Even with the all noise around the US election, the second COVID-19 national lockdown and the announcement of a potential miracle vaccine, you would be hard pressed to have missed the reports coming thick and fast in recent weeks stating that UK business is simply not prepared for Brexit.
From the National Audit Office to our own UKWA member survey, the message is loud and clear. While 78% of UKWA survey respondents said that they were aware of the Border Operating Model, only 40% felt that they were fully prepared, with 88% stating their belief that customers were nowhere near ready. With just days to go until January 1st, this is a profoundly serious concern.
UKWA members, along with members of other trade associations that engaged with the government’s Border Delivery Group, are ahead of the curve in that they have been kept well informed of the proposed Border Operating Model announced in July. However, traders – their customers - are less informed and less prepared.
Why? In short, government messaging has failed and the focus of the national media on the importance of a Free Trade Agreement has given many the impression that if a ‘deal’ is reached, all will be well. Clearly, whether there is a deal or not is important. A failure to reach a deal will drive up costs as tariffs are imposed, with potentially heavy consequences for the UK automotive industry and others.
However, the Free Trade Agreement will make no difference to the Border Operating Model. On January 1st we will be out of the Customs Union and operating under WTO processes. Business as usual is not an option, but too many traders appear to be waiting for the outcome of FTA negotiations before making plans for their post-Brexit operation.
In addition, many businesses are fire-fighting on the COVID-19 front and are simply trying to survive the crisis, let alone plan ahead.
On the other hand, with risk comes opportunity. For those operating in the warehousing and logistics sector, demand for space and services are likely to soar, as traders attempt to mitigate the inevitable supply chain disruption driven by over 200 million additional customs declarations with additional stockholding held closer to markets.
An important exception here is fresh produce, where stockholding is not an option. Currently, UK imports 50% of its food with 30% coming from Europe, and the finely honed 72 hour supply chain of fresh produce into this country is fraught with risk related to likely delays. Nigel Jenney, CEO of the Fresh Produce Consortium, has suggested that there will be an additional two million pieces of paper in the fresh produce supply chain, with the government still making changes to regulations at this late stage.
Accordingly, we are likely to see a restructure in the ‘little and often’ model, with larger quantities being shipped on a less frequent basis, and a move away from driver accompanied cargo.
In the long run, potentially, we could even see a move away from fresh produce and a return to stocking the freezer on the part of consumers as fresh produce becomes more difficult to source and more expensive to buy. If that happens, look out for increased demand for chilled and frozen space as fresh produce supply lines continue to be under pressure.
The other key finding of our survey was the reducing availability of warehousing space, party due to stockpiling activity, but partly once again related to the COVID lockdown on all but essential supplies. UKWA raised this concern earlier in the year, but the lifting of restrictions eased that situation. Now we are in peak season, with higher than ever demand for online order fulfilment and containers continuing to flow into the UK from the Far East and elsewhere.
Extrapolating from the survey results, UKWA believes that there is less than 3% available warehouse capacity nationwide. This equates to approximately 360,000 pallets, which on first sight seems a high number, but this aggregate is composed of small ‘lot’ sizes of 100-200 across some 3000 locations across the UK.
Some of our members are already investigating the opportunity of opening up former airfields and military sites to store fully loaded containers; and UKWA is appealing to the government for an acceleration of the planning process obtain the necessary B2/B8 approvals in light of a potential national emergency.
As far as Brexit is concerned, we anticipate only a small increase in availability of space of around 1% post peak, which equates to just 120,000 pallets going into January.
Along with peer trade associations and leading 3PLs, UKWA has been vocal in warning of the unpreparedness of businesses for the transition from the EU. While there may be opportunities ahead for our sector, we also face considerable challenges.
Indeed, the UKWA survey confirmed that 25% of members consider Brexit (the end of transition period) the biggest risk going into 2021, with 34% citing concern for customers’ survival beyond the twin threats of COVID and Brexit.
As ever, we stand ready to support our members, collaborate with industry leaders and engage with the government as we navigate what is arguably the most turbulent period in our nation’s history since World War II.