Summary
The EU has proposed regulatory proposals for contingency measures in four main areas: fishing activities, aviation connectivity and safety, road transport connectivity, and rail connectivity. The two main areas of concern to ACP exporters relate to rail and road connectivity between the mainland EU and the UK. These regulatory measure for the road haulage sector while essential will not address the problems of road haulage delays and rising costs which are now emerging. However, these delays and cost increases will be much more severe from 1st January 2021 if these contingency measures are not in place. The issue of aviation connectivity, if not addressed could also carry consequences for international aviation services. This could compound the air freight challenges which have arisen as a result of the Covid-19 pandemic. Any breakdown in EU/UK fisheries relations meanwhile, could carry trade documentation and even tariff implications for the onward trade in ACP fisheries products from the EU to the UK.
The Scope of EU’s December 2020 Contingency Regulations
On 10th December 2020, the EU published its contingency plans for dealing with a no-deal UK departure from the EU customs union and single market. These plans focus on a limited number of areas where EU level regulatory interventions were required. The aim of these measures is to provide continuity in areas essential to for the conduct of trade or specific economic activities, where otherwise the disruptions would be particularly acute (1).
These measures are time limited and are intended to provide time for a longer-term solution to be set in place. These contingency measures do not ‘look to mitigate impacts of Brexit in a sustained manner’ and are not intended to provide compensation for ‘economic actors who have failed to take necessary actions’ (1).
The main legislative proposals tabled address 4 areas: fishing activities, aviation connectivity and safety, rail connectivity, and road transport connectivity. Of these four areas the main areas of concern to ACP exporters relate to rail and particularly road connectivity between the mainland EU and the UK. This being highlighted, developments in other areas could also carry implications for ACP exporters0
Fishing Activities
Contingency measures in the fisheries sector allow ‘for reciprocal access by EU and UK vessels to each other’s waters’, by empowering the EC to ‘grant authorisations to UK vessels to enter EU waters and to manage authorisation requests by EU vessels for entering UK waters.’ Such arrangements however would need to be accompanied by a reciprocal response from the UK.
Failure to conclude an interim arrangement on fisheries access would also lead to a breakdown of the basis for EU/UK trade in fisheries products and potentially the stricter application of controls on cross border fisheries products trade. A process in which ACP originating fish could easily become caught up.
Aviation Connectivity and Safety
Contingency regulations in the aviation sector would be aimed at ensuring continuity in current EU/UK air services for six months. However, this would be subject not only to ‘the United Kingdom conferring equivalent rights to air carriers from the Union’, but also on the provision of ‘strong guarantees on fair competition and on the effective enforcement of these rights and guarantees.’
Rail Connectivity
In terms of rail connectivity the regulatory proposal seeks to fill the legal vacuum for the operation of the channel tunnel created by the UK’s departure from the EU. It aims to provide a legal basis for the continued operation of the channel tunnel under the supervision of the Intergovernmental Commission (IGC) established under the 1986 Treaty of Canterbury, until such time as a legally enforceable alternative has been agreed by the UK and French governments (1).
The proposal if adopted will provide the basis for the continued operation of the channel tunnel which is currently facing unprecedented levels of freight demand. In November 2020 freight levels were up 11% compared to 2019. Given the plans to facilitate traffic flows initiated by Eurotunnel in November 2019 it is believed the high level of freight service demand for the remainder of the year will be fully met. After 1st January it is expected that traffic flows will fall, given the number of traders who have indicated they will halt EU/UK trading operations in the first weeks of January, until they see how the situation on cross border freight movements develops (2).
Road Haulage Connectivity
In terms of road connectivity the regulatory proposal seeks to extend recognition of the current rights of UK hauliers and drivers for a period of six months. However, this is ‘conditional on the United Kingdom conferring equivalent rights to Union road haulage operators, and subject to the application of rules equivalent to those of the EU on fair competition as well as social and technical rules.’ (1)
This action is taken on the basis of a recognition that the alternative framework of permit allocations under the European Conference of Ministers of Transport (ECMT) ‘would not be sufficient to carry goods by road between the United Kingdom and the Member States’ With only 17% of UK demand for such permits being met under the ECMT arrangement (3), there are fears the shortage of haulage operators could result in such serious disruptions a to potentially threaten public order. (1).
While welcoming the EU announcement of its contingency measures in the road haulage sector, the UK Road Haulage Association (RHA) highlighted how the proposed EU action required the UK government to reciprocate and accept fair competition provisions. The RHA has expressed concern over the government’s failure so far to formally accept the EU proposal. In an apparent snub of the EU proposals, a spokesperson for Prime Minister Johnson told reporters ‘the UK had its own contingencies’. This cool response from the Prime Ministers’ office needs to be seen against the background of any form of ‘level playing field’ commitments being ‘unacceptable to a vocal portion of the UK government’ (4).
It also needs to be seen against a background where the RHA has indicated ‘a number of EU hauliers aren’t taking bookings for deliveries to the UK in January’. They fear the ‘cost of keeping trucks and their drivers waiting in line for 24 hours may not be worth the value of their contracts’ (5). Representatives of one of Europe’s leading truck operating companies Girteka Logistics (6), said he ‘expects queues at the border that could stretch as far as 31 miles’, noting how such hold-ups could ‘force his firm, which owns 7,500 trucks, as well as its rivals to limit bookings to the UK’ (5).
In terms of the UK governments emphasis on companies needing to be prepared for border documentation requirements, the issue was raised of what is the point of big operators like Girteka Logistics being fully prepared when they cannot even reach the border control posts. In this context, it was pointed out both big operators and small operators will take the view ‘this looks like a situation it’s better to avoid for the next three to six months.’ Against this background, ‘chaos and unpredictability can lead to trucking capacity being allocated to other markets, leaving UK supermarkets with less than full shelves.” (5).
| Comment and Analysis It is unclear whether the ideological preoccupations of UK Conservative Party politicians will constitute a solid enough basis for the rejection of the EU’s proposed approach to the extension of current road haulage rights for a six-month period. It is possible a cool snubbing of formal commitments could be accompanied by an extension of the UK’s emerging approach involving ‘parallel unilateral action’. This has been most recently demonstrated in regard to the issue of the continued recognition by the UK of organic certification issued by EU27 agencies and visa versa (see companion epamonitoring.net articles ‘UK Decision to Roll-Over Recognition of EU Issued Organic Certification for Whole of 2021 Welcome News for ACP Organic Exporters, But IT Constraints Will Be Faced’, 5 November 2020 and ‘EU joins UK in rolling over recognition of organic certification throughout 2021’, 9 December 2020).Should the EU’s proposed contingency measures in the road haulage sector not enter into effect, RHA CEO Richard Burnett has warned haulage businesses in the UK will face serious commercial which may encourage many haulage operators to simply discontinue operations (4). Such a development would carry serious consequences and would compound an already bad situation for road haulage operations along short sailing cross channel ‘RoRo’ routes. The hard reality faced is that regardless of the outcome of EU trade negotiations and any contingency arrangements the EU may set in place, the establishment of UK/EU border controls will inevitably generate road haulage delays and associated cost increases, which ACP exporters using triangular supply chains to deliver products to the UK will find it difficult to avoid. However, these delays and associated cost increases need to be divided into two distinct components. Firstly, those intrinsic to the establishment of a new EU/UK customs and regulatory border control. These will give rise to long term cost increases. Secondly, those caused by current challenges and shortcomings in the operation of the UK border control systems. These costs are likely to be more unpredictable and potentially large but will be transitional. As investments in improving the operational efficiency of UK border controls come on stream, these sources of cost increases should be reduced over time. These shortcomings in regard to border control operations fall into three main categories: UK Border Control Post (BCP) infrastructure along the main EU/UK ‘RoRo’; the staffing constraints on the operation of Border Control Posts (BCPs) along the main EU/UK ‘RoRo’ routes and delays and shortcomings in the new and upgraded IT systems required to facilitate border clearance operations and manage traffic flows. It areas such as infrastructure it is estimated the necessary investments may not fully come on stream until the end of 2021 (for more details see companion epamonitoring.net article ‘Key Challenges Identified in the NAO Brexit Preparedness Report’ 22 December 2020). These challenges are being further compounded by the huge shortfall (an estimated 80% shortfall) in the number of customs agents on which the UK government is looking to rely to ease pressures on UK border control services. UK government efforts to expand the customs intermediary sector have proved far from successful in the face of the profound uncertainties as to the nature of the future UK/EU trade relationship (see companion epamonitoring.net article, ‘Effective Engagement with Expanded Freight Forwarding Sector Seen as Critical to Future UK/EU Border Clearance Operations’, 1 December 2020) It is the impact of these existing shortcoming and the inevitable effects of new border control measures on traffic flows, which would be compounded by the absence of any regulatory contingency measures which facilitated the continued operation of EU/UK road haulage operations. ACP exporters using triangular supply chains will need to factor the costs of these various challenges into their commercial arrangements and the likely delays into their delivery schedules. In terms of commercial arrangements ACP exporters serving UK markets along triangular supply chains will need to look to including payment stipulations linked to delivery to the initial port of landing in the EU not to final delivery in the UK. This would effectively side-step the commercial consequences which the emerging road haulage challenges along ACP/EU/UK supply chains are giving rise to. If this is not possible, then at a minimum, ACP exporters should seek to negotiate burden sharing arrangements with the EU partners within their triangular supply chain, to deal with the road haulage challenges which are now inevitable for 2021. A further option is to move over to direct exports to the UK, thereby reducing vulnerability to road haulage disruptions along the main EU/UK supply routes. However, ACP exporters serving the UK market directly, will need to stay alert to the increased systemic strains which would be placed on UK border controls services by any acrimonious no-deal UK departure, which would undermine the adoption of the EU’s proposed contingency measures. Already, Covid-19 linked supply chain disruptions, the normal pre-Christmas import surge and exceptional pre-Brexit stockpiling, which is underway, has generated considerable cargo congestion at major UK container ports. This problem of lengthy berthing and unloading delays has rapidly spread from Felixstowe to other UK ports as ships have been are diverted for unloading to London Gateway, Tilbury, Southampton, Liverpool and even Antwerp, Rotterdam and Bremerhaven (with feeder shipping routes to the UK along RoRo routes then becoming even more congested) (7). This is creating a situation in which direct exports to the UK market would also face delays in the immediate post Brexit period, as port disruptions across the UK begin to choke off the smooth functioning of supply chains. While eventually these disruptions will work their way out of the system, ACP exporters serving the UK market will need to set in place strategies for dealing with these disruptions. This will be particularly the case in the first months of 2021 if there is an acrimonious no-deal UK departure from the EU customs union and single market. This could see planned contingency measures simply not being implemented and unprecedented levels of disruption emerging. However, it needs to be recognised that even if there is an EU/UK trade deal, road haulage disruptions and a rapid increase in haulage costs along EU/UK routes are now inevitable, as individual freight operators make their own assessments of where their best commercial interests lie. This needs to be seen in a context where 80% of all exports to the UK by road are carried by EU27 registered hauliers. These EU27 hauliers have a wide range of commercial option for the deployment of their services, given the huge distribution efforts which will be required to meet the needs of mass vaccination campaigns across the EU. |
Sources:
(1) EC, ‘on targeted contingency measures in the absence of an agreement with the United Kingdom on a future partnership’, 10 Dec 2020
https://ec.europa.eu/info/sites/info/files/brexit_files/com_831_1_en_act_part1_v2.pdf
(2) Guardian, ‘Brexit stockpiling causing 10-mile tailbacks in Calais’, 12 Dec 2020
https://www.theguardian.com/politics/2020/dec/12/brexit-stockpiling-causing-10-mile-tailbacks-calais
(3) The Loadstar, ‘EU offers six-month no-deal ‘lifeline’ to hauliers on UK ECMT permits’, 14 December 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/eu-offers-six-month-no-deal-lifeline-to-hauliers-on-uk-ecmt-permits
(4) EC, ‘Proposal for a Regulation of the European Parliament and Council: on common rules ensuring basic road freight and road passenger connectivity following the end of the transition period mentioned in the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, 10 Dec 2020
https://ec.europa.eu/info/sites/info/files/brexit_files/com_826_1_en_act_part1_v1.pdf
(5) Bloomberg, ‘Threat of delays prompting truckers to turn away bookings to UK’, 16 December 2020 Bloomberg
https://www.fpcfreshtalkdaily.co.uk/single-post/threat-of-delays-prompting-truckers-to-turn-away-bookings-to-uk
(6) Girteka Logistics, https://www.girteka.eu/
(7) JOC, ‘UK shippers forced to soaring spot market amid port chaos’, 6 December 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/uk-shippers-forced-to-soaring-spot-market-amid-port-chaos