Explainer: The potential impact of Brexit without a trade deal

As another one of our charter flights from Kenya touches down at Heathrow and the fresh product makes its swift journey to our temperature controlled warehouse just a stone’s throw away, we consider how BREXIT will affect others within our industry who rely on access via the UK’s sea ports to get their products to market.

Many businesses are warning of goods shortages as chaos builds up at UK ports ahead of the Brexit deadline. We’re watching the delays at ports getting worse as demand surges with firms seeking to build stockpiles. Fortunately, for Perishable Movements Limited clients’ it’s smooth sailing by air.

Britain and the European Union are seeking a post-Brexit trade deal, with failure likely to result in increased chaos in mutual trade, financial markets tumbling and huge economic costs.

UK businesses have raised the alarm over shortages and rising prices thanks to a surge in containers flowing through UK ports as the economy begins to recover and companies try to build up supplies ahead of the Brexit deadline. 

Shipping costs have roughly quadrupled for some firms and delays at the UK’s largest port, Felixstowe, are causing vessels to miss out the stop altogether, unloading their goods at Rotterdam or other European ports instead.  

The delays threaten to add to expected chaos as the Brexit transition period ends on 31 December with UK and EU negotiators still locked in talks over a deal.

Congestion has been building for several weeks and “is definitely getting worse”, said John Newcomb, chief executive of the Builders’ Merchants’ Federation.

“It’s spread from Felixstowe to other major ports.”

Retailers raised the alarm last month that they were struggling to import goods partly because of congestion caused by a backlog of 11,000 containers of PPE ordered by the government.

Mr Newcomb and other building industry figures raised the issue of port delays with government ministers a month ago. 

“They were supportive but we haven’t seen any improvement, it’s gaining momentum,” he said.

He added: “The closer we get to Brexit day, any additional pressure put on the ports and affects the smooth flow of building materials, that’s a big concern for us – particularly if we don’t have a deal.”

Cheshire-based supplier Timco said 60 per cent of its shipped containers were being delayed by around two weeks after vessels chose not to stop at Felixstowe.

Timco director Simon Midwood said the firm has 160 containers waiting to be imported from Asian ports but there is currently no shipping space. Goods that have been shipped are between 3 and 17 per cent more expensive for customers due to a four-fold rise in shipping costs, Mr Midwood said.

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Travis Perkins, one of the UK’s largest builders’ merchants, urged customers not to worry but to plan ahead in case of supply issues.

“The pressure on certain product lines is a combination of factors, such as manufacturing taking time to catch up post lockdown and pent up demand from customers, which is now picking up pace,” a spokesperson said. 

“Congestion at UK container ports may be a compounding factor, but we have a strong supply chain that enables us to have a sophisticated sourcing strategy in place.”

If no deal is reached, the building trade faces tariffs of up to 10 per cent and further price increases if the pound falls against other currencies.

The UK produces about four fifths of building materials locally but products such as power tools are mostly imported. Other industries such as vehicle manufacturing are expected to be more severely impacted by port delays and rising costs. 

The flow of trade out of the UK is expected to experience severe delays. The government’s reasonable worst-case scenario is for queues of 7,000 lorries in Kent. HMRC forecasts that, even with a deal, UK firms face an additional £7.5bn in administrative costs

Here are some of the potential pressure points of a failure to reach agreement on trade.

STERLING

Investors and banks have long predicted a trade deal would be done, so a no-deal would hit the British pound, foreign exchange traders say.

But investor sentiment was hit by the sides saying on Saturday that there was still no agreement covering annual trade worth nearly $1 trillion, and sterling has fallen against the U.S. dollar since then.

The shock result of Britain’s referendum on leaving the EU in 2016 sent the pound down 8% against the dollar, its biggest one-day fall since the era of free-floating exchange rates began in the 1970s.

TRADE

In the case of a “no deal” on trade , Britain would lose zero-tariff and zero-quota access to the European single market of 450 million consumers overnight.

Britain would default to World Trade Organization (WTO) terms in its trade with the 27-state bloc. It would impose its new UK global tariff (UKGT) on EU imports while the EU would impose its common external tariff on UK imports.

Non-tariff barriers could hinder trade, with prices widely expected to rise for British consumers and businesses

Borders risk disruption, especially the main crossing points, with experts saying shortages of certain foods are possible in Britain as it imports 60% of its fresh food, with disruptions in British lamb exports to the EU also possible.

Any disruption would be felt most keenly by sectors that rely on just-in-time supply chains, including autos, food and beverages. Other sectors likely to be affected would include textiles, pharmaceuticals, and chemical and petroleum products.

The EU is Britain’s biggest trading partner, accounting for 47% of its trade in 2019. It had a trade deficit of 79 billion pounds ($104.86 billion) with the EU, a surplus of 18 billion in services outweighed by a deficit of 97 billion pounds in goods.

Even with a deal, Britain expects thousands of trucks bound for EU countries to stack up in the southern English county of Kent, with delays of up to two days.

THE ECONOMY

The long-term impact could be costly for both Britain and the 27 remaining EU member states.

A no-trade deal would wipe an extra 2% off British economic output in 2021 while driving up inflation, unemployment and public borrowing, Britain’s Office for Budget Responsibility (OBR) has forecast.

The OBR said tariffs under WTO rules and border disruptions would hit parts of the economy such as manufacturing that were emerging relatively unscathed from the COVID-19 pandemic.

According to economic research by insurer Allianz in November, a hard Brexit – a sharp, disorderly split – could cost the EU as much as 33 billion euros in annual exports, with Germany, the Netherlands and France hit the hardest.

The shock would be felt unevenly across continental Europe, with those likely to be hit worst including Ireland, the Netherlands, Denmark, France, Germany, Sweden, Portugal, Poland, the Czech Republic Cyprus, Malta and Hungary.

The Halle Institute for Economic Research has forecast that EU companies exporting to Britain could lose more than 700,000 jobs if no trade deal is agreed.

Hylke Vandenbussche, a professor at Belgium’s University of Leuven, said in a report last year that Belgium would be the worst affected EU member state relative to its size, especially its food sector, with the loss of 10,000 jobs.