Summary
The Covid-19 pandemic is highlighting the supply chain problems which can arise when border clearance arrangements come under stress from increased demands and reduced capacities. This is bringing into question the future commercial viability of existing ACP triangular supply chains for short shelf life products in serving the UK market. This needs to be seen in the light of the border clearance challenges and associated transportation disruptions which are likely to arise as a result of the UK governments’ current approach to future trade relations once it leaves the EU customs union and single market. Current policy responses to transportation disruptions associated with border clearance problems linked to the Covid-19 pandemic, could provide a basis for longer term arrangements to facilitate the continued smooth functioning of triangular supply chains. In the absence of such initiatives ACP exporters will need to explore opportunities for direct exports to the UK or diversification away from the UK market.
While in the UK efforts are underway to deal with ‘anticipated staff shortages and supply disruption caused by the coronavirus’, there are deep concerns the short term, but deep, economic shock of the Covid-19 pandemic is likely to be ‘followed by the longer, more drawn-out pain of a hard Brexit’. It is feared ‘while large multinationals may be able to ride out those twin problems’, smaller firms will face more serious challenges (1).
This needs to be seen in the context of the recent announcements by the UK that it is ‘planning full checks on all EU imports – export declarations, security declarations, animal health checks’, from the date of the UK’s departure from the EU customs union and single market. Concerns were heightened by the subsequent revelation that ‘technological fixes to the UK’s post-Brexit trade border will not be available until 2025 at the earliest’ (2). This will reportedly see the implementation of a ‘costly “mend and make do” approach’ until 2025 (3).
There is little doubt across the UK freight industry this technological constraint is likely to result in serious delays and disruptions to the movement of food products across the EU27/UK border given the UK government has announced it will ‘require all agri-food products to enter via a border inspection post, with identical treatment for imports from the EU and from the rest of the world’ (2).
This poses serious challenges given the absence of border inspection post infrastructure at current UK ports handling the bulk of imports from continental Europe, the proximity of continental Europe to the UK (90-minute sailing time) and the sheer volume of documentation and control which will be required for goods to move across the newly created EU/UK border. The UK customs and revenue service has estimated the required number of customs declarations handled each year could rise from ‘55 million at present to more than 200 million following Brexit’, with the number of safety and security declarations (more formally known as entry summary declarations) required for mutual EU/UK increasing from zero to 220 million following Brexit (2).
Andrew Opie, director of food and sustainability at the British Retail Consortium, said UK ministers ‘have to move fast to provide the infrastructure needed for full border controls from January 2021’, since ‘without the necessary infrastructure up and running from day one, consumers in the UK will see significant disruption, particularly in the availability of fresh fruit and vegetables’ (2).
The impact of these disruptions could prove particularly severe for ACP producers of short shelf life fruit, vegetables and cut flowers exporting to the UK along triangular supply chains. This is vividly illustrated by the impact of the Covid-19 pandemic on Kenyan cut flower exports (see companion epamonitoring.net article ‘Collapse of European Cut Flower Demand Threatens Immediate Future of Kenyan Cut Flower Sector’, 19 March 2020). Press reports indicate ‘exports to Holland have been suspended’ with ‘only flowers meant for supermarkets’ in the UK being shipped (4). This strongly suggests that at a time of border clearance delays and associated transportation disruptions the more direct and shorter the supply chain the better.
Against this background it is worth reviewing some of the short-term trade effects of the current Covid-19 pandemic, in light of the possible lessons this experience could provide for dealing with a ‘hard Brexit’.
- Cost Increases: Reefers
Border clearance and associated transportation disruptions linked to the Covid-19 pandemic is seeing refrigerated containers (reefers) being tied up in unproductive delays. This is resulting in an increase in the costs of leasing refrigerated containers. On average in recent weeks these prices have increased been between 30-50% (5). However, for short term leases these price increases have been of the order of 200% (6). This is serving to increase the costs of moving cargoes onward to the UK market along triangular supply chains. This is compounding the problem of getting cargos to Europe in the first place, given the reduction in scheduled commercial airline services on which, on average, around 80% of air freighted cargoes are shipped.
- Cost Increases: Vehicle and Driver Availability
Border clearance delays and driver fears of being caught away from home as further border restrictions are introduced, is seeing a shortage of drivers emerging for transport services along certain routes, particularly to Italy, the initial European centre of the Covid-19 outbreak.
Similarly, the prospect of delays at UK ports arising from the reintroduction of customs and other border controls on EU27/UK trade would seem likely to make individual drivers and smaller haulage operators reluctant to contract for cargoes for delivery to the UK for fear of losing out on further contracts through both drivers and trucks being caught up in port congestion and traffic delays in the UK. This is likely to drive up the cost of onward shipment of cargoes from initial ports of landing in an EU27 member state to the UK market. It could even lead to an absolute shortage of drivers and trucks along routes serving the UK market.
This however could potentially be eased by moving over to unaccompanied freight movements (including greater use of railways). This is already happening to a certain extent in response to the Covid-19 pandemic. This would however be likely to lead to longer unloading times than is currently the case, and as such could prove problematic for ACP short shelf life products.
- Loss of Value
For short shelf life products, delays in border clearance, alongside possible traffic congestion and any possible additional phytosanitary checks upon entry to the UK market, could serve to strip value out of the supply chain as the in-shop shelf life of delivered products is reduced. This loss of value could come to fall on the shoulders of ACP exporters using triangular supply chains, depending on the nature of the individual supply contracts ACP exporters have entered into (i.e. at which point along the supply chain the ACP exporter takes payment).
- The Need to Get to Grips with Challenges Faced
These are three of a multiplicity of factors which would be likely to erode the benefits of using single distribution hubs in Europe in serving just-in-time supply chains in the UK and could bring the future use of such supply chains into question.
These problems have been brought into focus as a result of the Covid-19 pandemic, with similar problems likely to become a structural feature of UK-EU trade relations in the coming years. According to Bobbie Ttooulis, executive director at Global Freight Solutions, ‘long delays at the ports are going to be part and parcel for this new Brexit reality’. Against this background it is crucial for businesses to identify the ‘changes to border procedures, documentation, duties, taxes and pressures that will impact their supply chains’ (3).
ACP exporters of short shelf life products to the UK market along triangular supply chains will be unable to avoid these challenges unless specific arrangements are set in place to facilitate the continued smooth functioning of triangular supply chains.
In addition it should be noted how the current intensification of dialogue between the UK government and the UK food industry underway as a result of the Covid-19 pandemic has highlighted how ‘UK food makers are relatively well-prepared to weather the storm, in no small thanks to the preparations already being made due to concerns over a potential no-deal exit from the European Union’. Preparations for a ‘hard Brexit’ have seen UK food businesses reviewing the functioning of their supply chains to ‘identify where alternative supplies of ingredients can be sourced’, should existing supply chains be disrupted (7).
The Covid-19 pandemic is thus likely to accelerate an existing process where UK wholesalers and retailers are actively reviewing their supply chains to reduce their vulnerability to transportation related disruptions. This suggests ACP exporters using triangular supply chains could become less favoured sources of supply, given the perceived dangers of supply chain disruptions.
| Comment and Analysis
The Covid-19 pandemic has brought into focus the need for concrete policy initiatives to support the future smooth functioning of triangular supply chains used by ACP exporters of floriculture and horticulture products, if the use of such routes to UK markets is to remain commercially viable. These policy initiatives could potentially build on current ‘Green Lane’ proposals from the European Commission to ‘put in place fast-track lanes across borders for delivering supplies’ of essential foods, medicine and packaging materials required to meet the immediate needs of people during the current health crisis. The experience gained in implementing such initiatives during the Covid-19 crisis could well be used in the design of ‘green lanes’ for all ACP food and agricultural exports using triangular supply chains in serving the UK market where: a) the concerned ACP exporters enjoy duty free-quota free access to both the b) where SPS controls have been carried out on entry to the territory of the This would remove any need for customs and SPS checks on ACP goods entering the UK market via ports of landing in the EU. If in addition, the need for inspection and verification of safety and security declarations upon entry to the UK were also waived, based on these controls having already have been carried out upon arrival in the territory of the EU, then the continued smooth functioning of existing ACP triangular supply could in large part be assured. If ‘Green Corridors’ are established between the EU27 and the UK during the current Covid-19 pandemic, these could simply be extended ad enhanced from the 1st January 2021, should the UK go ahead with plans to leave the EU customs union and single market as currently scheduled. While the UK government has recently announced the Covid-19 pandemic will have no impact on its commitments to leaving the EU customs union and single market on 1st January 2021 (8), this needs to be seen in a context where face to face UK/EU negotiations have been halted and plans to continue internet based negotiation have not so far got off the ground. The case for extending the transition period in the face of Covid-19 disruptions to planned negotiations thus appears strong (9). Overall given the uncertainties ahead (including a possible resurgence of the Covid-19 pandemic at the end of 2020), the future use of triangular supply chains in serving the UK market is looking increasingly perilous. This suggests a need for ACP exporters to actively explore their options for: a) the direct shipments of short shelf life products to the UK market; b) diversification away from the UK market; or c) contractual arrangement for the supply of goods to EU27 importers which This will be particularly important if no administrative and border clearance facilitation arrangements are set in place to ensure the continued smooth functioning of existing ACP triangular supply chains. However, for a range of smaller ACP exporters some form of market adjustment support may be needed if they are to continue to profitably serve export markets in Europe. |
Sources:
(1) Independent, ‘Coronavirus We’re more worried about no deal Brexit, say UK firms’, March 10, 2020
https://www.independent.co.uk/news/business/analysis-and-features/coronavirus-business-impact-britain-no-deal-brexit-a9380066.html
(2) Telegraph, ‘Gove admits Brexit smart trade border will not be available ‘until 2025’ 12 February 12, 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/02/12/Gove-admits-Brexit-smart-trade-border-will-not-be-available-until-2025%E2%80%99
(3) edelivery.net , ‘UK retail and logistics trade bodies react to customs check plans’, 13 February 2020
https://www.freshplaza.com/article/9189545/uk-retail-and-logistics-trade-bodies-react-to-customs-check-plans/
(4) Freshplaza.com, ‘Export of fresh produce from Kenya down 46 percent’, 20 March 2020
https://www.freshplaza.com/article/9201196/export-of-fresh-produce-from-kenya-down-46-percent/
(5) COLEACP, ‘Impact of COVID-19 pandemic on international trade in fresh produce’, 19 March 2020
https://eservices.coleacp.org/en/actu/impact-of-covid-19-pandemic-on-international-trade-in-fresh-produce
(6) fleet.ie, ‘Freight Movements Curtailed as COVID-19 spreads’, 16 March 2020
https://fleet.ie/freight-movements-curtailed-as-covid-19-spreads/
(7) foodnavigator.com , ‘UK Coronavirus Emergency Bill looks to ‘keep food supply flowing’, 19 March 2020
https://www.foodnavigator.com/Article/2020/03/19/UK-Coronavirus-Emergency-Bill-looks-to-keep-food-supply-flowing
(8) Guardian, Brexit will not be delayed by coronavirus, says Johnson’, 13 March 2021
https://www.theguardian.com/politics/2020/mar/13/brexit-will-not-be-delayed-by-coronavirus-says-johnson
(9) Guardian, ‘Coronavirus sparks calls to extend EU transition period’, 14 March 2020
https://www.theguardian.com/politics/2020/mar/14/calls-to-extend-eu-transition-period-as-europe-fights-coronavirus