CSCMP's Supply Chain Quarterly
October 22, 2018
Forward Thinking

The impact of Brexit: Three key logistics concerns

The United Kingdom's upcoming exit from the European Union could severely disrupt the island nation's logistics industry by raising fuel prices, exacerbating driver shortages, and impeding border crossings.

Dominating both economic and political discussion for over a year now, the United Kingdom's planned exit from the European Union (EU) is set to shake up the commerce of the nation like few events have done before. The decades-long status quo has, for the moment, been replaced by uncertainty. All eyes are now on the negotiating teams of both parties as they try to hammer out an agreement that hopefully makes provisions for businesses on both sides of the divide.

Yet, in spite of all the talk about fairness and mutual gain, there are a number of concerns being shared by many in the U.K. who fear for the future of their trade with Europe. Logistics firms in particular derive a significant proportion of their income from this cross-Channel trade, so just what are the main issues that those within the industry should be concerned about?

The impact on imports and exports

In line with many other Western countries, the U.K.'s imports of natural resources far exceed its exports. Clearly, the prospect of the U.K. sitting outside the single market is of significant concern for those operating or investing in logistics services, since trade tariffs, higher fuel prices, and increased commodity and finished-goods prices could all combine to hamper economic growth.

Fuel prices should be a particular concern since the country's North Sea oil fields cannot meet its needs and just over a quarter of all petroleum products used in the U.K. arrive through EU countries. If fuel from EU member countries becomes more expensive, it's inevitable that logistics firms will have to pass on those increased costs to consumers.

The negotiations could also put U.K. exports at a competitive disadvantage. For example, the U.K. currently leads Europe in terms of products derived from its sizable herds of sheep, chiefly meat and wool. However this share of the market is greatly threatened by the prospect of a harsher deal (or lack of one), which would see the U.K. revert to World Trade Organization (WTO) rules. This would bring with it a host of trade tariffs and other red tape, making it a near certainty that competitors from across Europe would seek to reposition themselves as the cheaper and easier-to-deal-with alternative to British goods.

In some cases, however, there may be a silver lining to these trade barriers, as they could encourage innovation. For example, some observers have been quick to point out that the rise in fuel prices might, in fact, be seen as an opportunity for U.K.-based vehicle manufacturers to push forward with the development of commercial vehicles that use alternative fuels. Of course, environmentalists have been championing this approach for many years, but Brexit may well offer the nation a compelling financial incentive for reducing its dependence on fossil fuels. Developing transport solutions based on alternative fuels would have a twofold benefit: reducing pollution and lessening dependence on imported fuel.

The continuing driver shortage

Another key concern for the logistics industry is that EU nationals make up around one-tenth of the U.K.'s commercial drivers. Even though Brexit negotiations are barely under way, many EU nationals are already considering employment elsewhere in countries where they can be more certain of their future rights. The loss of this workforce pool would hit the logistics industry hard, as the existing shortage of commercial drivers in Britain is placing demand at an all-time high. While British drivers may find that this shortage helps to push up earnings, there is no suggestion that it will help bring more people into the industry. As a result, this skills shortage will only continue to grow. The agricultural industry is already feeling the impact of the loss of seasonal migrant workers, so there is a precedent for this eventuality.

One possibility is that the U.K. government may respond to the labor shortage by offering generous incentives to commercial drivers from across the EU and around the world to come to the U.K. to work. There has already been much discussion on how post-Brexit immigration controls could be used to attract skilled workers from overseas, and the logistics industry could well benefit from such a policy.

Trade and border crossing with Ireland

It's unlikely that the EU will agree during negotiations to some significant concessions in terms of freedom of movement and goods. As a result, it is almost inevitable that customs controls in the U.K. will become much tighter and more evident than is currently the case, both for imports and exports.

This will be particularly pronounced in Ireland, which is the only EU member to share a physical border with the United Kingdom. Northern Ireland and the Republic of Ireland currently trade freely with one another, and the trading volumes involved are significant. Unless an acceptable trading agreement is reached, trade and logistics between Ireland and the U.K. would be severely hampered, and the costs of the resulting delays and additional bureaucracy could run into billions of pounds. For instance, it's common for those living near the border on both sides to do their weekly food shopping on the other side, and new taxes on produce crossing international boundaries could severely disrupt life for the average consumer. On a larger scale, firms that enjoy a sizable clientele from abroad will surely see their revenues reduced, as buyers may not have the funds to continue doing business as they did pre-Brexit.

Citizens and politicians on both sides of the border have expressed their concern for such a potential predicament, as culturally and economically there are still strong ties between the two nations. Whilst many may wish for a separate negotiation focusing specifically on the changes in this unique relationship, the Republic is still an EU member and, as such, can only engage in dialogue as part of the larger bloc. The U.K. and Ireland must therefore agree on a compromise that not only satisfies the two parties but also the whole of the EU.

The border with Ireland is just one of many complex issues that need to be resolved. The nature of these problem means that there will be no easy fixes. But at the same time, decisions must be made as quickly as possible, in order to provide stability and certainty as the EU and the U.K. redefine their relationship. It's vital that both sides at the negotiating table approach this issue in a respectful and measured way, rather than viewing the process as a battle. There are potential pitfalls and opportunities for both sides. It is to be hoped that negotiators will recognize this as they work towards a solution that is beneficial for all parties.

Justin Fox is a U.K.-based writer currently assessing the impact of Brexit on behalf of the online farm machinery marketplace Farm Machinery Locator.

Join the Discussion

After you comment, click Post. If you're not already logged in, you will be asked to log in or register.

Want more articles like this? Sign up for a free subscription to Supply Chain Executive Insight, a monthly e-newsletter that provides insights and commentary on supply chain trends and developments. Click here to subscribe.

We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter : The impact of Brexit: Three key logistics concerns"> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.

Want more articles like this? Subscribe to CSCMP's Supply Chain Quarterly.