MNI: EU/UK Port Trade Growth Risks Severe Brexit Downturn

By Tara Oakes

     LONDON (MNI) - The growth in container trade between the UK and the

European Union in the last 18 months underlines that ports in both regions face

a sharp slowdown in business if a 'hard' Brexit endangers existing supply chains

and removes the benefits the customs union has allowed their customers to

exploit.

Figures from the EU's biggest ports show that they have benefitted from a sharp

increase in containerised trade with Britain since the UK's referendum on EU

membership, showing the risks faced if the UK crashes out with no deal or

demands the hardest Brexit are not just on the British side of the Channel.

     Carriers using the ports may be front-loading trade before Brexit hits in

order to take advantage of the current status quo before risking the uncertainty

of Brexit. But at present rates of growth, they are becoming exposed to greater

downside in the case of 'no-deal'.

Statistics from the Port of Hamburg obtained by MNI show a rise in containerized

cargo volumes handled by the port even after the shock referendum result in

2016, when the UK voted to leave the bloc.

Hamburg's containerized trade with the UK rose 6.9% from 2015 to 2016, from 1.3

million to 1.4 million tons. Container volumes also increased 12.6% over the

same period, from 219,000 to 246,000 TEU (twenty-foot equivalent units, the

global measurement for container shipping).

"The positive trend in container traffic continued in the first half of 2017, up

3.6%," a representative from the port of Hamburg told MNI. The UK moved up to

Hamburg's 8th top trading partner in seaborne container traffic in 2016, higher

than its rank of 11th in 2015.

The port warned that the current uncertainty surrounding Brexit negotiations

means that although they are examining the impact of Brexit "in detail", its

impact on their trade could not yet accurately be predicted.

But with the UK's insistence that they will eventually leave the customs union

and the single market as part of any Brexit deal -- even if a temporary

transition period is eventually agreed -- the recent rise in cargo trade with

the UK means a larger proportion of EU ports' business is in jeopardy.

Yves Adriaensen, Head of Market Intelligence at the Port of Antwerp, told MNI

that they were worried about it "severely" hitting their cargo streams. Antwerp

currently deals with about 15 million tons of cargo annually which is

UK-related, as well as 1.4 million tons from the Republic of Ireland.

Like Hamburg, much of Antwerp's UK seaborne cargo trade is containerized.

Adriaensen warned that starker problems would be faced by any of the ports

dealing mainly with roll-on, roll-off (ro-ro) cargo such as Calais or Zeebrugge,

because the transportation of a driver attached to a lorry exposed the ports to

further risks related to free movement of people, as well as free movement of

goods.

Calais celebrated the "best quarter in its history" in terms of cross-channel

freight in Q1 2017, posting an 11.2% increase from Q1 2016. Much of this is

roll-on, roll-off.

Zeebrugge has also been pushing its upgraded links to the UK, with P&O launching

a "major expansion" of their Hull-Zeebrugge route in May 2017, including a

Stg8.5mln upgrade of their two ships on the route, which carries tourists and

containers as well as ro-ro.

Ro-ro lorry drivers on both sides of the Brexit dividing lines currently have no

assurance about what their right of movement would be between the UK and EU when

Brexit hits in 2019.

Ports' worries about containerized traffic and free movement of people are due

to a lack of clarity or progress from Brexit talks, the current round of which

have trundled on with no significant progress in Brussels this week.

The figures, which cover the overall UK-related cargo volume handled by ports

including imports and exports, could also be pushed up by a spike in exports

from the UK driven by the drop in the pound, while Europe-origin products are

starting to prove a difficult sell in Britain after the currency drop. 

     Soft data from the UK, including PMIs and the CBI trends survey, indicate a

strong export business.

Trade between Britain and the bloc has likely been spurred by the weaker pound

and data indicates a general trend upwards of EU-UK from 2016-2017, although

data for the latter is still incomplete before year-end.

     Official data from the UK's Office for National Statistics certainly

suggest a pick up in overall EU/UK trade in the first 6 months of 2017 over the

last year, probably helped by both the weaker UK currency and the solid and

continuing economic rebound in the euro area.

Consumers in the UK have also until recently sought to maintain their standard

of living, but as the uncertainty surrounding the future filters through this

may dip -- especially if costs of living rise.

Some Brexit effects are already hitting EU ports off the back of the pound's

drop, stifling the market for European exports, Adriaensen told MNI. Antwerp's

highly developed chemical cluster is suffering due to the fall in the pound, as

UK buyers cannot afford the products that would previously have been shipped

over to them.

"The British pound as opposed to the euro has slumped, and that has an effect on

our trade, especially second half of last year. We also see a continued effect

of that on the first two quarters of this year on our chemical trade," he said,

adding that this had already amounted to a couple of percentage points negative

impact.

In the case of a hard Brexit, the hit would be even worse.

"There's a couple of scenarios on the table, but let's assume it's about a 5-10%

decrease of about exports of about 3 million tons on an annual basis of chemical

products -- liquids, that is -- so that's something we're taking into account,"

Adriaensen added.

UK Prime Minister Theresa May publicly announced her desire for a transition

deal in Florence on Friday, but her government's insistence on dropping out of

the customs union and single market has been a constant refrain.

After publishing a report on the likely hit of customs worst case scenarios, the

Institute for Government's Joe Owen told MNI that even if there is a transition,

the longer this takes to hammer out, the more at risk trade with the UK is.

"A transition loses its value the longer it takes to agree because there are

certain organisations who will need to start putting in place contingency plans

for no deal around the end of this year," Owen said.

"It's a sort of canyon rather than a cliff edge that you need to avoid, because

there is this cliff edge on the other side of the channel, and any disruption

felt from either side of the channel will impact both," he added.

The cost to ports cautioned by Institute for Government's report also highlights

that ports would have to factor in the training and infrastructure of new

customs services to deal with the third-country products in the case of a cliff

edge, delaying trade during its installation. 

     The port operators are obviously unwilling to commit to the large cash

outlay if a softer deal is found -- but this means that if it is needed, the

beginning of the process has been continually pushed back while all eyes are on

Brussels.

Without efforts from both sides to mitigate the tidal wave of Brexit, EU ports

are increasingly exposed by their growing trade figures with the UK and risk a

large part of their business being swept away.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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