This article originally appeared in the March/April issue of PARCEL.
On June 29, 2016, the UK voted to leave the EU in what has become known as Brexit. This historic event has created great uncertainty across European markets. The timeline that the British Prime Minister established to invoke Article 50, the formal two year negotiation with the EU, is quickly approaching (March 31). What is evident is that trade will change within the EU and around the world, possibly creating costly additional requirements within the logistics industry.
A primary concern of the negotiation is whether the UK will remain in the customs union, which facilitates free trade between EU states by ensuring no tariffs are applied on goods moving between countries within the union. The customs union also established uniform tariffs that member countries use to charge for goods that move between non-member countries.
According to the UK’s Office of National Statistics, 44%, or approximately $274 billion, of the country’s exports go to the EU. Without the customs union, import tariffs and administrative costs are likely to rise significantly. An analysis from The Independent, a UK media outlet, forecasts the cost to UK exporters in extra tariffs alone could exceed $5.6 billion per year. Tariffs and administrative costs may not be the only areas to be negatively impacted as ports could also see backlogs as ships and trucks enter or exit the UK. A UK customs trade lawyer noted, “You will need to at least double the number of customs officials than you have now.”
The movement of small parcels will be affected for both B2C and B2B. As a B2B example, the automotive industry has long been dependent on small parcels for their just-in-time business model. Almost 60% of the parts in the average British-assembled car are made abroad, and some components travel to and from the continent several times in the manufacturing process . This same concern is a massive issue in the United States with Donald Trump’s proposed changes to NAFTA and Mexican import tariffs.
From a B2C perspective, the UK parcel market is growing rapidly thanks to e-commerce. According to IMRG, the UK industry association for online retail, and Capgemini, the market is estimated at £10bn (about USD $12.5 billion). Most of this growth is B2C, with internet sales accounting for 15% of total UK retail sales. Cross-border shopping is big, with an estimated 54% of consumers making at least one purchase on a foreign website as reported in a 2015 Payvision study. According to Ecommerce Europe and the Ecommerce Foundation’s joint industry report, 6.1% of UK GDP comes from online sales as 20% of UK online merchants sell cross-border to the EU. Brexit could have negative impacts on both the British and the European e-commerce sector. This could include higher prices for UK consumers as well as increased vulnerability. For instance, the EU’s proposals for harmonized protection, which include regulations against geoblocking (where users in a geographic region are prevented from making online purchases from another region or country), will no longer apply to the UK.
Speculation on Brexit’s impact on parcel and supply chains will continue for at least two years as the UK withdraws from the EU. What is clear is that top management of major parcel carriers strongly oppose these new protectionist policies and believe they will negatively impact customers in the form of higher prices and increases in shipping costs. Shippers should closely monitor the situation and, when appropriate, voice their opinions on how different policies will impact them.