The U.K. finally left the European Union on Jan. 31, 2020, following the June 2016 referendum and entered a set of transitional arrangements for trade and customs that apply through 11 p.m. London time on Dec. 31, 2020. Events in the fourth quarter have given a taste of the disruptions to supply chains that could occur in the first quarter of 2021 and beyond: whether or not a deal between the U.K. and EU is signed by 11 p.m. on Dec. 31; whether or not it is ratified before then, which is unlikely as discussed in Panjiva's research of Dec. 11 and; whether or not talks continue until a deal is reached in 2021.
The most recent challenge has come from several European countries having closed their borders with the U.K. due to the established emergence of a more transmissible variant of SARS-CoV-2. Shipments from the Port of Dover and via Eurotunnel have been terminated for at least 48 hours from midnight on Dec. 20 with possible extensions.
The closures will likely worsen the already-present logistics congestion and supply chain disruptions already caused by pre-Brexit stockpiling. Panjiva's analysis of official data shows that shipments via the Port of Dover accounted for 17.1% of total containerized freight imports to the U.K. in the 12 months to Sept. 30. That came despite a 44.2% drop in handling resulting from the closure of passenger ferry services and the resulting loss of Ro-Ro truck capacity.
The most pressing challenges come from ongoing provision of food and medicines to the U.K. While the U.K. government is likely to relax inbound customs inspections to expedite deliveries, challenges surrounding return of empty trucks/containers and willingness of logistics companies to run the risk of stranding staff and equipment may still provide disruptions. Indeed, DP-DHL reportedly sought to refuse shipments of food to/from the U.K. though it has since retracted that decision according to the Financial Times.
Panjiva's analysis of ONS data shows that the U.K.'s exposure to EU supplies of food and medicines has not changed significantly in the 12 months to Oct. 31 compared to the three years running up to December 2015.
The EU represented 70.3% of U.K. food imports in the 12 months to Oct. 31 compared to 70.0% in the pre-referendum period. That partly reflects the practicalities of global food supplies, though the U.K. dependence on EU fish supplies has, ironically, risen to 35.2% from 30.5% while reliance on EU supplies of meat have increased to 82.9% from 78.3%. The only product area where supplies have declined is in cereals with a decline to 77.4% from 80.4%.
The mix of medical supplies is largely unchanged at 76.9% of the total in the past 12 months versus 76.3% in the 36 months to Dec. 31, 2015. At the product level, the exposure is particularly high for insulin products, with the EU representing 99.2% of imports in the 12 months to Oct. 31, followed by steroids at 96.3% and hormones at 87.5%.
Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.