Friday, 20 December 2019

UK election result brings measure of clarity on Brexit


While there remains little enthusiasm for the UK’s exit from the European Union among those with regional supply chains, the landslide reelection of the Conservative Party on a “Get Brexit Done” ticket has at least introduced some certainty into the process that has been absent for the past three years.
The election result virtually guarantees Britain will leave the EU by the end of January, although a damaging no-deal Brexit is still very much in the cards. The UK and EU must now sign the revised withdrawal agreement reached in October, after which a transition period will be set before the agreed rules take effect.
What no one in the cargo transport business wants is more delays and uncertainty. Robert Keen, director general of the British International Freight Association (BIFA), said the details of the UK’s future relationship with the EU needed to be made clear by the British government. He said BIFA members wanted assurances they would not have a messy and disorderly exit from the EU.
“As the people who facilitate a significant proportion of the UK’s visible trade with the EU, and the rest of the world, they are looking for the government to avoid a no-deal exit from the EU and deliver a smooth transition giving companies time to prepare,” Keen said in a statement.
“In regards to a future trade agreement with the EU, I would urge the new [UK] government to seek and commit to a workable adjustment period once the details are revealed about the changes our members might face in regards to the movement of freight across borders,” he added. “Now is not the time for arbitrary negotiating deadlines.”
Over the past three years, manufacturers and retailers in the UK and Europe have been building and paring down inventories as each Brexit deadline was reached and then pushed back. Shippers have now adjusted their supply chains in anticipation of Britain leaving the European customs union and the single market, which will require checks on cargo moving across the channel, and licenses for drivers and trucks passing across the border. 

Customs checks still a reality

Diego Iscaro, senior principal economist, economics and country risk for IHS Markit, said there was still a likelihood of new customs checks and non-tariff barriers.
“There is more clarity in the very short term, i.e. the UK will be leaving the EU by Jan. 31, but there’s still substantial uncertainty about what kind of deal — if any — the UK and the EU will reach by the end of 2020,” he said. 
Andrew Baxter, managing director at Europa Worldwide Group, said he remained optimistic the UK government would be able to negotiate a clear trade agreement with the EU.
“The question for us now is when is it going to happen, and precisely what all the processes will be and what the level of tariffs will be,” he said. “As far as we are concerned, providing we have reasonable notice of the processes and tariffs and the implementation date, we are very confident that we can deliver a smooth transition for our customers.”
How trade volume will be affected through the transition period is difficult to predict. Logistics advisor Steve Walker said it could be some time before there was an actual increase in cargo volume moving between the UK and the EU.
“Once the euphoria dies down and business starts to gain some confidence, I expect that forwarding customers will have to work through their pre-planned inventory holdings before we start to see an increase in freight volumes,” he told JOC.com.
The UK government is hoping much of that volume will be generated by free trade deals. Once out of the customs union, the UK will be able to sign free trade agreements with third countries, and much has been made of a UK-United States trade deal aimed at offsetting any potential loss of European markets. 
But according to independent analysts at the UK Trade Policy Observatory (UKTPO), signing a deal with the US would certainly yield benefits to the UK, but those benefits would be much smaller compared with the trade losses from leaving the EU.
“With regard to goods trade, the UK already has, on the whole, low tariff access to the US,” according to a UKTPO blog post Friday. “US most favored nation tariffs are already zero on 50 percent of UK exports to the EU and are less than 5 percent on a further 38 percent. Only 12 percent of UK exports therefore face tariffs greater than 5 percent — so the scope for increasing trade substantially through tariff reductions is low.”
Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.


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