Blog 5: Brexit – Productivity and turnaround time

To:

Dr Andrew Grainger

Trade facilitation theorist

Nottinghamshire, England, UK

Breda, 4 April 2021

Dear Andrew,

It took me a while to write this third letter, because I had to do a bit of research. And that always takes time.

What I wanted to look into is your intriguing conception of inverse trade facilitation (due to Brexit) and combine this with the teaching mandate (leeropdracht, in Dutch) of my Chair in Trade and Logistics at RSM. So: how is this new border impacting logistics? This letter only allows for some anecdotes, but a future paper may contain a more detailed discussion.

I spoke to a CEO of a large Dutch logistics firm that maintains a considerable traffic volume across the Channel. They usually cross via the Tunnel, because that is quickest, and fits best in their truck/driver scheduling. They have cargoes going both ways, so trucks deliver cargo in the UK, and then pick up cargo headed for the continent on the backhaul.

They anticipated long, long queues for the train and the Tunnel, and booked space on the ferry links to compensate for that. Obviously, massive queuing did not happen, and, due to the considerable stock build-up in the autumn of 2020, volumes dropped to virtually zero in the beginning of 2021. Volumes have only recently crept back towards original levels. The ferries are booked, however, and therefore they occasionally use them. But this disturbs the regular planning of the trucks because the ferries take more time. As a result, the trucks are less productive which cuts into revenue.

Another cause of unproductivity of the trucks is the waiting time the trucks and drivers incur at UK loading locations. Many UK companies are only beginning to get their documentation in order, and this results in additional time during and after loading the trucks to complete the documentation (invoices, certificates). The total cycle time for a truck to and from the UK, all other things being equal, simply is higher than in 2020.

In the Netherlands, the Holland International Distribution Council supports our Netherlands Foreign Investment Agency with their logistics related projects. They are VERY busy at the moment with inventory projects from UK companies. They have about a hundred UK based companies projects where stock is being shifted to the Continent, because the normal 24 hours transit for order-today-deliver-tomorrow business is no longer feasible. In many cases, this continental stock is then supplied directly via continental ports, and as a result traffic across the Channel is, or will be, lower. It would be interesting to come up with a way to identify this effect in the official trade statistics in due course.

Finally, I spoke with the industry association Evofenedex. They have been following Brexit for years, and we discussed so many things that I have to write about some of them in my next letter. They confirmed the drop in volume in Q1 of 2021, as a result of pre-emptive inventory building in the UK in 2020. They observed many crossings of empty trucks, and also large and small companies dropping out of the UK market altogether.

We had an interesting discussion on the current enforcement imbalance, where the UK checks very little, while French, Belgium and Dutch Customs do perform checks according to the rules of the EU. Since in many cases, documents were not in order, some perishable cargoes, such as chicken meat, fish and flowers, spent too much time at the border, and had to be destroyed in the end. This currently has consequences for purchasing contracts, where buyers on the continent are trying to shift the liability for faulty documentation to their UK partners. This will inevitably have an impact on prices of products.

As a general conclusion, I guess the main consequence of Brexit for logistics is that door-to-door transports take more time and these transport durations are more uncertain. This sounds simple, but reliable logistics requires predictable transit times. Companies will respond with drastic measures, such as shifting stock, allocating more trucks, and/or charging higher prices or uncertainty fees to their customers. There is perhaps a certain overelasticity present here, but business abhor uncertainty, and will go at great lengths to avoid it.

Our discussion partners from Evofenedex also made some intriguing remarks about specific customs knowledge that is in short supply in the UK. Knowledge on how to arrange transport under customs supervision (transit), for instance, is apparently not widely available in the UK. This type of transport would avoid stopping at borders, but it is also crucial for traffic between the Continent and Ireland. Let’s discuss this in our next letter. I will try to find a company that is offering a new connection directly from the continent to Ireland.

I am looking forward to your UK perspective,

Stay safe,

Albert