Zita Zigan, Director, Global Commercial Vehicle Forecasting
23 August 2018
23 August 2018
The European Single Market was established on 1 January 1993. The impact of this event on UK goods haulage and truck demand was profound and enduring:
By 1998, the volume of goods moved had increased by 25%; heavy (GVW>15t) truck sales had almost doubled. Another decade later – by 2008 – a long period of truck market prosperity came to an abrupt end with the onset of the Global Financial Crisis, though recovery was well under way prior to the Brexit referendum of 2016. The outlook over the next decade or so will, to a large extent, depend on which of the still-possible versions of Brexit eventually crystallises into reality. The UK’s future level of Single Market access will be of critical importance to the continued smooth functioning of its road haulage sector.
Two years on from the referendum, various Brexit scenarios remain possible and conceivable – though not all are equally plausible. In sequence (from least to most disruptive), these can be roughly grouped as follows:
Official UK government policy currently rules out options 1-3. As things stand, therefore, the UK appears to be hurtling inexorably down Barnier’s Steps of Doom towards either a CETA-style free trade agreement, following an orderly withdrawal period or, alternatively, a ‘hard’ Brexit on 29 March 2019. The latter would mean a disorderly withdrawal, without a transition period, or any agreement concerning the future trading relationship with the EU. It would leave the UK trading with the EU (plus the 60 or so countries with which the EU has free trade agreements) under WTO ‘most favoured nation’ rules. It would then enjoy the same level of access as, for instance, Venezuela.
Although it remains a core forecast assumption that a ‘hard’ (in the sense of ‘no deal’) Brexit will be averted, quite possibly at the eleventh hour, and that an agreement concerning a transition period and orderly withdrawal will be reached, quite possibly served with a large helping of fudge to postpone elements of the decision-making process, it is nonetheless instructive and sobering to ponder the consequences of a ‘no deal’ outcome for the truck market and the road transport and logistics sector.
Under WTO legislation, tariffs, customs checks and a host of regulatory controls would become mandatory at all UK borders overnight, leading to severe delays and congestion in the absence of adequate infrastructure, customs technology and trained staff. British ports, which handle 90%+ of UK trade (around half of this is with the EU), would immediately come under immense strain, as would operations at the Channel Tunnel. The UK would likely face shortages (food, medicines, petrol).
The nature of EU-UK trade would add a further layer of difficulty. A large portion of the UK’s cross-Channel trade is ro-ro (roll-on, roll-off) – not containerised, as, for example, the majority of trade with Canada will be under CETA. Full customs declarations, as well as mandatory sanitary/phytosanitary checks at borders, would, as things stand, have severely disruptive consequences for modern, just-in-time supply chains relying on the ro-ro model.
The UK driver shortage would be further exacerbated by the end of Freedom of Movement (13% of UK drivers are citizens of other EU member states). And the remaining UK drivers would no longer have their drivers’ qualifications recognised in the EU. Then again, UK hauliers would no longer be able to perform cabotage in the EU [Source].
Even more seriously, the number of international haulage permits available under existing treaties would not be sufficient to meet current needs. Under current law, there would be between 103 and 1,224 permits available to cover 300,000 journeys made by 75,000 British trucks to Europe each year. Unsurprisingly, there are serious industry concerns that a ‘no deal’ scenario would bring about the collapse of large parts of the British road transport sector, with severe consequences for UK truck demand.
LMC Automotive’s analysis indicates a bleak truck market outlook under the ‘no deal’ scenario described above. An ‘L-shaped’ truck market recession would be distinctly within the realm of possibility, with no prospect of a swift recovery to anywhere near the levels to which we have become accustomed since the creation of the Single Market a quarter of a century ago. The probability of a pre-Brexit prebuy (Q4 2018/Q1 2019) would be low – given the above scenario, any desire to beat post-Brexit price increases would be dwarfed by fear and uncertainty concerning post-Brexit business prospects.
Of course, alternative scenarios (BINO, CETA etc.) remain plausible – and may be explored in a future blog instalment.