BREXIT: No big deal?
Written by Ant Gould
Amid ongoing uncertainty surrounding trade arrangements, much has been said about ports congestion and transportation of goods. As the UK faces new border controls, Ant Gould considers the risk management issues
Millions of trucks arriving by ferry and Channel Tunnel shuttles, food rotting in lorries, medicine shortages at NHS hospitals and stalled production lines… this is what the doomsayers are warning will happen if Britain cannot reach a deal with the European Union.
Meanwhile, others point to Theresa May’s July UK-EU Future Relationship White Paper, which includes plans for a Facilitated Customs Arrangement – a frictionless free trade agreement that involves the UK becoming a Combined Customs Territory. Defenders of the soft-Brexit Chequers plan say it would enable mutual recognition of standards and for trade between the UK and the EU to be free from customs controls and checks.
Wherever you stand on Brexit, the fact remains that we don’t yet know for sure what the final arrangements will be, so it makes sense to consider all the potential ramifications of a range of outcomes. So, alarmism and politics aside, what are the real risk issues for businesses of the ongoing ports saga?
“Our greatest concern in leaving the EU has been disruption to the flow of trade at ports” comments David Dingle CBE, chairman of Maritime UK. “This white paper, if realised, would preserve the free flow of trade at our borders with the EU. Industry on both sides of the channel has been calling for frictionless trade, and shared rules would remove many of the barriers.”
Without an agreement, goods travelling to and from Europe will be subject to new authorisations and other requirements as of March 2019. New border processes could be most challenging for freight on lorries travelling through roll-on roll-off ferry port gateways such as Dover, Holyhead, Immingham and Portsmouth.
Ro-Ro ports collectively facilitate most of the UK’s EU trade. Currently, the Customs Union and Single Market allows roll-on/roll-off vehicle traffic to call at a port without prior reservation. This avoids congestion and helps businesses that rely upon just-in-time logistics. The reintroduction of border controls could potentially create bottlenecks at those ports, so those with established supply chains should consider the implications in terms of goods and timing.
James Hookham, deputy chief executive, the Freight Transport Association, expresses his point of view: “without an agreement…there is a very real prospect of severe road delays on both sides of the Channel, and, ultimately, a significant threat to the UK’s complex supply chain on which we all rely, from both a business and a personal point of view.”
Fears were certainly stoked earlier this year with the publication of a Lords Sub-Committee report, Brexit, food prices and availability, which concluded: “We do not believe the UK’s ports and airports will be able to cope with the additional workload that new checks will create, and this will add significantly to the import timescales. Significant delays will disrupt the ‘Just-In-Time’ supply chains that food manufacturers and retailers depend on and could affect the availability of food.”
That report also gave Project Fear more fuel for its fire with its calculations from KPMG that “one day of delay for a lorry will easily cost a business E600 to E1,000” and that delays would mean “businesses will have to make more frequent use of ‘last minute’ carriers charging premium rates”, which could add 20 to 25 per cent to transport costs.
Risk management and contingency planning are fundamental for all businesses impacted, particularly as insurance can only provide limited support. As Martin Bridges, technical services director at the British Insurance Brokers’ Association confirms, customs delays cannot be covered by suppliers’ extensions to business interruption insurance “as actions and delays by officials and port authorities are not insurable.”
Meanwhile, what are the government and the ports authorities doing to help mitigate any potential issues?
The European Sea Ports Organisation defines the challenge quite simply; if border controls are reintroduced, some ports will have to reorganise the layout of their terminals, as well as to make investments in the development of innovative IT solutions and additional workforce to cope with the increase of administrative burden.
The UK’s Major Port’s Group says the UK’s container ports are ready to cope with whatever trading arrangements are put in place. Chair Charles Hammond points to recent investment in inspection facilities, more capacity and warehouses for goods to be checked before they enter the UK. He adds that its members are creating capacity to handle more lorries as well as containers and that many of the ports within the group already must make sure goods from outside the EU have paid the appropriate customs and meet regulations.
The UKMPG includes companies managing container ports in Belfast, London, Southampton, Essex, Humberside and Teesside. However, it does not include the port of Dover which handles most lorry traffic in the UK coming from continental Europe, or Holyhead, the main route for imports travelling by sea from Ireland.
There were 2.5 million lorries entering the UK through Dover in 2015 and just over a quarter of a million through Holyhead, according to government think tank the Institute for Government. Research from Imperial College London also claims that adding just two extra minutes to vehicle checks could lead to motorway tailbacks in Dover up to 29 miles long.
According to a survey by the British Chambers of Commerce and the Port of Dover earlier this year, about a third of companies believe delays at ports would affect their administration, costs and operations, yet one in three lack contingency plans to cope with likely new customs procedures; and one in three (33%) affected by the implementation of new customs procedures aren’t planning for checks and declarations between the UK and EU.
Significantly, despite the UKMPG’s optimism, 67 per cent of respondents said it was unlikely their business would switch to a different UK port in the next three years.
One option for Dover – and other ports – is to move the clearance checks away from the ports, inland. However, this is easier said than done under the UK’s planning regime. The government’s original plan for an overflow lorry park at Stanford West, near Folkestone, for example, had to be scrapped in November last year, after being challenged in the courts.
“CDS has a capacity of 300 million – ample in theory to cope with the anticipated 255 million declarations a year – but it is not yet known if it will be fully functional by March next year.”
This summer, the Department for Transport unveiled a new contingency plan to convert part of the M20 motorway into a lorry park as a temporary stopgap. Called Operation Brock it is like Operation Stack and relates to a 13-mile stretch of the coastbound section of the M20, between junction 8 and junction 9, earmarked to hold heavy goods vehicles, and would effectively become a temporary lorry park holding around 2,000 vehicles.
Border controls mean HMRC will need to employ an estimated additional 5,000 customs officials by 2019 supported by a new digital IT system, the Customs Declaration System. The existing system, Chief, handles about 55 million declarations a year and has a capacity of 100 million. CDS has a capacity of 300 million – ample in theory to cope with the anticipated 255 million declarations a year – but it is not yet known if it will be fully functional by March next year.
The first release of CDS was implemented in August with a selected group of importers. The government insists “the majority of importers will start using CDS from November, once their own software provider or in-house IT team has completed development of CDS-compatible software. Exporters will follow this. Chief will continue to operate in parallel while the transition of traders takes place.”
Kevin Franklin, HMRC’s customs transformation programme director, says: “We have been engaging closely with trade representatives including software developers, Community System Providers, freight forwarders, and traders themselves about CDS and we value the support from these organisations in preparing importers and exporters for the upcoming changes. Our priority now is to make sure software developers, agents and their clients are ready, and we will continue to work closely with them throughout the transition.”
In the final analysis, the ports, the government and businesses are all preparing for an unknown future – and the solutions involve long-term planning. Wherever you stand on Brexit, the clock is ticking. By the time you read this, a deal for frictionless trade may have been agreed – to the great relief of business, the ports and government; however, based on the progress of talks to date, not to mention political manoeuvring, that seems increasingly unlikely.
This article was published in the September 2018 issue of CIR Magazine.
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