The impact of a 'Hard Brexit' on the transport sector

The United Kingdom voted to leave the European Union on 23 June 2016 and, since then, the only certainties about the Brexit have been its uncertainties. Now the doubts are particularly worrisome for the road transport of goods, as the deadline for negotiating new trade relations between the European Union and the United Kingdom is rapidly approaching.

What is the status quo of Brexit trade deals?

London and Brussels opted for a transition period in the Withdrawal Agreement until the last day of 2020 to freeze the effects of the United Kingdom's exit from the EU. The British have therefore remained in the European market, and ordinary people and businesses have not noticed any differences. All this could change on the 1st of January 2021. Although several meetings have been held over the past months to negotiate a new trade relationship, progress is virtually at a standstill. The difficulty now is that the countdown is about to end, so a decision needs to be reached.

What Brexit agreements are most likely?

The most feared option, a 'Hard Brexit, seems the most probable at the moment. If this scenario becomes reality, the United Kingdom will leave the Common Market and all its exports to and imports from the European Union will be severely affected, in terms of both costs and delivery times.

How will Brexit affect imports and exports?

Under the hard Brexit scenario, British companies would face customs duties with France and Belgium very similar to those they currently see with China and the US.

As a consequence of this scenario, inflation and higher prices for goods would be inevitable, including goods essential for the transport industry. Tires, spare parts, and vehicles would experience severe price increases that would be difficult for many British companies to afford in the near future.

Further impact of Brexit on logistics

Another consequence of an exit without an agreement would be a drastic reduction in the number of trucks that can enter the EU. As Logistics UK Chief Executive David Wells has pointed out, the share of permits available for UK operators to access the EU market will fall short . Additionally, both sides are concerned about the time it would take to cross the borders. Importing goods from the EU after Brexit would thus become more difficult. Trade is not going to disappear, of course, but supply chains can be adversely affected if trucks have to wait in long queues to get through customs.

The International Road Transport Union has already issued a warning in this respect, urging the EU and UK negotiators to reach an amicable free trade agreement in the shortest possible time to prevent regulatory blockage and allow the movement of heavy goods vehicles by road. This approach is also being followed by several transport associations, such as the Spanish ASTIC, which has warned that “if a check is imposed at any border lasting 15 minutes, the queue at any point would reach 1.000 kilometers.” This chaos could still be avoided, despite everything.

Outlook on the upcoming Brexit negotiations

On the positive side, negotiations have resumed in November and, despite differences in some areas (notably in the level of competition and fishing zones), the feeling is that some kind of deal can be reached. This must be done quickly, however, as the European Parliament is obliged to ratify any agreement.

Nevertheless, the general recommendation is that businesses should be prepared for every possible outcome. Even if there is a major trade agreement between the UK and the EU, we must not forget that there will be some profound changes in the near future which must and will be resolved one way or another. In any case, it is certain that new borders will be established with one of Europe's leading importers and exporters.

According to the insurer Euler Hermes, the total impact of a ‘Hard Brexit’ on the Eurozone could amount to 33 billion euros. The impact will be equally devastating on the British side, with the economy contracting by 4.8% next year, exports dropping by 15%, and inflation rising by more than 5% in the first six months of 2021. This scenario is not beneficial to either side, particularly in a new world reality marked by the coronavirus pandemic.

Learn more about the impact of the corona virus on the transport sector in our blog articles here.

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