BREXIT. An opportunity or a threat to logistics?

It may be that little will change and that economic patterns will continue as before, but the probability is that there will be some alteration in the shape of economic activity. That will have an impact on logistics within Britain and across Europe.

The most clearly affected sector, and one that demands extensive logistics services, is that of food. Although agriculture accounts for less than 1% of GDP in the UK it accounts for 11% of inter-EU exports. It is also the focus of more than 40% of the EUs budget and is protected by an extensive network of tariffs.

Removing such subsidies and tariffs from the UK market will inevitably have an impact. Many basic food commodities such as wheat, beef, and sugar, are available in quantity from world markets at much lower prices. Bearing in mind the UK’s long held preference for market driven trade policies it seems likely that in the long term the UK government will seek a change from the protectionism of the Common Agricultural Policy.

Britain imports around 40% of its food requirements, with the Republic of Ireland and France being the leading beneficiaries of trade. There are already some indications that UK grocery retailers and their food processor suppliers are thinking about the structure of their supply chains and here the implications for logistics may be significant.

The appetite for reefers and reefer boxes is likely to grow, as will agri-bulk shipping. Air freight may also benefit, with greater opportunities for higher cost fruit and vegetable imports. It would appear logical to assume food warehousing capacity would increase.

The losers may be fewer than might be imagined. Most agricultural products from continental Europe are imported by road, often in a processed form. Cross-Channel road freight may be hit but overall the logistics sector may benefit as a more globalised food supply chain will be more demanding in terms of logistics services.

The picture is equivocal in other, larger parts of the economy. The automotive sector in particular faces a degree of uncertainty. The suggestion is that the assembly plants in Britain will be vulnerable to tariffs imposed by the EU. However, some of the numbers suggest that this might not be such a problem.

The UK runs a £10bn deficit in terms of finished passenger cars. The largest beneficiary of this is Germany, with Poland, Hungary, Sweden, Slovakia, France, and Spain also exporting heavily to Britain. The picture is complicated even more by the fact that 70% of UK production is exported both to the EU and the wider world. Supply chains in the automotive sector are rarely globalised, however most assembly operations in Britain and Europe have a substantial international element.

As a result, the incentive to all concerned to retain the status quo is great.

Possibly there may be changes in the area of finished vehicle imports from outside the EU, with Britain pursuing free-trade agreements with the likes of Japan, South Korea and the US. However, any loss of market-share would be as great a threat to the likes of Peugeot-Citroen or Volvo as to the German big-three, so even here there may be less change than initially might be expected.

The prospect for automotive logistics in the UK is probably one of continued expansion.

As regards logistics provision generally, the sector that will have the biggest impact will be retailing. As mentioned food retailing will be one of the sectors most significantly affected, however other areas do not operate under the same protectionist environment. Commodities such as clothing, furniture or consumer electronics have long been sourced globally. Compared to the impact of e-retailing, it is hard to think that Brexit will have an enormous effect on supply chain geography.  

Overall, the impression is that Britain will become an economy with an increased exposure to global rather than regional markets. This will not be a huge change in the short-term but it will be there. However, this trend has been in existence for a decade or more. Trade with the EU has fallen as a proportion of overall trade, from over 50% a couple of decades ago, to around 43% today. This is a trend that is also seen in other EU economies, such as Germany or the Netherlands. It might be suggested that Brexit will simply accelerate an existing trend in terms of the geography of supply chains.

This surely is a positive trend for the logistics sector. Both in terms of exports and imports, a mild stimulus to globalisation would increase demand for many aspects of existing logistics services and infrastructure. Of course there might be losers, such as cross-channel road freight suffering from less agricultural trade, although compared to the volatility of the last few years it may be a detail. In terms of the overall market Brexit may represent as much of an opportunity as a threat.

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Source: Transport Intelligence, August 16th, 2016

Author: Thomas Cullen