Brexit may prove very painful for ro/ro terminals in Zeebrugge
In the case of a hard Brexit, the export of cars from the port of Zeebrugge will drop by 30%. Buyers will also pay substantially more for their vehicles due to a significant increase in handling costs. This according to Liese Vermeiren of the University of Antwerp.
As part of her master’s thesis, business engineer Vermeiren studied the impact of various Brexit scenarios with transport economist Joost Hintjens. She focused on the throughput of new cars in Zeebrugge, both import and export. ‘Trade to and from the United Kingdom represents 46% of all freight traffic in the port of Zeebrugge,’ says Vermeiren. ‘For Antwerp, this is only 6.2%. Of all the Flemish ports, Zeebrugge is most closely linked to the UK. Automotive is also extremely important for Zeebrugge: regarding exports, this sector accounts for 9.3 billion euros in total and a share of the freight of 29%.’
British purchasing power
Brexit has yet to come into effect, but the export of cars to the UK has already declined as a result of the falling exchange rate of the British pound and the uncertainty in the British market. ‘Due to the lower exchange rate of the British pound, the purchasing power of British households has substantially decreased. As a result, people postpone the purchase of luxury goods such as cars.’
Whereas in 2016 the UK still accounted for 36.45% of all cars handled in Zeebrugge, this had already decreased to 31.86% in 2017.
Compared to 2016, 2018 already saw a 20-percent reduction in the export of new cars from the Ico terminal in Zeebrugge to the UK. ‘Whereas in 2016 the UK still accounted for 36.45% of all cars handled in Zeebrugge, this had already decreased to 31.86% in 2017. This loss in percentage of market share however was partly caused and, in fact, largely compensated by an increase in car transport to other European destinations, mainly in Scandinavia.’
According to Vermeiren, the likelihood of a ‘cliff edge’ scenario – the so-called hard Brexit – is constantly increasing. ‘In the case of a hard Brexit, the exchange rate of the British pound is expected to hit parity with the euro. Different WTO rules will apply to cars, with an import levy of 10% for the cars themselves and 4.5% for parts. As a result, export to the UK would decline by 30% and import from the UK by 20%.’ The lower value of the pound would benefit the UK car industry. ‘But the question is how many factories will actually remain there. BMW already announced that it would move its Mini plant in Oxford to the Netherlands. For Zeebrugge, a hard Brexit would result in a reduction in volume of 243,695 units out of 2.9 million units in total. Furthermore, to avoid longer delivery times and import duties, the stock of cars would increase in the lead-up to the 29th of March 2019. After all, all these vehicles have to be financed and stored. The WTO rules would result in an additional cost of € 2,744.35 per vehicle, including the costs for arranging the customs documents.’
Nissan, BMW and Land Rover operate large plants in the UK.
Other factors might also come into play. ‘If major car manufacturers for example decide to organise a direct line from the US, India, Japan or Thailand to the UK, this can have a major impact on the export volumes from Zeebrugge. In terms of imports, volume reductions may occur during the expected chaos in April as a result of a possible shortage of parts at British factories’, thinks Vermeiren. ‘On the other hand, direct lines may emerge instead of the lines currently running from Zeebrugge across the UK to Ireland’, adds Hintjens. Furthermore, the supplementary services that are on offer at Zeebrugge’s terminals – such as car modification to comply with European regulations – may work in favour of Zeebrugge.
In terms of goods imported from the UK, transport equipment – which in addition to cars for example comprises agricultural equipment and excavators – accounted for 21.2% in 2017. Among others, Nissan, BMW and Land Rover operate large plants in the UK. Hintjens considers it likely that a hard Brexit will lead to a partial relocation to mainland Europe.
Free trade agreement
If a free trade agreement is implemented, such as CETA with Canada, the import and export levies for complete cars can be reduced to, for example, the 5% that has been agreed with Canada. Vermeiren: ‘This will also cause the administrative costs to drop by half and the delays will be shorter, which leads to smaller stocks. In this scenario, the total extra costs per vehicle would drop to 1,362.87 euros and the volume reduction would only amount to 20% regarding exports from Zeebrugge to the UK and 10% regarding imports, a decrease of 76,719 units. But this free trade agreement cannot take effect on the 29th of March 2019,’ explains the brand-new business engineer. ‘It would be preceded by a lengthy transition period. During that period, negotiations can take place.’
Other sectors may see a greater drop in terms of value than car transport, but only a few Flemish companies generate almost 50% of their turnover via the UK.
In the case of a customs union, Vermeiren expects the effect to be minimal, but that too can only come into effect after very lengthy negotiations. ‘The port authority of Zeebrugge has already launched the data sharing platform RX/SeaPort to ensure a smooth administrative process, mainly for ferry operators. Together with the focus on unaccompanied cargo, the port expects to have a competitive advantage over other channel ports, where a driver who crosses the Channel along with his cargo may incur delays.’
‘Other sectors may see a greater drop in terms of value than car transport, but only a few Flemish companies generate almost 50% of their turnover via the UK,’ says Hintjens. He also points to the ‘little-known’ aspect of import from the UK, especially in the second line. ‘Few companies have insight into the sources of their supplier. If they are not supplied, then purchasers will unexpectedly be negatively impacted by Brexit while they may not even realise that their supply chains extend this far.’
‘And in the food sector, for example, you have a limited shelf life to contend with’, notes Vermeiren. ‘It is easier to store cars for a prolonged period of time.’