What Brexit will Mean for Logistics in the Coming Months?
On 23 June the UK voted to leave the EU; a decision that had an immediate impact on the global economy, the effects of which are likely to be felt for some time. On the day the result was announced, the pound sank to a 31-year low. Economists have slashed their growth forecasts for 2016 and 2017, and a majority surveyed by Bloomberg have said they expect the UK would return to recession for the first time since 2009. Businesses in a wide variety of sectors – including logistics – are eagerly awaiting what happens next.
Where are we now?
On 23 July, a month on from the referendum, the results were announced of a special set of Markit/CIPS Purchasing Managers Index (PMI) surveys of businesses – the first significant set of data measuring the reaction to the referendum result. The index reading indicated that the economy was contracting and was, in fact, at its lowest since April 2009. This was worse than many had been expecting and the pound (which had rallied from its record low in June) immediately dropped in value against the dollar. Chris Williamson, chief economist at Markit, said: “July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early 2009.”
What does that mean for the logistics industry?
The main thing to remember is that nothing has changed yet, and there’s even a school of thought that doubts Britain will ever actually leave the EU. That remains to be seen, but in the meantime we are dealing with the impact of the vote itself, and something that is having a definite impact is the level of uncertainty people are facing. In terms of import-export and logistics, it’s safe to assume that anything currently on the seas will still flow through, but come September/October it’s highly likely that business will be down due to underlying uncertainty and the resulting lack of confidence.
Because the pound has been weakened, imports will be more expensive, and so are likely to drop in volume. People will be more cautious until there’s a clearer picture of what’s going on, and especially with regard to the performance of the pound on the world’s currency markets. This ties in with the expectations of Andrew Lilico of Europe Economics; while he argued during the referendum campaign that leaving the EU would be beneficial for the UK in the long term, he also said he expected, following the vote to leave, a short-term reaction and a short-term economic slowdown.
The price of oil
During the referendum many experts argued that the price of oil would rise, but instead it has fallen – despite which prices at the pumps haven’t dropped. This can be attributed in part to the fall in the value of the pound. Pete Williams of the RAC said: “Despite some fears that petrol prices could shoot up as a result of the EU referendum, we believe there is now a strong case for a cut in the price of unleaded on UK forecourts.” What will happen for diesel, of course, remains to be seen, but there might be some good news there for logistics and transportation businesses – or at least, not the bad news we had feared.
What next?
Business loves certainty, but that’s something we’re unlikely to see in the near future. However, according to Allister Heath, writing in The Telegraph on 21 July: “There has been no financial crisis, no clamming up of credit markets, no chaos. Some companies will delay spending, and GDP will do less well than it should have this quarter, but the prophets of doom have so far been confounded.”
The biggest issues faced by shipping and logistics companies will be triggered when the government gives formal notice to leave the EU. While we’ve mentioned some of the things the sector is likely to face in the coming months, arguably the best thing to do – assuming you haven’t already – is to prepare a detailed and robust business plan for coping with Brexit.
You’ll need to be prepared for potential changes to trade agreements and customs arrangements, and much more besides. So as well as coping with the short-term changes, be sure to plan for the much bigger ones that are to come.