Brexit's Real Impact On Trade Is Only Speculative At Best

After two years of chaos and perpetual discussions over the British-European Union (EU) divorce, the country's exit was postponed in a late night agreement in April. An extension was given until October 31 – an extension reserved to decide on the terms of Brexit. The British Parliament and Prime Minister Theresa May have largely been at odds, as the EU exit deal terms remain caught in the middle with no signs of moving forward.

FreightWaves spoke with Patrik Burglund, the CEO of Xeneta, to discuss how Brexit discussions will affect trade and the logistics industry once Britain finally leaves the EU. "No one is really sure on what's going to happen, and companies are trying to take measures to accommodate for that uncertainty," said Burglund.

"Especially if you look at it from the shippers' and beneficial cargo owners' (BCOs) perspective, they are either setting up distribution centers outside of the U.K., or are stocking up their warehouses in the U.K. to have goods already imported into the country," he continued. "What is painful is that some of the customers we work with – the likes of Nestle and Unilever – are uncertain about the future of Brexit, and all they can do now is speculate on the consequences."

Though it is understood that imports will incur higher duties post-Brexit, Burgland contended that the problem is with the enormous resources, both in terms of time and money, that companies have spent to accommodate Brexit into their operations, while frantically figuring out back-up options to deal with the uncertainty.

"A simple example would be a fashion brand that imports into the U.K. Let's say they have been stocking over the last two years and have filled their warehouses to the brink, expecting increased import duties to the U.K. after Brexit. Think of the capital costs tied to the high-value luxury goods here. The supply chain leadership has no idea about what's going to happen, but regardless, are expected to do something to ease the issue. This makes the U.K. a less attractive market to be in," said Burgland.

Nonetheless, Burgland expected trade to sort itself out in the longer run. He cited examples of Norway and Switzerland – both of which are not part of the EU – have still managed to create trade agreements that make it a seamless affair. "What is different here is that the EU did not want to see the U.K. leave. Now it seems like it is not very responsive to setting up the new deal and the U.K. Parliament has made no progress with it either," he said.

Immediately after Brexit, the U.K. will probably witness a partial meltdown in its trade systems, because the uncertainty behind the regulations might make the country less attractive for shipping lines to move freight. This might lead to freight getting stuck at the port and borders for many hours on end, leading to shippers paying penalties in detention and demurrage.

Several lawmakers have continually stressed the negative impacts Brexit can have at Britain's borders, with Meg Hillier, a Labor co-operative politician, quoted saying that customs delays could cause queues that stretch over 112 miles from the port of Dover. The U.K. government has even tried experimenting with blockchain to decrease regulatory hassles, releasing a white paper that suggested using blockchain in the ledger while automating collection and submission of data for customs declarations.

"The British market will still be there, as long as the economy does not collapse. There will be a need for cargo to be transported to the U.K. soon. Think of the flow from Asia to the U.K., which will still function like before," said Burgland. "It will be a difficult market to serve, but as long as there's a need in terms of supply and demand, the trade will continue. All the hiccups and difficulties will happen in the short-un, but they should only be temporary."

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