I see Dr North has written a post this morning about the Observer report suggesting delays and problems at the channel ports are likely to persist "into the summer" because of a lack of customs agents. This is from a quote by RHA boss Richard Burnett. North castigates the media for not recognising the structural changes that took place on 1 January, which I think is right, and the government for thinking the problems are all short term and things will soon be back to 'normal' after a huge 40% dip in exports.
Among other things he mentions VAT changes, the need to have a legal ‘importer’ in the EU and rules of origin. These measures are in addition to the lack of 30,000 customs agents identified in the Observer article..
But Dr North doesn't follow through on his own logic.
The central issue which he doesn’t really get to in my opinion is one of cost. The customs agents are expected to cost £7 billion a year simply because of the time taken to complete the paperwork formalities, even if they’re mainly on a screen. All the other things will add costs too.
The real issue is the added long-terms costs of doing business with the EU. I bet some exporters are not making money at the moment or less of it than they were. Some will certainly be losing money. They may think this is only a temporary impact and are perhaps selling at a loss in the hope that things will get better. But they won’t return to what they were.
You cannot employ 30,000 customs agents, or pay importers more money for extra legal responsibilities, or spend hours on rules of origin spreadsheets without incurring costs. The question is who will bear the costs?
Companies who are struggling to export at the moment are probably operating with some staff furloughed or by applying for help in some other government scheme like the £23 million offered to the fishing industry. They will probably be able to carry on for quite a while.
But frictionless trade is gone forever. It is all going to become more expensive, and this is unavoidable.
Some industries will have sufficient margin to be able to absorb additional expenses, others will be able to demand a higher price. In many cases it will be a combination of the two. But for thousands of businesses they will find themselves without a market because the customers won’t pay more and they can’t operate at a loss forever.
The sad truth is loyalty and goodwill doesn't get you very far in business. You may have sold things for years to your customer in Portugal or Finland or wherever and have a great relationship. You have holidayed with him, met his family and he yours. For some businesses it might be enough but when margins are squeezed and nobody is making money out of the relationship some businesses will fail or look elsewhere or simply stop exporting.
This is not likely to play out for a while yet but it will.
And at present EU imports are coming through without any checks at all. European exporters will, I am sure, be a bit sharper anyway but even there we will see a lack of qualified vets and customs agents feed through into more delays and extra costs next year. Disruption will not quite be on the scale we have seen here but the costs will be a permanent drag anchor on trade and will increase costs and probably inflation.
As Mrs Thatcher once said, you can't buck the markets. She was talking about the financial markets but the same sentiments apply everywhere. Your P & L account doesn't tell you lies.
EU customers are better placed to source alternatives since they are in a larger market. UK customers may find there is simply no alternative available either at all or in the short term or at the same price or quality. In my experience European companies are far more efficient, have much higher levels of investment and use it more productively.
This is why you find bottles of Evian spring water sitting on supermarket shelves that were bottled in France and sent across the Channel to a country with one of the wettest climates in the world. We are not short of water but the French can bottle, label, package and transport it 1500 miles cheaper than we can. Think about it. This is the market power that years of solid investment in automation buys you.
I confidently forecast this will not change in the next fifty years.
Former FCO permanent secretary Simon Fraser tweeted:
A 40% drop in UK goods exports to #EU is nearly a 20% drop in UK exports to all world markets. If half of that turned out to be a lasting, structural consequence of #Brexit it would be the equivalent of permanently losing all UK exports to all Commonwealth countries..
— Simon Fraser (@SimonFraser00) March 12, 2021
If Fraser is right, and there are plenty of experts who forecast even larger falls over time - up to 50% loss of EU trade, for our exporters it will be almost like starting from scratch in markets far away and where we will need huge increases in exports just to make up for what we have lost.
If the UK is still importing lots of EU goods because they're cheaper or better, why would the rest of the world buy from the UK? That's the question politicians will soon be wrestling with. There's no sentiment, it's just business.
