On Thursday 23rd June, the British people voted to leave the European Union. Both remain and leave supporters were shocked by the result – bringing joy for some, and unease for others. But what does it mean for the logistics industry? Alexandra Leonards reports.
Everyone is flustered, puzzled and perplexed by the ambiguity of a future outside of the European Union. If Brexit had a mascot, it would be a confused one. An artist’s impression of the phenomenon would be blurry lined and disorderly.
The logistics industry is just as divided and confused as everybody else,but what is clear, is that nobody really planned for this eventuality.
A Logistics Manager survey found that less than one in five logistics organisations had a post-Brexit plan prior to the referendum. The survey, which was conducted in the two weeks leading up to the vote, found that 81 per cent of 320 respondents had no plan whatsoever; even though 52 per cent felt that a UK exit would have an impact on their business. But, in all fairness, it is near impossible to plan for an eventuality that we are so uncertain about even after it has happened.
There have been some rather worrying figures cropping up following the referendum. The International Monetary Fund predicts that the UK’s economy will expand by 1.7 per cent this year, 0.2 per cent lower than its original April forecast. What is even more concerning is that it estimates a slow down to 1.3 per cent next year, a 0.9 per cent decrease from its April prediction.
And a poll published by the Institute of Directors found that 24 per cent of its members will be putting a freeze on recruitment following the referendum. Five per cent said they will be making redundancies as a direct result. 64 per cent said Brexit will be negative for their business, and 22 per cent said they would consider moving some of their operations outside of the UK.
But will this reality be echoed in the logistics industry? Beginning to isolate the industry’s stance on the ‘Brexit earthquake’ is problematic. Much of the industry is optimistic about the future. But some do see it as just that, an all-destroying earthquake – they’re finding it hard to see the light.
Patrick Wall, CEO of delivery management company MetaPack, thinks Brexit will be good for business. “We think it will be positive,” he says. “Regardless of the final trading settlement across Europe post-Brexit, e-commerce will continue to be driven by consumer demand, and MetaPack will continue to help retailers and brands to uphold frictionless cross border trade. It is fundamental to our business.”
For MetaPack, says Wall, there will be no impact on its hiring intentions, and it will not be moving any of its operations.
“There will be no effect,” he says. “E-commerce will continue to see growth of 15 to 20 per cent per year and consumers will continue to demand better and better delivery options, whether they are buying in country or cross border.
“So, in terms of hiring, we will continue to employ staff who can help us to build the company across all territories.”
But not all companies are feeling as breezy about the UK’s future outside of the European Union.
“This will most definitely have a negative impact, certainly on the short term,” says Jaap Vos, managing director of SSI Schaefer UK. “Two primary reasons we can already see. The exchange rate dropping has a negative impact when importing goods.
“Secondly the buying decisions of our customer may well be delayed due to the current uncertain climate. Both will have an impact on order intake and profit margin for any business.”
It is extremely difficult to predict where this is leading, he says, and what the medium term effects will be.
“SSI UK has been and will continue to invest in the future growth of our company,” says Vos. “We will however review the current plan and may well decide to delay certain investments.”
Vos thinks that the result demonstrates a vote against the establishment, both the UK government and Brussels, but not against the EU and its principle as a whole.
“Firstly the whole referendum was extremely badly managed by both political sides, and as all the so called front runners have disappeared, the immediate need will be for strong leadership to be put in place to handle any negotiations,” he says. “As both the EU and UK are highly dependent on each other I would like to think that a sensible and suitable compromise can be reached.”
For A-Safe, it’s business as usual. “The company’s plans for expansion and further integration in Europe won’t be influenced by Brexit at all,” says James Smith, A-safe director. “Strong, robust companies like A-SAFE need to be flexible enough to perform well outside of market forces that are, ultimately, beyond their control.”
He says that its current European subsidiaries are already embedded in their respective countries.
“They are set-up locally – which means they are run by local people, who understand and respect the local business customs and local service culture – even if that happens to be with global companies such as Volkswagen in Germany, Nestlé in The Netherlands or BASF across Scandinavia,” he says. “In the most recent recession we still posted year-on-year growth, so have proved we can succeed and grow, regardless of large-scale market changes.”
Logistics company Dachser sees opportunities as well as risks. Nick Lowe, managing director, Dachser UK, says: “A key factor will of course be whether we maintain full access to the Single Market or not, given that the largest proportion of our business is European road freight export and import.”
He reckons that it is difficult to say on balance whether the impact will be positive or negative until more details are known.
“In any case, with an exit from the EU, the default position will be that customs clearance will be re-introduced for shipments to and from the EU, after borderless trading since 1993,” he says. “As an AEO (Authorised Economic Operator) we are well positioned to deal with whichever circumstances and procedures we need to accommodate and deal with in this respect.”
Lowe says that there is no doubt that, from a business perspective, the prospect of Brexit raises a significant number of questions and creates uncertainty in the market.
“As a logistics service provider with a large proportion of our business being concerned with European freight services, we are certainly facing the Brexit headlights,” he says. “Nonetheless, whatever direction the trade negotiations take and whatever the outcome is, we have a lot of flexibility within our business model which means that we can adapt and change in line with market requirements.”
Dachser intends to continue its export and import distribution services and maintain growth in the market share. “Even if, as could well be the case, the overall market reduces,” he says.
If clients wish to move their stocks to Europe to serve their customers more efficiently, Dachser will facilitate this via contract logistics services across its 330 European branch offices.
“Similarly, if companies importing from Europe want to build increased stock-holdings in the UK,” he says. “We can offer our contract logistics services here.”
However, ParcelHero’s David Jinks seems to think that red tape restrictions could be enforced after our exit.
“ParcelHero regularly ships to those countries that are in Europe but not in the EU, such as Switzerland, Norway and Iceland,” he says. “Parcels sent to these countries face customs delays, red tape and tariffs of between 5-9 per cent on average. We hope that the UK will not find itself with similar customs charges and paperwork.”
Andrew Baxter, managing director of Europa Worldwide Group, described the 23rd June as a “great day for Britain”.
“Even though the world does not yet seem to realise, Britain has just taken a step that will ultimately make it economically safer and more secure,” says Baxter. “The EU is on the wrong course.
“The Euro cannot work without a super-state, and a super-state will not work in practice. It’s time for the EU to rethink its direction.”
Pall-Ex managing director, Kevin Buchanan, disagrees. He says that his business has always felt Britain is stronger in the union, and he’s concerned about the impact Brexit will have on the supply chain.
“We’re saddened that the majority of people didn’t share our view,” said Buchanan. “We stand firm in our belief that the UK’s supply chain will be deeply affected by the referendum outcome, as it’s always relied on an efficient international logistics network. Jobs, trade and investment are all likely to be impacted.”
Mike Danby, CEO of Advanced Supply Chain, points out that membership of the EU brought with it a collective power for global trade deals.
“Britain will now be a smaller international player, up against the US, EU and China in international negotiations,” he says. “Even though we are a big economy, we’re not anywhere near close to the 500m population of the EU.
“Business is hard enough without unnecessary headwinds, and this is what the result has delivered. My primary concern as ever, is making sure we are prepared for the new trading environment this will deliver – we need to ensure our business and our people continue to thrive.”
Sometimes the unknown is scarier than the reality. Sometimes it’s not. Either way, the logistics industry will pull through this turbulent time, as it has done in the past. The concerns are there, and they cannot be concealed. But there is no doubt that once the dust has settled, the logistics industry will roll up its sleeves and adapt to the new changes.
Who’s hit the hardest?
Simon Cowie, chairman of Mail Boxes Etc, says that Brexit will hit small export/import businesses the hardest.
“Although a trading deal with the EU is likely, there is a lot of ignorance about the benefits the Single Market brings to small businesses,” he said. “Currently, importing and exporting goods to the other 27 members is almost as straightforward as sending goods from London to Newcastle.
“In future, companies will have to generate Commercial Invoice documentation (in triplicate), face customs inspection and associated delays and, in many cases, pay additional duties and freight forwarding bills.”
He says that currently it costs businesses around 50 per cent more to send packages to non-EU countries like Norway and Switzerland.
Online sales could also be impacted. Scurri, the cloud based fulfilment platform, has predicted that there will be a £33.4 billion loss for online retailers as a result of the EU referendum result.
“Almost ten per cent of sales done on UK web sites are from outside of the country, and now, this could all be threatened or even lost with consumers not willing to purchase their products off UK based web sites,” says Rory O’Connor, founder and chief executive of Scurri.
Trade associations want to meet Theresa May
The Freight Transport Association has warned that leaving the European Union risks new cost restraints and ‘bureaucratic requirements’ being forced upon moving goods around Europe.
“Even though we are coming out of Europe politically, it remains our biggest export market and the supplier of a high proportion of our imports,” says chief executive David Wells. “We cannot allow new bureaucratic burdens to hamper the efficient movement of exports heading for customers and imported goods destined for British consumers.
“The government has two years to ensure the conditions currently imposed on other non-EU member states such as Albania and Serbia are not imposed on UK freight flows.
“Norway and Switzerland have better arrangements but have accepted tough conditions including the free movement of people, so this will be a difficult negotiation.”
Both the FTA and the Road Haulage Association (RHA) called for meetings with new prime minister Theresa May last month, urging her and the new government to put logistics first in Brexit negotiations to ensure the free movement of goods.
“The logistics industry employs over 2.2 million people and is a vital component of UK plc,” says RHA chief executive, Richard Burnett, at the time. “It is therefore essential that as Prime Minister she understands that the needs and interests of our industry must be taken into account during the forthcoming Brexit negotiations.”
Peter Ward, CEO of the UK Warehousing Association (UKWA), says that for forty years members of the association have enjoyed the benefits of ‘logistics sans frontiers’. He hopes that new trade agreements won’t return to costly “red tape and customs regulations”.
“As usual the devil is in the detail, and we will work hard on behalf of our members to ensure those negotiating Britain’s exit fully understand the ramifications,” he says. “On the positive side, we have for some time been talking about the new opportunities for British business emerging with the big super-powers in different parts of the world; already we are focusing on the tremendous potential in China.”
But Peter Ward’s message is one of confidence in the resilience and resourcefulness of the logistics industry. “While we remain unsure of what post Brexit will bring, business leaders are ready to meet the challenges ahead and UKWA will be playing its part in lobbying the government hard to ensure that the concerns of the industry are heard, understood and addressed,” he says.
Top concerns for the logistics industry
A Logistics Manager survey, conducted in the two weeks leading up to the referendum, found that 71 per cent of logistics professionals felt economic stability was a major concern
- 56 per cent said currency value was a big issue
- 52 per cent were concerned about the impact on trade deals with Europe
- 17 per cent said the possible reduction in migrant workers was an issue
- An FTA survey of the haulage industry found that the top three priorities for hauliers are: continued full access to the single market, tariff-free access for goods and the preservation of access to the Single Market for services.
Maintaining the ability to continue hiring non-UK drivers who have the right to work in both the UK and the Single Market was also identified as important
Motor industry aims to protect exports
One industry that could be particularly affected by Brexit is automotive, where exports to continental Europe are critical to the health of many production plants. Almost 1.6 million cars were produced in the UK in 2015, and 57.5 per cent of them went to EU countries.
Mike Hawes, chief executive of the Society of Motor Manufacturers & Traders, right, argues that the government must now maintain economic stability and secure a deal with the EU that will guarantee UK automotive interests.
“This includes securing tariff-free access to European and other global markets, ensuring we can recruit talent from the EU and the rest of the world and making the UK the most competitive place in Europe for automotive investment,” he says.