With just over a month to go before the U.K. is set to leave the European Union – colloquially referred to as “Brexit” – uncertainty continues to reign, much as it did in June 2016 when the U.K. voted to leave the E.U. Plan or no plan, will the break occur on Oct. 31 or will it be extended – all questions remain unanswered at this time. For shippers and logistics providers alike, the uncertainty has created an increase in supply chain costs in an already slowing global economic environment.
To make matters worse, the uncertainty has resulted in declines in business investment in the country. One such example is found in the automotive industry. According to the U.K.’s Society of Motor Manufacturers and Traders there has been an estimated 70% decline in automotive industry investments for the first six months of 2019.
An IHS Markit Business survey from a few months back found that despite the difficulty in planning, shippers believe they have more or less prepared in the short-term by building up inventories. But is a short-term buildup in inventories a viable plan? Under these circumstances, perhaps.
The political wrangling has been the main focus, with few glimpses of actual planning for the eventual break. However, political pressure forced the U.K. government to publish its Operation Yellowhammer report in early September. The report warns of a lack of public and business preparedness and anticipates shortages of food, fuel and medicines.
Meanwhile, the British International Freight Association (BIFA), which has been one of the most vocal and critical industry groups, has argued that of all modes of cargo transport, road will be the most impacted. To demonstrate otherwise, earlier this year, the U.K. government staged a rehearsal of an emergency traffic system that will be put in place to prevent congestion in Dover in the event of a no-deal Brexit. While deemed a success by some, the Road Haulage Association said the dry-run of the contingency traffic plan for the Dover port was “too little, too late” and some trucking firms that participated noted that it was a waste of time and should have been done during rush hour instead.
Still, delays are expected at such U.K. ports as Dover, as customs is forced to adopt a wait-and-see approach as to whether there will be a deal with E.U. that includes a trade agreement, or if the U.K. will have to revert to the World Trade Organization (WTO) tariff agreement. This wait will result in delays for not only ports but also airports within the U.K.
Customs issues aside, for air providers, the situation is a bit better. The U.K. Department for Transport announced that a reciprocal arrangement with the E.U. to maintain air traffic rights after Brexit will continue through October 2020. This means that U.K. and E.U. airlines can continue to fly between any pair of points allowed today and will be able to make further stops within the locations without embarking or disembarking passengers. Cargo operators will be able to make a stop in either territory and then fly on to an external final destination. For this period, the U.K. also will remain a member state of the European Union Aviation Safety Agency (EASA).
As Oct. 31 approaches, the likelihood of a last-minute surge in goods is high and air carriers will be the benefactors. If Brexit does occur, air carriers could possibly extend their benefits a bit longer through scheduled air cargo as well as charters to stave off any potential shortages of food and medicines as well as to keep British industries humming with as little disruption as possible.
Plan or no plan, Brexit has added additional uncertainty in a global environment burdened with uneasiness. Will Brexit be the tipping point favoring a global recession or will cooler heads prevail and common sense win out? For businesses, logistics providers and transportation carriers caught in the middle of such political turmoil, planning is essential and mitigating the impact as much as possible is the best one can do for now.
Cathy Morrow Roberson is founder and president of the logistics-focused market research firm, Logistics Trends & Insights, based in Atlanta. Previously, Cathy spent several years with consulting firms, as well as with UPS Supply Chain Solutions, where she supported its market, operations, competitive and mergers & acquisition research and analytics. She also is a Senior Consultant at Cargo Facts Consulting and writes a weekly column for Air Cargo World.1 - Reader Likes This Post