UK-EU logistics woes mount as companies stock up ahead of Brexit deadline

Author: Will Beacham


BARCELONA (ICIS)--UK logistics at border crossings into the EU are under intense pressure as companies try to build stockpiles ahead of the country’s 31 December exit from the EU single market and customs union.

Long delays for container traffic and queues of trucks are being reported at ferry terminals and Eurotunnel on both sides of the English Channel, with additional pressure caused by ferries running a reduced timetable because of a lack of passenger and car traffic caused by the pandemic.

On Sunday (20 December), queues at the UK's port of Dover were growing as France halted during 48 hours all freight bound to Calais as it aims to stop a new coronavirus strain found in London and surrounding areas reaching its territory.

Several countries, including Germany and Italy, as well as France, announced over the weekend they were halting passenger flights from the UK.

The pandemic has also disrupted the global container shipping system, with reduced availability and long delays at container ports along the south coast.

Shipping companies – which took out 12% of global capacity in the first half of 2020 – were taken by surprise as Asian economies bounced back quickly in the second half of the year.

They have been unable to restore this quickly enough.

Container availability has been disrupted by too many full containers being stuck in distribution chains west of Suez or in congested ports of entry, with logistics slowed down because of manpower shortages related to coronavirus lockdowns.

In the UK, containers have also been taken out of service to store personal protective equipment (PPE), with these blocking up storage capacity at ports.

Polymers – which are often transported in containers – are now facing delays and rising costs in Europe markets.

Sky-rocketing freight costs are adding upwards pressure to Europe polyethylene terephthalate (PET), with prices from Asia spiking from $5,000 to $8,000 per 20-foot container.

UK polyethylene (PE) markets are in a difficult situation, with supply already curtailed by SABIC’s force majeure on low density polyethylene (LDPE) at Wilton. It remains in place even though the 400,000 tonne/year facility is now up and running.

Prices are rising as the logistics delays have made life difficult for UK buyers who have been trying to build stocks towards year-end.

With no post-Brexit trade deal in place, there is no certainty about UK customs and tariff arrangement with the EU from 1 January.

As a result, SABIC has implemented a cut-off period from 23 December-6 January for loading from Wilton, for orders that require UK border traffic.

The UK plasticizers market is also affected by a cut off period; one buyer in the UK told ICIS: “On the Brexit stockpiling – some suppliers have put a lock on orders from mid-December and will not open shop until mid-January as they foresee problems at ports, with documents missing and delays.”

New analysis from the ICIS Supply & Demand database (see graph) shows how much the UK relies on the EU27 for trade in chemicals compared with the rest of the world.

If the UK fails to reach a deal with Brussels, chemical exports to the EU will be subject to average World Trade Organization (WTO) tariffs of 4.5%, up to a maximum of 6%.

Tariffs apply each time a product crosses the border, and this could hit end use sectors such as automotive particularly badly.

Even with a deal in place, UK exporters will also pay WTO tariffs to all non-EU countries which do not have a free trade agreement (FTA) in place with the UK.

The country has been trying to roll over FTAs which are in place between the EU and other countries, with limited success so far.

There is, as yet, no clarity over rules of origin, which determine where a product is made from a tariff perspective. Typically, where more than 50% of a product’s value is created determines its origin.

In term of regulations, UK chemicals and their trading partners will also have to comply with UK Reach as well as EU Reach if trading across the border.

The UK Chemical Industries Association (CIA) has estimated that a no-deal Brexit will cost the UK chemicals industry around £1bn/year in additional tariffs, plus a one-off £1-1.5bn in new regulatory costs.

A shortage of containers, and spiking prices, have also affected Asia polymer and resin markets.

For example, import prices of northeast Asia-origin phthalic anhydride (PA) to India have surged more than 60% between September and November, as Korean makers struggled to transfer sharp increases in container freight costs to customers.

Similarly, US export prices for PE have risen  as logistics issues limited supplies to several regions, stimulating overseas demand for US PE.

Front page picture: Trucks queue up at UK's Dover port on Sunday 
Source: Andy Rain/EPA-EFE/Shutterstock

Focus article by Will Beacham

Additional reporting by Ai Teng Lim, Jane Massingham, Caroline Murray, and Linda Naylor