater rail link to France. This would avoid the need for a single border checkpoint and prevent “significant congestion and delays which would disrupt trading and business supply chains,” according to the Rail Delivery Group, which represents the UK’s rail freight operators. Currently, rail freight operations within the 28-nation European Union do not require customs declarations, and cross-channel trains are only subject to safety and security checks at the British and French tunnel entries.

In addition, warehouse operators have warned there are no food inspection facilities or plug-in points to power temperature-controlled vehicles at the port of Dover, nor time or land to build any; that risks unprecedented delays at the UK’s leading ro-ro port, if the United Kingdom adopts the so-called ‘Rest of the World’ regulations after it quits the European Union.

“Irrespective of the final form of Brexit — no deal, hard Brexit, or soft Brexit — we expect an interruption in food supply chains,” according to Peter Ward, CEO of the United Kingdom Warehousing Association (UKWA).

“Market forces will mitigate the risk of delays by holding more stock closer to consumers in the UK, which may be good news for the warehousing industry in the long term, but from March 2019 there is simply not sufficient capacity nor the infrastructure to cope.”

“Forty-four percent of what we eat comes into Dover from the EU, which is equivalent to 1,000 trucks a day through the port on ferries and the [cross channel] tunnel.” As a result, UKWA is proposing that the government considers changing the law to allow food inspections at inland terminals.    

Truckers are getting increasingly uptight with the government, with the Road Haulage Association (RHA) claiming last week’s notice about post-Brexit driver licensing is “nothing more than a smoke screen for the big-ticket items that need to be addressed before March 2019.”

“Six months ago, Transport Minister Chris Grayling assured us that there would be no border controls at Dover when he said, “We don’t check lorries [trucks] now and we’re not going to be checking them in the future,” said RHA chief executive Richard Burnett.

“Today, with just six months to go before we leave the EU, [Brexit Secretary] Dominic Raab has said that there would be risks and short-term disruption in the event of no deal with extra border checks meaning delays for businesses. But we still have no definitive answers to our repeated questions as to how the future border controls will work.”

FTA: aviation, road must become negotiation priorities

The FTA says the government must prioritize the negotiation of aviation and road access agreements with the European Union. “To say that everything will be ‘all right’ after Brexit is ignoring the real issue from a logistics perspective — that of continued access for vehicles and planes,” said James Hookham, the FTA’s deputy chief executive. “The government must move on from potential customs arrangement discussions and prioritize separate agreements on international road transport and aviation to allow trucks and planes to keep moving between the UK and EU after Brexit.”

The UK’s exit from the single market will end the automatic rights of its trucks to drive and aircraft to fly between the United Kingdom and the 27 remaining EU member states.

The aviation sector, which transports around 40 percent of the UK’s imports and exports by value, also risks losing current traffic rights with the rest of the world that are linked to the European Union, including the “Open Skies” agreement with the United States.

There are, however, some “Brexit winners,” including ports that are capitalizing on fears of congestion at Dover by ramping up their capacity to attract ro-ro and container shippers. Associated British Ports (ABP), the UK’s largest port operator, announced earlier this month that it is going ahead with the second phase of a 50 million pound expansion of container facilities at the northern ports of Hull and Immingham, claiming its shipping customers are projecting significant growth in cargo volumes in the coming years.

“A shift in trade volumes has also been noticed, with cargoes originally destined for ports such as Dover, moving increasingly north as trade partners look at alternatives to mitigate any difficulties the more traditional routes may experience in the future,” ABP says.

Following last year’s 14 million pound investment in ABP’s container capacity in Hull, two carriers, Finland’s Samskip and Belgium’s I-Motion, launched services to the ports of Amsterdam and Ghent.

Immingham is the UK’s biggest port by tonnage and its second-largest ro-ro hub after Dover, but it’s container volume totaled just 183,000 TEU in 2017. There are early signs, however, that shortsea carriers are upping their presence in northern ports, with Unifeeder, a leading European shortsea container carrier, recently adding a second Baltic service at Immingham.

Finally, even as the supply chain waits anxiously for news from Salzburg, it faces increasing non-Brexit threats to their margins. Most recently, this includes the decision by many ocean carriers to impose “sulfur surcharges” ahead of the International Maritime Organization’s low-emission regulation, which comes into effect in 2020. To be sure, these aren’t the most tranquil days for Europe's shippers, transporters, and supply chain managers.

Contact Bruce Barnard at