State of European Logistics 2020: Embracing EU uncertainty

The United States needs to begin preparing for a new normal in its relationship with the UK and the EU. That is to say, U.S. shippers will soon be dealing with each as two separate entities when it comes to trade policy, relationship building and logistics process.

As we edge closer to a prospective resolution to the Brexit saga, many UK ports are actually gearing up for an increase in business with the United States in the future. And if the UK is able to agree on a deal with the Trump administration, then shipping volumes could rise substantially in both directions, painting a positive picture on each side of the Atlantic.

It’s an attractive notion for the UK, as it would see a reduction in existing tariffs, especially on its $11 billion of automotive goods shipped from the U.S. To this end, an initial “light” deal could be achieved by November to deliver short-term political gains for President Trump on the eve of an election as well as Prime Minister Boris Johnson who is still looking to win favor during his tenure.

However, positivity should be tempered if not put to one side before this potential development. In order to capitalize on any impending opportunity, a host of logistical pitfalls driven by EU friction need to be negotiated.

According to John Manners-Bell, founder and CEO of the London-based analyst firm Transport Intelligence Ltd., one layer of complexity for U.S. shippers is that they currently use European distribution centers based in the Netherlands or Belgium to supply the UK. To tap into UK opportunity, the EU linchpin needs to be addressed.

“New documentation will be needed to export outside of the single market, and there may be delays at ports depending on the future deal between the UK and EU,” says Manners-Bell. “Of course, if President Trump does not get his way in negotiations with the remaining members of the EU—and countries such as France show little sign of backing down—then trans-Atlantic volumes to mainland European ports could well be hit by a trade war.”

New formalities in a protectionist environment

There is a very real and growing concern among shippers based in mainland Europe about this potential trade war with the U.S. Now that progress has been made with China and a new NAFTA agreement has been passed, it’s expected that President Trump will turn his attentions this way instead.

“Tensions over digital tax, steel and Airbus subsidies have escalated, and Trump has made it clear that tariffs on European automotive manufacturers may be in the offing,” says Manners-Bell. “This could be just the first step as tariffs and counter-tariffs are imposed.”

It’s a variable that couldn’t come at a more precarious time, as the concept of free trade and globalization in general comes under threat. Protectionism and a more insular economic outlook is beginning to take hold amid a wider economic slowdown, which could present a significant danger to trade as tariff and non-tariff barriers are increased.

“The expectation and administrative burden placed on logistics providers and carriers has never been higher,” says Paul Carroll, general manager of UK Customs at supply chain software provider BluJay Solutions. “Traditional EU buyers and sellers who have little to no customs knowledge or infrastructure are now looking to their supply chain and distribution partners to leverage dispatch and shipment data to discharge these new border formalities.”

Reactions on each continent

That being said, European logistics service providers themselves are benefiting from a surge in cross-border, e-commerce volumes, according to Nick Bailey, Transport Intelligence’s head of research.

“As a result, the balance of business is shifting from relationships with large shippers to dealing with growing, but unpredictable volumes from small e-traders,” says Bailey. “Some of the largest logistics operators have realized that it’s in their interests to ensure that small- and medium-sized enterprises [SMEs] have the same access to frictionless trade practices as the large corporates. A lot of effort is being put into developing measures that reduce bureaucracy, and global logistics providers are helping to frame the discussion with customs authorities, other border control agencies and, of course, politicians.”

By trying to open up more nimble sub-sectors of logistics and shipping across Europe, it’s hoped that greater adaptability will be achieved when some of the current unknowns spring to life. Ultimately, however, operators both big and small are hanging on the word of EU and U.S. regulatory bodies for more sustainable forecasts, who show no immediate signs of a breakthrough.

“Although mechanisms for discussion on convergence exist, disputes are handled through the WTO,” notes Manners-Bell. “Cases ongoing presently include complaints about access to the EU market for U.S. exporters of tech, biogen, aircraft, steel and agricultural products. President Trump’s lack of confidence in the WTO means that a bilateral approach to future disputes may lead to rising trade tension.”

Manners-Bell adds that the EU has already highlighted that it’s looking at ways in which it can purchase more U.S. goods in order to address its large trade surplus ($169 billion in 2018)—a similar move to that undertaken by China ahead of its deal with the U.S. However, the UK’s geopolitical standing isn’t resolved just yet.

And then there’s Brexit…

In this regard, the message to U.S. shippers remains “wait and see.” While a seeming breakthrough at the start of this year ignited a little more consumer and investor confidence, it doesn’t change the regulatory landscape too much.

“At present EU-UK relations have entered into a transition period which means, for the next few months at any rate, worries over the future relationship can be kicked down the road,” adds Manners-Bell. “The UK, albeit outside of the EU’s institutions, will remain in the single market until the end of 2020. For freight operators, this means 12 months of largely business as usual.”

From a European perspective on its impact across the Atlantic, there’s an equally frustrating level of uncertainty for the longer-term. “Except, of course, that there will be no alignment between the UK government and EU regulations—that is a certainty,” adds Lukas Kinigadner, CEO and co-founder of Anyline, an optical charter recognition technology provider that has seen first-hand how a trade war can influence trends through its clients in the United States and Asia.

“Brexit is now happening, but without knowing how the legislation will play out, it’s wise for shippers to prepare now to optimize shipments for EU and non-EU entry points, for example, as a possible scenario,” adds Michiel de Neef, product manager of the BluJay LSP Platform.

Digital agility could offset prolonged volatility

In much the same way as Europe is trying to ignite its SME segment, a more pronounced adoption of digitization may be pivotal for U.S. shippers in reacting quickly to any future relationships with both the UK and the EU. And, indeed, to more effectively organize for divergence in UK and EU trade.

“First, having tools to remove manual data entry and paper-based processes will help mitigate the risk of delays,” Kinigadner says.

According to de Neff, we might also see certain products being directed to either EU or non-EU ports based on tariffs. “In these cases, we might see a favoring of raw materials over finished products to incentivize local production,” he says. “A prospective tariff war may well provide optimization possibilities to those that can react quickly.”

For U.S. shippers, the probability of facing further checks, amended criteria, more disputes and wavering tariffs will arise despite new UK opportunity. On one hand, the regulations that exist between Europe and the UK serve as a hurdle; while on the other, the U.S.’s own volatility with the EU would have created a barrier with or without Brexit.

However, this challenging situation may also inject a bit of acceleration into practices and methods that the sector has not always been renowned for embracing. As demonstrated by the EU’s intended diversification of impetus, when agility and organization are of critical importance amid a new normal of uncertainty, the U.S. could also see this as an opportunity to introspect, enhance local industry, and to more concertedly digitize its supply chain.

“In these times of uncertainty, shippers on both sides of the Atlantic can take back some control of their own data,” Kinigadner concludes. “Businesses taking proactive steps to harness digitization will be better able to handle volatility in the future, while providing an improved service to their end-customers today.”