The impact of Brexit on cross-channel trade and the practical challenges facing the UK economy post-Brexit

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26 October 2017

 

Nicolo Tamberi is Research Assistant for the UKTPO and Charlotte Humma is the UKTPO’s business manager.

Leaving the Single Market and the Customs Union will require the implementation of new border controls between the UK and the EU that will surely increase transport time and therefore costs. However minimal they may be, these new procedures will negatively affect trade between the two parties.

According to a study by EY, Economic footprint of the Channel Tunnel fixed link, trade between Folkestone and Calais via the Eurotunnel was estimated to be £91.4 billion or 24.8% of trade with the EU in 2014. Goods transported through the Channel Tunnel are exported from and imported to every region of the UK.

Today, transporting things from one shore to the other requires minimal controls such as those that exist between Surrey and Somerset. Businesses on both sides of the channel increase their efficiency by integrating their supply chains and by relying on the prompt connection across the channel. So, what about Brexit? If one thing is clear in the impenetrable mist surrounding the future UK-EU relations, it is that exiting the Single Market and the Customs Union will require increased border controls.

At an event hosted by Eurotunnel this week, Ms Anastassia Beliakova from the British Chamber of Commerce stressed that unless the UK remains fully aligned to EU regulations and standards on plant and animal health, which may not be politically acceptable, UK ports and airports would need to increase their capacity in terms of infrastructures such as vet labs to check products before they cross the border as well as IT systems that would recognise lorries’ plates and integrate everything together. Of course, infrastructures will not run themselves and new staff will need to be hired and current employees upskilled. All this takes time. Furthermore, goods will have to be checked on both sides of the channel, making agreement on how to run these controls essential.

All of these new requirements will increase the logistical costs of trade by increasing the bureaucracy behind it. Although administrative costs account for just 5% of total logistical costs, Dr Michael Gasiorek, a Fellow of the UKTPO, pointed out that an increase in bureaucracy will have a knock-on effect on transportation costs by increasing delays and reducing reliability. This would be significant for all goods because transportation makes up over 50% of the logistical costs.

The EY study, presented by Harriet Walker, highlighted that the tunnel is preferred over other, alternative transportation methods across the channel because of its prompt and reliable service, which is crucial for sectors such as the fresh food industry. Allan Edwards from the Institute Grocery Distribution emphasised the relevance of the timely service offered by the Eurotunnel and how the majority of producers work with ‘just-in-time’ production. New customs checks after Brexit, could put the whole of such trade at risk. Mr Edwards also pointed out that businesses are generally optimistic about the future, as industry will always find ways to adapt and access the marketplace, no matter how bad it looks, but this time they are pessimistic.

Increasing capacity, building new infrastructure, hiring and upskilling staff and conducting the necessary negotiations: how long will it take? Is the two years transition period presented by Downing Street enough? Well, to have a benchmark, John Keefe, Group Eurotunnel UK Director of Public Affairs gave the example of the implementation of exit checks at Eurotunnel passport control. This required officers to check the passport, check the passenger’s face and record the result in an IT system. Implementation time? It took three years, and passports did not require the real-time controls that would be necessary for goods, especially for fresh food.

Whether a transition window of 20 months as announced today is enough depends ultimately on where we are transitioning to. Until the results of the EU-UK negotiations are known, judgements on the implementation time-frame must remain vague; but overall, 20 months appears very short.

Brexit, conceived as exiting the Single Market and the Customs Union, will impose more border controls on goods, which will increase trade costs and transport time. New infrastructure and staff will be necessary and the advantages of the Eurotunnel over other transport alternatives might be at risk if its time effectiveness and reliability suffer. Just in time production including the delivery of animal and fresh products will be the most directly affected with manufacturing industries most likely to be disrupted by rising logistics costs. Michael Gasiorek pointed out that both the UK and the EU will need to adjust to new customs procedures, but as the share of trade for UK to EU is greater, getting all this right will matter much more to the UK.