Abu Dhabi, UAETuesday 22 October 2019

As Brexit looms, companies look to mitigate chaos

Bottlenecks that leave food imports rotting in ports remain a real risk, and there’s still a big question mark over what happens to flows of data

The UK Department of Transport fears a no-deal Brexit could overcrowd UK ports. Daniel LEAL-OLIVAS/AFP
The UK Department of Transport fears a no-deal Brexit could overcrowd UK ports. Daniel LEAL-OLIVAS/AFP

With less than six weeks to go until Brexit day, UK Prime Minister Theresa May continues to wield the threat of walking away from talks as a negotiating tactic.

Companies are taking it seriously, stockpiling food, drugs and manufacturing parts. Governments are also kicking into action, but what they can, or want, to do is limited - unless pulling out of the country altogether is an option. For some it is; on Tuesday, Japanese car maker Honda said it will shut its only plant in Britain in 2021 resulting in 3,500 job losses, in what is seen as a big blow to UK's auto industry before Brexit.

The firm blamed "unprecedented changes in the global automotive industry" for the decision but it comes amid investment uncertainty in Britain ahead of the country's exit from the EU.

Speaking to reporters in Tokyo, Honda president Takahiro Hachigo said: "I'd like you to understand this is not related to Brexit."

He said it was "very regrettable" to have to close the plant but said it was the "best choice" given the need to reduce production capacity and reform its global facilities.

"Honda seems to have been preparing for this for a long time. Then Brexit happened, which might have pushed the company to make the decision now," Seiji Sugiura, an analyst at Tokai Tokyo Research Institute, told AFP.

There is slightly better news elsewhere, such as the fact that the most catastrophic effects of Brexit, such as a rupture in the multitrillion-dollar derivatives market or the grounding of planes, have probably been avoided.

But bottlenecks that leave food imports rotting in ports remain a real risk, and there’s still a big question mark over what happens to flows of data that are crucial for businesses and governments, according to Bloomberg. The European Commission is taking measures to protect the bloc, while telling member states not to do anything that would make life too easy for the Brits.

Here’s a look at what a no-deal would mean for key industries:

Finance: the worst averted

The EU and the UK aren’t really cooperating on no-deal planning except in one major area - finance - where both sides would stand to lose from a big market meltdown. Cooperation agreements will enable UK and EU regulators to supervise each others’ markets, and there’s a plan in place to avoid a cross-channel rupture in the multitrillion-dollar derivatives industry by ensuring EU banks can continue settling trades at clearinghouses in London. Another agreement allows mutual funds and hedge funds in the EU to continue to delegate trading to staff in London.

But the financial industry is pressing for further action from policymakers so there are no hiccups in trillions of dollars of another type of derivatives contracts that aren’t settled at clearinghouses - over-the-counter uncleared swaps traded directly between buyers and sellers. Lobbyists are also calling on the EU to allow British exchanges and trading venues to be used for equities and derivatives transactions before they are then settled at the clearinghouses.

Banks will also have to deal with the fallout of a currency shock in the event of no-deal, as analysts predict sterling could plunge as much as 20 per cent.

Data: hoping not to get caught

Data now flows freely between the EU and the UK as they both follow the same rules. With a no-deal Brexit, while the UK has said data will still be able to flow, Europe has given no reassurance the same will apply going the other way. To calm nerves, both the British government and the UK data regulator are advising companies to hunt down all data transfers coming into the UK from Europe, and make sure they have appropriate safeguards in place. Essentially this means a lot of paper work, including tasks from signing up to internal code of conducts, to adhering to standardised clauses on transferring data.

All of this is short-term advice, as the UK says it’s aiming for a so-called adequacy agreement with the EU, which would mean data flows can carry on as they did before.

The risk is slim of the EU demanding a halt to data flows to the UK - such an act would be close to declaring war - but the danger of an activist spotting an “illegal’’ data transfer from one multinational to another is high and companies will be readying themselves for potential lawsuits.

Food: the fridges are full

Supermarkets and their suppliers are stockpiling food but all frozen and chilled storage is already being used and there is limited warehousing space left. They are also attempting to find alternative supply routes, but there are few options and not enough ferries available. Retailers rely heavily on European supply chains, with one-third of food in the UK coming from the EU. Their main concern is disruption at the crossing between Calais in northern France and Dover on the English south coast. The government has said it would wave in most EU traffic but that won’t solve delays going the other way.

European companies of course would not be the only ones affected by a no-deal exit. As The National reported, the UK government ran an exercise last month to assess the level of chaos if trade snarls at the UK’s main gateway for trucks from the European Union.

Operation Brock – which turned a disused airfield into a lorry park for a morning – was preparation for a scenario that could see 100,000 lorries routinely held on roads in southeast England as imports are met with new and more rigorous customs checks at the southern port of Dover.

Dismissing the exercise as the latest instalment of a scare campaign, pro-Brexit campaigners have instead pointed to an alternative vision with the UK at the centre of a "Global Britain" trading network.

One of the country’s largest container ports, run by Dubai-based DP World, believes its modern facilities are already in place for a strategy that embraces that vision of broader trading horizons.

At DP World’s London Gateway, 86 per cent of traffic throughway comes from outside the EU and has connections to more than 110 ports in 60 countries.

The semi-automated deep-sea terminal already has an advanced customs checking system that could provide a model for Britain as it embarks on its uncertain journey outside of the world’s largest trading bloc.

“A lot of Brexit is about expanding trading routes to more countries - deep sea ports do that every day. DP World looks at the long-term,” said James Leeson, DP World’s head of commercial at its UK ports, citing the £1.5 billion (Dh7.12bn) pumped into the project by the Dubai-based company.

Amid concerns that goods will be piled up in trucks along the sides of roads in southern England, the company points to its own logistics park, the largest of its kind in Europe, that has spare capacity and is only 20 per cent full.

Airlines: fairly smooth flying

Following an agreement between the UK and the EU, airlines from both sides should be able to carry on flying unhindered to each other’s territory after March 29. The accord extends to overflights and refuelling stops and also extends the validity of safety certification that might otherwise be voided after the split.

British-owned carriers need to take further steps to carry on operating solely within the EU, and vice versa. In order to do that airlines must acquire overseas licences - with easyJet setting up in Austria and Ryanair, which is Irish, securing permission for domestic UK flights.

Meanwhile, the world’s biggest caterer to the aviation industry has begun to amass food and cutlery. Gate Gourmet, which serves 20 airlines at 10 UK airports, is accumulating enough supplies to see it through about 10 days of disruption - including some items that need to be kept cold.

Health care: drugs and blood

The government is making plans to accumulate drugs and blood products in the event of a no-deal departure. And it’s telling patients not to build their own private stashes of medicines at home. Pharmaceutical companies are booking space on planes to avoid delays at ports, and Novo Nordisk, which makes insulin, aims for an 18-week supply.

Manufacturing: stockpiling parts

For British manufacturers that rely on imported parts, no-deal is a nightmare. Airbus has been laying in parts at its plants in the UK and Germany, enough to cover production for one month. Jet-engines giant Rolls-Royce has moved the approvals process for its products to a facility in Germany and is storing up components. The car industry has also been hoarding extensively: Aston Martin has plans to ship car components via air freight to avoid using Dover, while Volkswagen-owned Bentley has been supplying parts through an alternative port for the last eight months. Companies also are prepared to idle factories.

Channel Tunnel: open, but on EU’s terms

Rail services through the Channel Tunnel that connects Britain to mainland Europe will continue for three months after March 29. The European Commission’s unilateral proposal would apply to all traffic - passengers, cars and freight - and is contingent on the UK side maintaining existing EU safety standards and rules. The commission said the three-month period would allow the two sides to come up with longer-term solutions.

Updated: February 20, 2019 05:23 PM

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