Issue 2 2019 - Freight Business Journal

///AUTOMOTIVE Beware of the potholes

With Honda announcing that it is to shut down its Swindon plant and Nissan scaling back expansion plans, car making in the UK seems set for a period of contraction. However, we should not be too downhearted - Brexit may prove to be only a minor bump in the road to future prosperity. And there are still plenty of niche opportunities where forwarders and logistics players can get involved.

What does the brave Brexit future

hold for automotive industry? The reality of the risk Brexit poses to the UK automotive industry has been laid bare in recent weeks, writes Rory Watts, operations director at supply chain experts Advanced Supply Chain Group

First, news broke that Nissan will no longer be manufacturing its next generation X-Trail model in the UK, followed by a second shock as Honda announced the closure of its Swindon factory. The announcements have

prompted urgent questions about the durability of the UK automotive sector and cast doubt over the government’s industrial strategy. Car makers are braced for further similar announcements as manufacturers move to safeguard their interests and protect profi ts post-Brexit. The importance of the

automotive industry to the UK economy shouldn’t be underestimated - exports currently total over £40 billion, 13% of the UK’s total exports. Despite concerns around the viability of UK manufacturing plants, in the short term we’ll continue to see 80% of the vehicles assembled here exported, 50% of them destined for Europe. Whatever the outlook long-term, the automotive industry must brace itself for the short-term challenges ahead. While it’s fair to say that Brexit

is causing its fair share of sleepless nights, with the right planning and preparation, the industry will be able to weather the storm. The continuation of frictionless trade between the EU and the UK is a vital piece of the puzzle. Forward-thinking businesses

have already begun contingency planning, but concern remains around unknown elements such as tariff s. At present, there is no deal in place with the EU, and the UK has rolled over trade deals with just seven of the 69 countries currently covered by EU arrangements. Analysis from automotive industry body SMMT suggests that EU tariff s on cars alone could add an annual £2.7bn to imports and £1.8bn to exports. Falling back on World Trade Organisation rules would leave British car exporters facing EU import tariff s of around 10%, and around 4.5% on components. To be operating without clarity on tariff s so close to the withdrawal date is far from ideal. However, on a more positive

note, HMRC has demonstrated its willingness - at least in the immediate term - to ease the pain post-Brexit with the announcement that, for the fi rst six months, it will not enforce safety and security checks, giving companies more time to prepare. But, while the move has been welcomed by industry bodies, questions have been asked around whether it goes far enough, with some suggesting it’s simply a stay of execution. Only time will tell. One of the reasons the

automotive sector is so exposed to Brexit is its widespread adoption of ‘just in time’ manufacturing, which is entirely reliant on a seamless fl ow

of componentry into the assembly line. Customs processes, no matter how short, are incompatible with these systems because of the uncertainty associated with inspections and the knock-on eff ect of delivery time variations. To illustrate what this means

in practice, take Honda as an example. When addressing the House of Commons Business Select Committee, the car-maker revealed that it holds just one hour’s worth of parts at its Swindon plant, with 350 trucks of components

to cause huge upheaval. Safety Certifi cation is just one example of this; UK manufacturers must comply with the EC Whole Vehicle Type Approval System, but, in the event of a no deal scenario, the industry could fall victim to the lengthy process of recertifi cation, which would likely result in the suspension of manufacturing activities until approvals are obtained, impacting budgets and planning timetables. At present, the industry has no clarity on whether there would be a window to re-

between the UK, Europe and the rest of the world - manufacturers can choose to off shore by moving production to the UK, or they can reshore by nurturing an enhanced UK supply chain. Those that choose to remain

in the UK can mitigate the risks of doing so by encouraging European suppliers to locate their own plants in the UK - this is a strategy seen in Sunderland, with Nissan encouraging its supply chain to base itself close to its own production line. We expect to see an increase in the consolidation of supply chains, both within the UK and within the EU, minimising cross-border shipments. One of the goals in limiting

cross-border shipments, as well as reducing the likelihood of delayed parts and other components, is to avoid rules of origin requirements. The nature of integrated supply chains means that this could cause a real issue - determining country of origin of a product is usually the fi nal step in the customs clearance process, aſt er the customs classifi cation and value is established. But how those rules are specifi ed and operated could have a major impact on tariff costs. However, while cross-border

delivered every day from Europe. Every 15 minutes of customs delays would cost it up to £850,000 a year - a price that car manufacturers can little aff ord given the already challenging market conditions. If that wasn’t stark enough, if Britain were to leave the Customs Union - which looks increasingly likely - it would have taken Honda 18 months to set up new procedures and warehouses. A poor outcome in Brexit negotiations has the potential

certify and what the process would entail. Amidst such widespread

uncertainty, we do know that automotive businesses cannot aff ord to walk into Britain’s post- Brexit future with their eyes closed. Many are beginning to implement basic manufacturing strategies to cushion the impact of disruption and the high costs associated with that. Those they choose to implement will depend on their sales profi le and how it splits

shipments can be minimised, the transport of goods and components is essential for the automotive industry to ensure that frictionless trade continues. While new market dynamics will lead to a decrease in the shipment of goods, the changes will also bring new opportunities for duty and tax services, as well as customs bonded warehousing and inter-site transport. Ultimately, we’re confi dent

that rail and air freight services will continue to fl ow as normal, without any major impact on the number of direct sea freight

services from the Far East, which is a major destination for car exports, particularly for the likes of Jaguar Land Rover. It’s positive that a contingency plan is in place for air freight, allowing travel between the EU and the UK for one year post- Brexit. However, the amount of air cargo will be limited. Our primary concern as far

as the automotive industry is concerned are road freight customs and compliance checks, and the knock-on eff ect on ro-ro shipping services, particularly from Dover and Portsmouth. Ships sailing to Rotterdam from Britain would no longer be able to pass through the express lane for customs clearance, instead being diverted to the ‘lane’ reserved for vessels from so-called third countries, which aren’t part of the EU and must undergo a much more extensive inspection regime. It’s vital that businesses within

the automotive industry work closely with their transport and logistics partner to explore all of the options available. To cushion the impact eff ectively, their supply chain must be in the best possible shape and able to withstand the upheaval that looks increasingly inevitable come 29 March. Companies will need to have

the systems in place to make Customs declarations and people should be aware of the Transitional Simplifi ed Procedures put in place by HMRC to help business adapt to the new trading environment could be in place for one year only. The right strategy, infrastructure

and a robust supply chain will pay dividends. Yet, if the day fi nally arrives and the UK exits without a deal, we’ll all be looking to France; how they choose to implement security procedures will determine whether Kent is transformed into a lorry park.

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