Whatever the outcome of the Brexit negotiations, the UK will need to continue trading. Central to this will be efficient ports that are equipped to deal with new border and customs arrangements. Ed Bowsher examines their current and likely state of readiness.
The vast majority (95%) of the UK’s trade goes through UK ports, yet there is widespread concern that these ports won’t be able to cope in 2019 once we leave the EU.
Chancellor of the Exchequer, Philip Hammond, shares these concerns, so whatever your perspective on Brexit, ensuring the future capability of UK ports is vital for a fully functioning economy.
The ports issue raises two big questions. How bad could things get? And, what can the government and business do to try and mitigate any potential problems?
What might happen
Let’s start by looking at some of the nightmare scenarios that might happen on the departure date. Philip Hammond gave evidence to the House of Lords Economic Affairs Committee in September and pointed out that Dover is a ‘flow through’ port.
Lorries drive off the ferries and straight onto the motorway with no delays – if they’re delayed due to customs checks, even for just a few minutes, there would be ‘significant disruptions to patterns of movements’, said Hammond.
In other words, there could be very long queues and potentially complete chaos. In short, Dover would struggle to cope.
Strike action in Calais in 2015 created ‘absolute bedlam’ at Dover, with very long lorry queues. The chaos cost the UK economy £1bn, according to a report, Ready on Day One, by Charlie Elphicke, the Conservative MP for Dover.
In a worst-case Brexit scenario, the economic damage of chaos at Dover could be much larger, assuming the disruption lasted for a sustained period.
Dover is a crucial port for the UK and it’s by far the biggest roll-on, roll-off (ro-ro) port in the UK.
If you combine Dover with Eurotunnel, the two connection points handle more than a third of the UK’s traded goods, according to Andrew Meaney, a transport expert and partner at Oxera, an economics consultancy firm.
The situation could be made even worse by the introduction of the new Customs Declaration System in January 2019. The CDS will replace the current ‘Chief’ system, and should improve the customs process in the medium term. But the worry is that there will be teething problems with CDS, which won’t have been resolved by April 2019.
As Tim Morris, CEO of the UK Major Ports Group says, “We can all point to large public sector transformation projects that haven’t gone to time or to budget. So, there is clearly an implementation risk factor there.”
Customs is a crucial issue because the number of customs declarations at UK ports could soar, perhaps by as much as five times.
Of course, Dover isn’t the UK’s only major port. There are the container ports, the three biggest of which are Felixstowe, London Gateway, and Southampton. Apart from the fact that you don’t have lots of lorries driving off the boat, the major difference between these ports and Dover is that more than 90% of the goods passing through are going to or from non-EU countries.
Liverpool Superport is continuing to grow and will serve to redress the regional balance away from being mainly southern and Europe-facing, in an ironic reversal of what happened since EEC accession in 1973.
Thanks to that heavy trade with non-EU countries, Morris says that the big three container ports are less worried than Dover, but they’re not carefree.
Their concern is the possibility of knock-on effects from any chaos at Dover – particularly if there are also problems with the CDS.
“If the CDS gets overloaded, there’s a ripple effect and systems and processes that work fine at the moment might struggle,” he says. Even if the CDS implementation works fine, “the multiple up-rate in demand” for customs declarations could still trigger ripple effect problems for the container ports.
So, what can or should be done?
The other cost of all this is uncertainty. Firms don’t know whether to spend money now to mitigate any potential problems or not. So, what can be done?
The simplest solution would be to stay in the EU customs union post-Brexit, but the government remains adamant that will not happen, because it would prevent the UK from negotiating new trade treaties with non-EU countries. Perhaps the ideal solution would be quasi-membership of the customs union.
In practical terms, not much would change for the ports, shipping firms and hauliers, but the UK would still have firmly left the EU. This could be part of a temporary transition arrangement or implementation period, or it could it be a permanent deal. There’s a good chance that this will be the outcome, but the challenge is to persuade the EU27 to agree to such a deal.
Morris thinks the government also needs to work hard on coming up with new customs processes as quickly as possible. “Inevitably, procedures will have to change.
What you’ll be looking for are things like trying to do as much pre-notification as you can, trying to move checks, customs checks and non-customs checks like animal health and public health away from the ports themselves.
“It’s a combination of processes, trying to make them as lean as possible, although some change is inevitable, and it’s about physical location – where you might want to do some of the checks that have to happen as far away from the physical interface as you can, using technology.”
When asked if it was likely that all of the above would have been implemented by April 2019, Morris simply replied, “That is a very good question.”
Across the Channel
Even if all the UK ports are fully prepared on day one for Brexit, you could still have hold-ups at ports in France, the Netherland and the Republic of Ireland as they could also face a huge increase in customs declarations at their end.
Clearly, customs chaos will hurt European economies as well as ours, so it’s crucial that the UK government works with other EU countries to encourage them to make their own plans. And this isn’t just something government can do; UK ports need to work with their overseas equivalents as well.
Worryingly, the UK government and its European partners don’t appear to be doing much work on this issue, (orthey weren’t in September). Hammond told the House of Lords committee: “We have had less engagement than we would like with our customs counterparts in our immediate neighbours at a technical level.”
However, there is work being done at the level of the ports themselves.
David Leighton, group head of corporate affairs at Associated British Ports says, “ABP has been reaching out to a lot of ports across Europe to work together and cooperate to achieve frictionless trade and be prepared for whatever circumstances arise at the conclusion of the Brexit negotiations.
“I think the shared perspective is that it’s incumbent upon us to make sure that trade can flow in as frictionless way as possible on behalf of our customers.”
He also thinks that some of the discussions ABP has been having across Europe have been “hugely encouraging…there are a number of ports in Europe which are committed to investing and preparing for whatever scenario arises.”
Even if we revert to WTO rules and third-country status for the UK, “there are ports across Europe already cooperating on the basis of that particular outcome to make sure that trade can flow as smoothly as possible.” Those ports include those operated by ABP in Europe, including Zeebrugge.
Moving traffic from Dover
It’s possible that some trade could be moved away from Dover to other ports, but that’s not ideal as no other port can match the short journey time between Dover and Calais.
“The fact is, if you move ro-ro from Dover, there’s isn’t much capacity at the alternatives,” Andrew Meaney of Oxera says. “Moving it to containers or putting things on a low-load basis is an option, but it tends to be rather more expensive and again it’s more disruption to the supply chain.”
Charlie Elphicke’s report argued that the government should be spending money on new infrastructure at Dover now to ease the pressure there.
This could include speeding up the construction of a new lorry car park near the M20, as well as widening the M20 and other roads near Dover.
How much enforcement?
Meaney thinks the government needs to think about how much customs enforcement it actually wants to do post-Brexit. Businesses need to know whether “the regulations are going to change and how quickly that is going to happen.
“If you’re talking about increasing the number of things that are checked on either side of the tunnel, then you need to have people in place to check them, know where you’re going to check them – and then for the stuff you’re not going to check, what’s the approval process?”
Not all gloom and doom
It’s important to stress that neither Meaney nor Morris were wholly gloomy about the outlook for the UK’s ports. Morris said that UK ports are “unsurprisingly pro-trade, and we will look for opportunities.”
He also stressed that ports have constantly had to adapt to change, most recently with the dramatic fall in coal imports over the past five years. “The ports themselves are confident that in the mid-to-long term, they can adapt in the same way they have adapted to a lot of other fundamental change, and continue to be an absolute foundation for Britain as a trading nation.”
There could also be opportunities if a post-Brexit UK decided to launch a ‘free ports’ policy, where tax advantages and other benefits encourage trade at a particular port. Under EU rules, it’s currently very difficult to set up a new free port, but the UK will probably have greater flexibility on that unless that, unless of course we end up remaining in the EU customs union.
But, we do need to get through the short-term first.