The BREXIT deadline has been postponed by 3 months and may finally happen only in January 2019. Even then there is many a slip between the cup and the lip and we need to be prepared for delays. But that is off the point. There are a few immediate implications of BREXIT. Firstly, BREXIT will mean that UK will no longer enjoy special status when it comes to trade with the EU. That will impact the free movement of goods between UK and the rest of the EU. Secondly, many companies had designed their supply chains and transport matrices based on UK remaining a part of the EU. If UK leaves then it changes the cost and convenience equations. Thirdly, London was literally the gateway to EU for the services industry and that may not hold good any longer. In a nutshell, the real impact of BREXIT will be on the logistics industry. It will not just impact the logistics industry in the UK and the EU but also in other parts of the world.

New costs, restrictions and hurdles

With UK out of the EU, there will be additional costs, restrictions on free movement of goods and bureaucratic hurdles. Europe continues to be the biggest export market for UK and hence any increase in cost and ease of movement of goods will sharply change the economics of logistics. For 40 years members of EU have enjoyed the benefit of logistics without any borders. That will change if UK leaves the EU.

Tariff-free access may go and add to logistics costs

As a member of the EU, UK had virtually tariff-free access to all the markets in the EU member countries. This substantially reduced the number of approvals required, the number of bureaucratic hurdles in moving goods and the cost of logistics. Also it was easier to have an integrated approach to managing the logistics operations thus resulting in substantial economies of scale and saving of cost. That will no longer be possible with the outcome of the BREXIT vote.

UK may lose out on the European Supply Chain

A critical advantage for the UK was the benefit of the European supply chain that virtually gave them unfettered access to markets across Europe, Central Asia, Russia, West Asia and Africa. One of the reasons the UK could become a key player in the automotive industry was the benefit of the European supply chain which gave it a tremendous reach across global markets. BREXIT will mean that UK will lose the benefit of the expansive EU supply chain, largely reducing their economies of scale and bargaining power when it came to international clients.

There is an added logistics cost in non-EU nations

Currently, there are countries like Switzerland, Norway and Iceland that are part of Europe but they are not members of the EU. According to logistics industry analysts, consignments sent to these countries become victims of customs delays, red tape and additional tariffs. In fact additional tariffs alone work out to an addition of 8-10% to the overall cost of the logistic operations.

Watch out for supply chain disruptions

Britain will now have to sign separate trade agreements with individual European nations and also sign specific trade pacts. This will impact regional supply chains that have over the years developed assuming the model of UK-EU to continue. With existing logistic routes, costing methods based on the UK-EU relationship, there will be a sharp change both in the ease of doing business as well as the costs involved. Logistics companies in Europe had one of the lowest average costs of operating and that is likely to rise sharply if the UK chooses to exit the EU and does not have any alternate agreements in place.

BREXIT will impact US logistics operations too

For the US logistics operations, BREXIT will have a strong impact. The US has invested billions of dollars in the UK as the UK offered a convenient and liberal gateway to the markets of Europe. This had substantially reduced the cost of logistics for US companies in their effort to reach out to the European continent. All these logistics calculations could change vastly for the US if the UK is no longer part of the EU.

UK could get excluded from larger trade agreements

The bigger concern for the UK will be that they will miss out on the larger trade agreements that the EU is stitching up with countries like the US, India and China. These are huge markets and if the UK is outside the EU then they may not get the special trade benefits that the EU will enjoy. India, for example, has already clearly stated that they will be keener to negotiate a free trade agreement with the EU overall rather than with the UK individually. The irony is that the UK will still have to comply with the global rules of trade but it will have no say in formulating these rules in the future.

BREXIT could actually also be a huge opportunity for logistics and transport businesses

BREXIT will surely lead to a realignment of existing logistics networks and supply chains. Logistics companies will now have to factor in multiple tariffs, movement costs, physical restrictions and red tape into their costs. Therein lays the opportunity. Billions of dollars of goods moving between UK and the rest of the world will have to be realigned and their logistics matrix reworked. It could be big business opportunity for logistics companies.

There is another advantage in BREXIT. The decision to leave the EU will weaken the UK£. That means the £ gets cheaper and a cheap currency will always be favourable for the British exporters. The € is also likely to weaken as an outcome of the BREXIT vote and hence there will be an export push across the region. Exporters across the region will be in a better position to afford the realignment of their logistics operations.

Logistics companies will have larger platform to operate and a larger platter to offer their clients. With the BREXIT vote, there will be VAT, customs duties, physical restrictions and other taxes that will be imposed on movement of goods. While larger logistics companies offer all these services on a larger global scale, smaller logistics that are UK or EU-centric do not offer the full platter. BREXIT will be an opportunity for all logistics companies to grab the opportunity to offer the full platter of logistics services.

The big opportunity for logistics companies could be in optimising existing logistics networks. Increased tariff and movement barriers will mean slower movement of goods. How to optimise through online networking and resource sharing? This an area where larger logistics companies may not be too adept and it opens a window of opportunity for smaller logistics companies to grab market share in a short period of time.

In a nutshell, it is true that BREXIT has created an environment of uncertainty for the logistics companies. But it also opens up opportunities. Logistics companies can offer a larger platter of services, improve their ROI from clients and align themselves with the emerging complexity. In a span of 2-3 years, logistics companies may actually have a lot to celebrate as an outcome of BREXIT.