Government policy

Bordering on Brexit

A draft Brexit agreement is now on the table, bringing the shape of the UK’s possible future relationship with the rest of the EU into more focus. But major risks remain in terms of the true impact for the automotive sector, as Malcolm Ramsay explains

Port of DoverBrexit continues to cause some serious headaches for those involved in the UK’s automotive sector. With the publication of a draft withdrawal agreement on November 14, UK prime minister, Theresa May, affirmed her commitment to a continued customs territory. Whether that intent will be realised is as much in doubt as ever, however.

Although the text of the draft agreement received approval from the 27 EU leaders, it must now pass a vote in the UK parliament on December 11 – and with political divisions at Westminster deeper than ever, the risk of it being rejected – raising the spectre of a no-deal Brexit – remains high.

What this means for finished vehicle shipments into and out of the UK in the long term remains to be seen but for now, many in the logistics sector are simply trying to carry on business as usual, despite concerns about supply chain disruption being just as strong now as they were two years ago, after the referendum.

Customs requirements
The major concern for the automotive sector is the potential for additional customs requirements, which would add costs, trade barriers and greater complexity to both the embarkation and discharge process.

“Among the prime tasks are building knowledge on customs, liaising closely with national customs authorities and developing customs clearance teams and systems. In several countries, DFDS entities are also applying to become an AEO (Authorised Economic Operator), and we have already started training staff and recruiting people with the right experience and skills,” Gert Jakobsen, vice-president at shipping line DFDS, told Automotive Logistics.

“Frictionless trade has enabled the growth that has seen our Sunderland plant become the biggest factory in the history of the UK car industry, exporting more than half of its production to the EU,” Nissan spokesman David Jackson says, adding that the group is “still waiting for clarity on what the future trading relationship between the UK and the EU will look like”.

 


“Frictionless trade has enabled the growth that has seen our Sunderland plant become the biggest factory in the history of the UK car industry, exporting more than half of its production to the EU… [We are] still waiting for clarity on what the future trading relationship between the UK and the EU will look like” – David Jackson, Nissan


Cabotage exemption
When it comes to UK-EU customs requirements, the automotive sector is unique in many respects, not least its reliance on just-in-time shipments for manufacturers. However, it is also the only sector to benefit from an exemption to cabotage rules, which limit the amount of domestic work in any member state a transport firm registered in another member state can legally carry out as part of an overall international trip.

Pauline Bastidon, head of European policy at the Freight Transport Association (FTA), says any removal of the UK’s cabotage exemption will be “a further headache” for the automotive industry, which currently enjoys exemption from the rules twice a year to coincide with peak demand. Since 2013, car transporters operated by firms from other EU member states have benefited from this exemption to UK cabotage restrictions during two short periods around March and September, when new registration plates become available.

Although it is unclear what the final shape of the cabotage rules will be, “all indications at present suggest there will be no cabotage with Brexit, causing further issues”, says Bastidon.

Michael Bünning, managing director, BLG Automobile Logistics

Changes in trade flows certainly seem likely, should new restrictions apply to logistics firms, and Michael Bünning, MD of BLG Automobile Logistics, believes “some flows will have to be changed”, which he says could negatively affect matters.

“Not every port and/or compound will be able to adapt services which were defined more than 30 years ago… it will be necessary to develop a customs clearance procedure,” Bünning adds.

Erik Jensen, VP sales Europe at Wallenius Wilhelmsen, agrees. “Brexit, in whatever shape it comes, may cause changes in production patterns,” he confirms. But, he adds, “this is a normal part of our day-to-day business and something we are set up to handle”.

Transhipment challenges
Closely tied to the issue of cabotage is the future balance between deep-sea traffic and short-sea, pure car and truck carrier (PCTC) and roll-on, roll-off (ro-ro) trade more focused on transhipment.

With larger deep-sea vessel shipments of up to 8,500 CEU arriving predominantly in European ports such as Zeebrugge and Bremerhaven, a significant number of imports into the UK are transhipped following arrival – and any change in customs regulation is therefore likely to add disproportionate costs for short-sea operators.

Smaller PCTCs deployed on intra-European trades for short-sea shipments between European ports and transhipment from/onto deep-sea vessels have faced increased competition from ro-ro vessels carrying trailers on fixed routes within Europe in recent years, but Brexit may change this.

“Brexit may particularly dent ro-ro operators’ ambitions to take a larger share of the European finished vehicle transhipment business as their tight schedules are sensitive to disruptions,” Tom Ossieur, associate consultant at research agency Drewry, suggests.

Pauline Bastidon, head of European policy, FTA

Bastidon from the FTA agrees, stating that UK trade may see a shift with more shipping lines serving the UK direct. “Depending on the nature of any deal, we may see shipments from the Far East, for example, coming straight to the UK, rather than docking at Rotterdam,” she says.

“Longer dwell times would also decrease terminal capacity,” Ossieur notes.

Congestion pressure
While much has been written about the sensitivity of the automotive sector’s just-in-time production processes to any delay in delivery of parts, the outlook for finished vehicle logistics is potentially of concern too, not just to manufacturers but to the entire supply chain.

Most notably, given the comparative size of finished vehicle shipments to automotive parts, the issues of congestion and storage space will be of particular importance at ports, should lengthy customs waits become the norm – even more so as many OEMs already rely on terminal space for temporary storage.

“With congestion a real issue in a number of European vehicle ports as import vehicles remain longer within the terminal, and transhipment rises as the car-carrier market recovers, there is a risk [depending on the outcome of Brexit negotiations] that the situation may worsen,” Ossieur of Drewry warns.

To this end, some logistics providers are already looking to invest in contingency, adding new storage capacity and processing space to account for any potential overflows or changes in demand from their customers.

“Our terminals are working to allocate space for customs clearance and storage, getting the infrastructure in place. In Rotterdam we have acquired a sizeable area, the Rotterdam Bulk Terminal, which will be used for this, among other things,” Jakobsen at DFDS says.

Jensen at Wallenius Wilhelmsen also notes the potential for increased congestion in ports and terminals if production is moved from the UK to Europe, but does not expect any increase in administrative burden to be insurmountable.

 


“We have discussed and developed quite a lot of solutions… [but] we will only find out whether we are really well prepared when we know the precise outcome of Brexit”Michael Bünning,  BLG Automobile Logistics


For the majority of ports, uncertainty over the terms of any deal make specific statements on future direction difficult, with many taking a wait-and-see approach and Associated British Ports (ABP), one of the UK’s largest port operators, simply stating it will “continue to invest” in infrastructure.

Other port groups, however, see opportunities to gain traction and use uncongested sites to attract new traffic.

Helen Booth, group manager at Peel Ports, notes that “historically, the idea of breaking Dover’s stronghold on continental ferry traffic has been limited due to the risk of change,” but with Brexit, that contingency has become the priority for many cargo owners.

Skills shortage
Employment issues will be a further concern for the automotive logistics sector, as any form of Brexit looks likely to involve a reduction in the free movement of people. What this means on a practical level is unclear, but a tightening of the requirements applying to drivers crossing the English Channel is likely to have a major impact on automotive logistics.

“We need to ensure we can still employ people from the EU to meet urgent skills needs we cannot find locally. UK automotive currently has over 5,000 vacancies in the sector and… any restriction undermines a global industry like automotive. For UK advanced manufacturing there is a shortage of qualified scientists, engineers and technologists,” confirms a spokesperson for UK trade body, the Society of Motor Manufacturers and Traders (SMMT).

For drivers, the potential need to hold a separate UK and European licence or retrain entirely in order to work on both sides of the Channel may be a major problem. And the interconnectedness of the industry means any new rules may also have an effect far beyond this.

“Employers face a great increase in red tape,” Bastidon of the FTA suggests.“And it is not only a case of qualified drivers, but also warehousing staff. An estimated 25% of warehousing workers in the UK are [non-UK] EU nationals and often they are seasonal workers which adds to the difficulties, as many staff are not resident in the UK but travel to and fro for the period of peak demand.”

Consolidation risks
A wider structural threat is that some firms may struggle to compete at all, leading to widespread bankruptcy and consolidation that reshape the nature of the sector.

“I don’t think we’ll necessarily see any automotive logistics companies disappear over Brexit as most of the players are fairly large, but they’ll have to make tough choices. It’s too early to say whether this might lead to consolidation in the sector,” Bastidon at FTA says.

Jackson of Nissan says any sudden change to WTO rules “will have serious implications for British industry” and would be a threat to “major investments in the UK” as well as “British-based R&D and design teams”.

 


“I don’t think we’ll necessarily see any automotive logistics companies disappear over Brexit as most of the players are fairly large, but they’ll have to make tough choices. It’s too early to say whether this might lead to consolidation in the sector” – Pauline Bastidon, FTA


Whichever way Brexit ultimately plays out, the withdrawal of the UK from the EU is also certain to have an impact on the country’s ability to shape policy at a continent-wide level.

Looking beyond the day-to-day practicalities for logistics operations, the most obvious effect of this may be on the development of new trade corridors. At present, the EU is planning multi-year spending programmes on vital infrastructure for the next generation of Trans-European Transport Networks (TEN-T) and the exclusion of the UK perspective will undoubtedly change the shape of these.

“Longer term, trade corridors are being redesigned and the shape of these will affect investment from the EU. Where the UK sits in relation to these new corridors is obviously now open to debate,” Ossieur states.

Preparing for the worst
Although current signs point to a continuation of frictionless trade, at least in the near term, uncertainty in UK politics may still cause any plans to come unstuck, leaving many operators with no choice but to prepare for the worst.

“We still hope and believe that the plan for a transition period up to the end of 2020 will be approved by all stakeholders as this would allow us more time to prepare in order to make a seamless transfer to the new trading requirements. However, since no deal has yet been reached, we are preparing for a hard Brexit with full customs control on March 29, 2019,” says Jacobson at DFDS.

 


“We still hope and believe that the plan for a transition period up to the end of 2020 will be approved by all stakeholders as this would allow us more time to prepare in order to make a seamless transfer to the new trading requirements. However, since no deal has yet been reached, we are preparing for a hard Brexit with full customs control on March 29, 2019”  – Gert Jakobson, DFDS


Other firms are more sanguine, pointing out that changes in border requirements are part and parcel of their daily work and accommodating different customs processes is part of their global strategy.

Much currently depends on the vote taking place in Westminster on December 11. But with UK politics so bitterly divided, the risk of the draft withdrawal agreement being rejected – and thus of a no-deal Brexit – remains as high as ever.

As Bünning at BLG says: “We have discussed and developed quite a lot of solutions… [but] we will only find out whether we are really well prepared when we know the precise outcome of Brexit.

 


 

Technology boost

If more complex customs requirements do come into play as part of the UK’s exit from the EU, keeping track of shipments is likely to become more burdensome. In the medium term, some say, this could help drive investment in new monitoring software and IT systems.

“We are looking at how we can enhance IT systems so we can integrate our systems with the authorities’ systems in each country,” Jakobsen at DFDS says. However, he adds, the group is “not yet in a position to provide very detailed information”.

Ossieur says that Zeebrugge, the world’s largest vehicle port, “has been quite active in preparing – building information platforms, rolling out training and investing in new technology such as apps and scanners to reduce paperwork,” but notes that such investment in technology is quite logical for those in the logistics sector anyway.

March 29, 2019

Date on which the UK is set to leave the European Union, with or without a withdrawal agreement

“Investment in custom tools and software is of importance to all logistics providers. It’s a good question, whether Brexit may simply be bringing already needed investment forward, but undoubtedly those operators that have the ability to provide robust information on vehicle shipments and ETA will be ahead,” Bastidon states.

“Of course software systems can support planning procedures. However, it makes no great difference whether a car comes from or goes to the UK or elsewhere… we have plenty of experience with this kind of service from our work for overseas import customers,” Bünning at BLG says.