In this blog (the second of two - part one here) we explore different concerns raised over future trade disruptions and the potential consequences of Brexit for logistics space demand.
How Brexit finally affects logistics demand in the long term will mainly depend on what kind of agreement is reached, if any. Whatever the case may be, the competitiveness of the UK’s international trade and connectivity will probably be affected, at least in the short term.
The Logistics Performance Index published by the World Bank ranked the UK as the 9th best country for trade logistics operations in 2018. But the Freight Transport Association has already indicated a small decline in perception of the UK’s competitiveness globally and within the EU, attributing that decline to market uncertainties caused by Brexit. A number of distresses specifically concerning the logistics market have been raised so far, apart from potential affects to the UK’s wider economy or the manufacturing sector.
The British Retail Consortium warned about the importance of UK retailers’ highly integrated and efficient supply chains, with cross-border movements within the UK and Ireland or other EU countries potentially threatened with tariff hikes if no deal is agreed. Other warnings have been recently released regarding the suitability of British pallets for exporting to the EU as a third party. If more customs checks or pallet changes do indeed end up being introduced at UK ports, the warehousing sector may well see some benefits – or at least some reorganisation of supply chains around those ports.
But we should not forget that as an island market, a clear majority of goods in the UK are moved internally. Figure 3 illustrates the intra-UK HGV movements, which will usually involve goods moved from one warehouse to another, are much higher than cross-border movements. Those domestic movements, and the distribution centres needed to receive, store and reload goods to HGVs are unlikely to diminish in any sort of post-Brexit scenario. In fact, they are probably more likely to increase as UK firms try to source supplies locally.
However, the current demand-supply imbalance for logistics in the UK would, in theory, make it very difficult to allocate warehouse space to manufacturing companies seeking to minimise disruption on their just-in-time supply chains by stockpiling supplies.