5. Routes to market and logistics
- Scotland’s transport infrastructure is configured on the basis of free movement of goods between the UK and EU. A significant proportion of Scottish goods are transported by road to the south of England and cross over to the EU via the short-straits. Therefore, there are few customs checkpoints in Scotland capable of handling EU trade.
- Brexit may challenge the viability of the current logistics models due to risk of potential border delays and an increased need for customs check points. This is a particular risk for sectors that import and export physical goods in significant volumes like food and drink, chemicals and other high value manufacturing sectors.
5.1 Brexit risks
Scotland’s location in the north-west of Europe presents logistical challenges. Goods transported between Scotland and the EU move predominantly by road and then the short strait ferry routes, and Scotland is hence dependent on ports in the south of England. If there are hard borders after Brexit, Scotland will need to develop its transport infrastructure to adapt to this new world.
5.2.1 Customs and border delays
The imposition of border controls in a no deal Brexit on WTO terms (or indeed even under a Canada-style free trade agreement) would increase firms’ logistics costs and risk perishable goods expiring.
The impact of border delays was raised by participant businesses and trade associations in a number of the dynamic consultation workshops. It was seen as a particular threat to businesses that operate on a just-in-time basis. As a consequence, a number of contributors were increasing their warehousing to shore up their supply chains.
Some businesses in high value manufacturing and renewables indicated that there might be opportunities to move supply chains back into the UK as a mitigation through import substitution. A chemicals business, in dynamic consultation, indicated that larger companies would find this easier to do than smaller companies because of the costs involved and the potential volume savings from reconfiguring supply chains. That is, the upfront fixed costs of on-shoring supply chains could be prohibitive for SMEs compared with larger firms with greater resources and buying power.
One manufacturer in the life sciences sector alluded to adjusting its production timelines to try and avoid the worst of border disruptions in the case of a disorderly Brexit. In the longer term, this disruption to supply chains and slowing down of just-in-time models of production could affect Scottish enterprises’ overall competitiveness.
In the Scottish fisheries and aquaculture sub-sectors, any marginal increase in border transit time could have a detrimental impact on the value of the produce, and the viability of the trade route. The value of the final product for these businesses is dependent on the time it takes to get the product to market; an important consideration for exporting perishable goods from Scotland to consumers in mainland Europe.
A gutted salmon has a maximum shelf life of 14 days. A salmon producer engaged through dynamic consultation thinks that they currently have the benefit of proximity to market and can send product to market one or two days more quickly than Norwegian salmon. Delays of even a couple of hours could be detrimental to this producer, and they may consider moving transport of their goods from road to air freight at considerably greater cost which would impact margin. They also recognise they will need to become more efficient at processing paperwork. Currently, non EU exports require two documents: Certificate of origin documents that are relatively straightforward to complete, and an Export Health Certificate which presents more of a challenge. The latter document is completed manually during normal working hours by local authorities, and the producer believes that this system needs to become electronic, to accelerate the rate of completion. That said, what is of upmost importance is that the system used to provide certificates is acceptable for EU sanitary and phytosanitary (SPS) rules.
5.2.2 Customs and checkpoint capacity
If there is regulatory divergence, particularly in the food and drink and life sciences sectors, Scotland may need more phytosanitary posts to accommodate these extra checks for imported products in Scotland.
As for wider customs checks, there is a risk that if more posts and points need to be set up in Scotland then more staff will be required to man these points. SG should ensure local authorities have enough capacity to undertake certification of origin checks and seek clarity on the role of AEOs in these checks post-Brexit. Checks will need to be conducted on both exports and imports, and the current 9am – 5pm provision at existing posts would not be sufficient for business needs. AEOs can also undertake these checks but it can take months to get AEO certification.
A potential opportunity for Scotland is that Forth Ports are the only ports group in the UK with AEO status. This could provide a direct route for trade between Scotland and the EU, avoiding the potential disruption at the busier ports of southern England. However, the feasibility of this as an alternative and the identification of potential beneficiaries would require further analysis.
5.2.3 Transport routes
The dependence on transport by road is facilitated by the longer transit times and often higher cost of alternative forms of transport. A trade industry body in this sector indicated that ports in Scotland are on a smaller scale than in the UK and competition among the ports is relatively low, reflecting limited demand (Insight 13).
Insight 13: There are currently limited channels for transporting goods
A port business indicated that Scotland is always the last leg of the trip so it is more expensive to serve. A factor in this expense is that Scotland is a net exporter, so that the volume of goods entering Scotland is lower than those being exported, resulting in under-utilisation of containers and hence higher costs.
Source: EY dynamic consultation
Indications from businesses in dynamic consultation were that the goods that travel by air freight are higher in value and lower in volume, compared with road or sea. In addition to considerations around CO2 emissions targets, a challenge in promoting more air freight is that the planes need to be full on both arrival and on departure; this is difficult to achieve in a country which exports more than it imports. A business in the dynamic consultation for food and drink suggested that a lot of air freight goes via Heathrow because there is not the capacity in Scotland. Furthermore, a major airport operator in Scotland confirmed that it carries minimal freight.
In other evidence participants in the logistic dynamic consultations suggested that there may be new opportunities in the growing Scottish cruise market should it be outside the Single Market, e.g. sale of duty free goods, which may currently be underexploited.
5.3 Implications and policy response
A significant proportion of Scottish exports to the EU are transported goods via road, and this could be disrupted in the event of a no deal Brexit. EY notes a number of businesses that are taking precautions against supply chain delays. These include a European fast-moving goods (FMCG) company which sells perishable consumer goods that is changing its European distribution hub from the UK to Netherlands.
5.3.1 Build on Scotland’s direct physical trade routes to support trade
Scotland’s infrastructure is suited to current trade patterns and may need to change post-Brexit. For example, products of animal origin are required to go through an appropriate BIP in the EU. Calais is not currently designated as a BIP, but is currently an important entry point for Scottish produce, particularly seafood. As a consequence, Scottish businesses will need to review, and potentially change their physical routes to market in cooperation with their logistics suppliers. In this context, actions that should be undertaken include:
- SG to lobby for regulatory alignment for animal welfare (hygiene checks, EU veterinary standards, C Branding) and product labelling to reduce the need for significant border checks.
- SG could facilitate discussion among airports, ports, hauliers and shipping companies to ensure all parties are prepared and coordinated for Brexit changes, including the identification of further opportunities for export routes.
- There may be an opportunity for port and rail companies to develop links to provide wider options for customers, to help importers and exporters facilitate timely and cost effective movement of goods directly to and from Scotland.
- Forth Ports and exporting businesses can use its AEO status to streamline exporting and attract more goods to be transported through Scottish ports. There are challenges in terms of capacity though.
- SG should ascertain whether the UKG needs to consider investment in border facilities to enable the necessary checks on the import and export of goods in Scotland.
- SG and business should explore opportunities for alternative means of exporting non-perishable goods, and mechanisms for fast-tracking the movement of perishable goods across UK borders.
- SG to ensure that the relevant competent authority has the capacity to ensure appropriate certification for seafood products leaving or entering once the UK becomes a third country.
Email: Central Enquiries Unit
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