It is now two weeks after the end of the post-Brexit transition period and Brexit shows what it means and it’s not what was promised in the Brexit referendum. Many had this suspicion, but many also believed it wouldn’t really affect them individually in a tangible way. On the basis of the Christmas EU-UK Trade deal, UK has become a third country for the EU. There was a relief, that a trade deal with no tariffs was agreed. The paperwork seemed to be an annoying but resolvable task with limited cost impact, but now news of what it means not to have frictionless trading are piling up.
Not unexpected and also envisaged by the government, there are longer queues of lorries, but also ships have to wait until they can unload and load. Many ‘day critical’ imports and exports halted, but also sectors with a lower degree of urgency in their logistics feel the pinch.
The reality of Brexit on Material Handling
In the material handling sector, many companies rely on imports, but these are not necessarily day critical. In the world of frictionless trading, we were spoilt. Punctual deliveries were the rule. Now, control over the logistical side of their production process has slipped away.
There are reports, that deliveries are not just a few days late. In one example, one key importer who serves the needs of well over sixty distributors covering the whole of the UK has had imports off loaded in North Africa, because UK ports simply can’t handle the work.
Other sources say that they had to fund sharp increases in handling and paperwork costs pushing the cost of European full loads from Italy for example up by £700, a 29% increase in freight.
Delay at the borders
It’s getting difficult to find drivers and companies willing to risk the delays. Without the right paperwork, goods are being turned round at the borders. Sharing transport costs by partnering is no longer possible due to VAT and customs charges. Travelling goods are account specific and therefore can no longer be shared or transferred in the course of normal supply.
The transported goods themselves are durable, but timetables for construction or production of other products will need to be extended. This means, there are additional direct costs for the time the product stays at the port. These costs have to be borne by the entire supply chain. There will be a chain reaction of additional costs and lost revenues due to the delay – plus increasing red tape with no added value.
None of this is speculation anymore, it is here to stay, along with the additional charges. Yes, prices may come down as we get better at it. However, the cost of Heavy Goods Vehicles from leading manufacturers for example have spiraled by as much as £16,000 since the so-called trade agreement came into effect, according to some sources.
Higher transport costs
With the expectation of longer and less predictable transport times, transport costs have been rising significantly in comparison to the last months of 2020. According to The Guardian, container freight rates have increased fourfold since November with $10,000 for a 40ft unit. A higher demand in goods and material at pre-Covid level as well as congestion across UK ports are claimed to cause the price rises. There’s also an imbalance of empty containers between Asia and Europe. Many empty containers are stranded in UK and Europe due to the stockpiling in UK in expectation of the end of the transition period.
Knock-on effects on the entire trade of ‘Global Britain’.
It is worth noting that this example shows that delays don’t only affect the EU-UK trade, which are about 50 % of UK trade. There are also knock-on effects on the entire trade of ‘Global Britain’.
In the past, transport costs between Italy and central England, for example would cost around £2,000 for a full articulated load on a collect Friday unload Tuesday basis. The cost is then applied to products by total or shared throughout the loaded quantities. That same lorry today (and I mean Friday 15 of January 2021 ) costs £3,100 and has 3 intervention points, any one of which could delay or stop the journey. The organisers need credit and paperwork in place. They need staff or agents capable of seeing the consignment through. These are all additional new costs. Of course, all these details were never mentioned on the red Brexit bus!
For big companies, such additional cost hikes can potentially be absorbed to a certain extent. They might also be able to organise cargos, where they fill cargos or ships with their products exclusively. In contrast, smaller size orders by SMEs might need to be sent along in a container with other products that could cause a delay causing attention at the customs.
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Covid is not helping either
The Covid effect on delays may be seen as rather limited. However, the stock piling of Covid related materials in ports is another issue which is preventing “normal” trade happening. The ‘English virus variant’ related queues at the French-UK border before year end have been cleared. The main causes for longer border procedures are the new required processing of papers and random physical checks. Custom officers as well as hauliers are on a steep learning curve. The capacity at the customs might not be sufficient and the system might not work.
The government pointed out, that those delays are temporary teething issues, which will be fixed. However, the ports have already responded to this last year by investing in greater infrastructure. This infrastructure has clearly not coped nor can it, otherwise goods wouldn’t be offloaded in Africa and then more ships have to be sent to collect them. That exercise alone has cost ten times the original budgets for handling, storage and delivery.
Are there any alternative solutions?
So, the big question is when and to what extent will there be smoother and faster borders at our coastline and Northern Ireland. There’ll be some relief (and less business) for British ports, as Irish transport routes will increasingly avoid the route via the British isle. Reports from other borders with similar trading regimes suggest that border procedures can be expected to be faster in future. However, it will always be a mixed picture with some days of a smooth passage and other days with waiting times. It already shows, it might not help one company to fill out the papers correctly, if others don’t do it. As with Covid, we are altogether in this.
With the current transport cost level, many orders have become too expensive and won’t be made. Speaking personally from experience, transport costs should reduce again in medium term, whenever that is, but never back to the pre-Brexit levels.
So, are the frictions at the border all worth it? Can we at least expect to bring more manufacturing home? I fear not, the sort of jobs which could return are related to metal industry jobs (at least in my sector). We lost 5 m of those and related work since the 80s (Scargill was right, it was the “tip of the iceberg”). China makes for the globe not just Sunderland.
I doubt we will be any less competitive for our UK clients in the medium term. Other than the inconveniences we are currently experiencing, the higher transport costs and the red tape costs will lead to higher prices in general. This inflationwill inevitably hamper the post-Covid recovery, as well.
SME’s hit by Post-Brexit related costs
In the short term, though, there are serious concerns, that especially SMEs are not only hit by the Covid induced recession, but now additionally by post-Brexit related costs. Some SMEs might not survive this. One more time, we couldn’t have any details regarding costs and of course this was not specified on that Brexit bus! Let’s remember, SME’s are the backbone of a healthy economy. My business is not any less fallible than anyone else’s, however we have been about for over 25 years with over 50 years and several generations in the engineering business, not everyone is that lucky.
It is important to state, that the failure of those SMEs isn’t caused by them not having adhered to filling out the custom paperwork properly. Most of those SME’s would have a solid business in the medium term. The inevitable chaos due to a late trade deal arrangement in tandem with the Covid- pandemic may prove to be too costly. If the government is convinced that these effects will be temporary, they would be well advised to provide very quick unbureaucratic short term support for SMEs that are affected heavily and unduly by the Brexit transition.
Most of these effects went under the politicians’ radar, but were they told? There is good reason to assume that yes they were, but it didn’t matter as everything was subordinated under the aim of ‘getting back control’. With over 9,000 standard industrial classifications you may ask what chance did the negotiation team have of getting this right at all, especially in a self-imposed time frame of a year?
It is our problem now because that’s what we voted for. The Industry knew about it, but we were not being elected and not been consulted. We are now asked to sort it out though and shoulder the burdens which go with it. The aim was to get control, but do we have actually more control?
You just won’t find that written on a red bus anytime soon, “me thinks”.
By Paul Casebourne – Writer and journalist for the Material Handling Hub & Engineered Solutions, business owner in field engineering, design and installation for materials handling, storage and distribution equipment. (Design, construct, build and install.) A unique frontline insight into the real world of real business and political collateral.