How Brexit could disrupt Britain’s supply chains

Parked lorries © Getty Images
Road haulage: not glamorous, but vital to Britain’s economy

Road haulage isn’t exactly the most glamorous industry. But without the tens of thousands of lorries that drive up and down the motorways every day, the economy would quickly grind to a halt. Indeed 80% of freight to and from the UK comes directly by lorry, and a good slice of the rest involves a truck journey at some point.

Jack Semple is policy director of the Road Haulage Association (RHA), which represents 7,000 firms, from large trucking companies to individual operators. I spoke to him about how Brexit could affect both his members and the overall economy.

There could be some benefits, Sample admits. At the moment, two overlapping European directives regulate the numbers of hours that lorry drivers can work. This means that they have to obey two sets of rules and keep multiple records. There is also a push for drivers to do a certain number of hours of continuing professional development every year, which is also disliked by many operators. Brexit could be an opportunity to “take a fresh look” at the various regulations affecting the haulage industry, says Semple, although he “doesn’t expect sweeping changes”.

However, other impacts are less positive. All firms that move goods on a regular basis (including their own) need to apply for a goods vehicle operator’s licence, in addition to a Large Goods Vehicle (LGV) licence for the driver. At the moment, those who have permission to transport goods in the UK get automatic access to the rest of the EU. However, he worries that once Britain leaves the single market British companies that wish to deliver goods to the continent will need to apply for additional licences. Not only could this cost extra time and money, but the requirements for each country are slightly different.

Semple is also extremely concerned about a shortage of workers. Because driving a lorry is seen as tiring, repetitive task, a large number of the commercial drivers currently on British roads come from the rest of the Europe, especially Eastern and Central Europe. Indeed, he estimates that around 60,000 out of a total British workforce of around 80,000 come from the rest of Europe. He hopes that they will be allowed to continue doing this since a large labour pool is vital to making sure that deliveries and supply chains can continue to run smoothly.

However, for him the biggest concern is around the decision to leave the EU’s customs union. To recap, the customs union involves the EU and other countries not only agreeing to free trade in goods with each other, but also to levy common tariffs with third countries. Although all EU members are also members of the customs union, you can be in the single market (via the EEA) without being in the customs union; Turkey, by contrast, isn’t in the single market, but is in the customs union. Despite early speculation, Theresa May explicitly stated that Britain will leave the customs union, and the RHA is therefore “preparing for the worst”.

The big problem is that leaving the customs union almost guarantees that all goods entering the UK from Europe, and vice versa, will have to undergo customs clearance. This will be to make sure that companies don’t attempt to use any free trade agreement to sneak in products from third countries that either the EU or the UK has a favourable agreement with. At the moment, only 1% of lorries travelling between Britain and Europe come from outside the EU, so virtually all lorries are unaffected. However, if Britain does leave the customs union then every lorry will have to undergo these checks.

At the moment the direct admin costs are relatively low, around £30-£50 per truck. However, even at current low non-EU volumes, the process of checking each shipment takes around four hours per vehicle, generating labour costs, which will then be passed on to the consumer. Worse, UK customs are focused on airfreight and ships, not lorries coming off ferries or through the Channel Tunnel. Overall, they are simply not set up to deal with the huge increase in the amount of work. The result is that, unless there is a huge increase in the amount of money spent on customs, there could be huge delays.

Semple admits that the true extent of the problem is a “known unknown”. However, he’s really worried, especially given that supply chains are currently built on the assumption that “it’s as easy to move goods from Manchester to Turin, as it is to shift them from Manchester to Leeds”. “Just in time” manufacturing processes also rely on speed. Overall, this could disrupt everything from “supermarkets to factories”.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.