A united front

From the November 2018 issue.

Despite the UK’s decision to exit the European Union – and the air of uncertainty in the market that continues to linger – its trailer building industry continues to thrive. What does the future hold for Britain in a post-Brexit world?

On 23 June 2016 the British electorate voted on whether it should leave the European Union (EU) – a political and economic union that comprises 28 member-states (see breakout box).  This process, dubbed ‘Brexit’, was supported, marginally, by 51.9 per cent of the voters. The following year, 29 March 2017, the British Government invoked Article 50 of the Lisbon Treaty, also known as the Reform Treaty, that detailed the steps to be taken by a country seeking to leave the bloc voluntarily.

While it was not made inherently clear at the start of Brexit what the withdrawal process would look like, the consequences of this action were also unknown. The British International Freight Association (BIFA) said in its overview of the situation that from a trade perspective, Brexit was more complex than first imagined and there will be short-term difficulties, at least, in terms of customs.

As soon as the machinations of Brexit started, so did a two-year negotiation period where UK’s parliament must scramble to ratify agreements that would set the nation up for commerce in a post-Brexit future.

What does this mean for original equipment manufacturers in the UK that deal with countries on the same continent? Will the government organise free trade agreements with its neighbours, or is there a possibility of a hard split, reverting to World Trade Organization rules? These are the questions that Britain’s business leaders are asking.

EU membership for the UK, according to BIFA, removes barriers to trade and harmonises a slew of tariff systems and duty rates. At the moment, the UK is a member of both the Single Market and the Customs Union. No duties or taxes are collected within the EU and there are no border controls for intra EU trade and goods transiting the EU for import/export. There are also supply chain security benefits associated with access to published legislation and data verification systems.

The UK Government has also formed key departments responsible for seeing Brexit through. The Department of Exiting of the European Union (DExEU), is led by David Davis and will oversee negotiations to leave the EU and establish future relationship between the EU and the UK; work with devolved administrations, parliament and other interested parties; and coordinate and lead cross-government activity to maximise opportunities and ensure a ‘smooth’ exit.

The International Trade Department is led by Liam Fox and will be responsible for overall trade policy and export control and negotiating capability to drive forward  trade and investment policy.

Greg Clark, head of Business, Energy and Industrial Strategy Development, is responsible for industrial strategy, leading government relationship with business and furthering the UK’s role in science, research and design as well as consolidating the existing functions of the Department for Energy and Climate Change.

Robert Windsor, BIFA Executive Director – Policy and Compliance,  claimed that 80 per cent of the UK’s trade with the EU is carried by road and there is a general acceptance that road is the mode most impacted by Brexit in terms of regulation, customers and vehicle operation. “The following issues will have to be addressed: access to market truck quotas, Irish land border, employer certifications, vehicle technical standards, cabotage and infringements and penalties,” he said – also asking the question: “Will there be a shift from accompanied to unaccompanied trailers on the Dover Straits route?”

Windsor said that BIFA has always stated that retaining something as close to the Single Market/Customs Union is essential at least in the short term to allow business to adjust.

In April this year, the UK Parliamentary Transport Committee launched an inquiry to examine the potential effects of Brexit on UK freight operations and assess preparatory steps that operators, their customers and Government would need to take. Robert Keen, BIFA Director General, urged members to participate, by providing written evidence before the 8 June deadline.

Keen said that while the inquiry will not be considering border and customs arrangements, trade deals or tariffs – as these fall outside the Committee’s remit – it will look at the steps required to prepare for the challenges and opportunities of Brexit for UK freight, particularly through investment in transport infrastructure and changes to transport policy and regulation.
Keen said that the inquiry is addressing a number of matters. These include the scale and nature of the challenges and opportunities Brexit presents to UK freight companies and their customers.

Also, the adequacy of steps being taken by freight companies, their representative bodies, their customers and the Government in preparation for the challenges and opportunities of Brexit will be examined.
The investigation will also investigate mode- and/or sector-specific requirements for additional Government funding, or other changes to Government funding plans, particularly in relation to transport infrastructure, to support the needs of freight.

The need for new arrangements for the licensing, regulation and training of operators and workers in the freight sector after Brexit (including the adequacy of measures set out in the Haulage Permits and Trailer Registration Bill) is also a topic for the inquiry.

“As a body that represents the companies that are responsible for the logistics that underpins the UK’s visible trade, BIFA has been very vocal on the many issues arising from Brexit that affect the work of our members,” said Keen.

“The Transport Committee inquiry is offering freight operators and their diverse customers, the opportunity to specify their needs in regards to transport infrastructure.

“Though the terms of reference are wide, BIFA will be forthcoming about the issues involved and I hope that our members follow suit.

“I share the opinion of the chair of the Committee, Lilian Greenwood MP, who said at the launch of the inquiry that whilst we’ve heard a lot about customs arrangements, border controls, tariffs and trade deals, we haven’t heard enough about transport infrastructure, policy and regulation implications affecting freight operators and their customers.

“There remains a great deal of uncertainty for UK freight operators and their customers. The implications of Brexit will vary across freight modes and types of freight.

“We are being given another chance to reiterate our concerns and tell the Government what is required to keep visible trade moving post-Brexit,” he said.

As the end of the Brexit negotiation period looms, March 2019, there is a greater sense of urgency for formalising agreements not only for the sake of clarity but also for maintaining market stability, but not everyone is pessimistic about the market outcomes.

Sir James Dyson, the billionaire inventor who ‘revolutionised’ the vacuum cleaner, was among the most prominent supporters of Brexit before the EU referendum, according to British newspaper, The Guardian. With OEM operations in Asia, he argued the UK would benefit from setting its own trade policy independently from Brussels. He reportedly urged ministers to walk away from talks with the EU without a deal, “they’ll come to us”, he asserted – believing European firms would want to sell their goods in Britain rather than lose market access. It is interesting to note that Dyson has had repeated ‘run ins’ with the EU over regulation, including courtroom battled with the EU’s executive arm, the European commission.

Likewise, Sir Jim Ratcliffe, Chairman and founder of petrochemical firm, Ineos, is adamant that Britain would thrive outside the EU because Europe needs the UK market. He told The Guardian: “Never forget that we have a decent set of cards … Mercedes is not going to stop selling cars in the UK”.
UK-based transport consulting group, Clear International, issued its latest forecast for the west European trailer market in March.

In 2017, trailer registrations reached over 190,000 in Western Europe which is the third highest level of demand ever recorded – surpassed only in 2007 and 2008, just before the 2009 crash caused by the Global Financial Crisis (GFC).

Demand for trailers increased in the first half of 2017 by 5.7 per cent but only 2.5 per cent in the second half. Overall, however, 2017 saw a 4.2 per cent increase in registrations.

Since mid-2017 there has been a distinct improvement in the outlook for most, if not all, West European economies, according to Clear International.  As a consequence, the forecast of a slowdown in demand for trailers in the region during 2018 has moderated again but it has not disappeared.

Instead of demand dropping by approximately nine per cent in 2018 a decline in demand of four per cent is now forecast, followed by a further drop in 2019 leading to a total shrinking of the market by 12 per cent over the two years.

Clear International has commented on the low forecast for 2018-19 despite an improving economic outlook for Europe. “The catch-up demand that has been pushing the market is now over.  The trailer parc is fully replenished despite the fact that road transport demand has yet to return to 2006 (pre-GFC) levels.

“Furthermore, it is nine years since the decimation of the trailer market in 2009 and the market has never gone ten years without a slowdown.  All these factors point to a fall in demand for new trailers.  Fortunately for the industry, the fall will be relatively modest and short-lived.”

Clear International said that following the decline in demand in 2018/19 there will be a return to growth in trailer sales in 2020/21.  “Furthermore, as we move into the 2020s it is likely that demand for commercial vehicles will follow an upward path so that by mid-decade record levels will be approached once again.

“The outcome of these changes is that 16,200 trailers have been added to the forecast during the 2018-22 period, spread evenly over the five years. Most of these extra trailers added to the forecast will be sold in Denmark, Germany, France, the Netherlands and Belgium, but with Spain, Italy and the UK performing less well than expected in 2017 and beyond.

“The UK market is currently receding from the heady level of trailer demand seen in 2015/16 and as a result will have the unique distinction of shrinking every year from 2016 to 2019.  Despite this trend, the UK trailer demand will fall below 20,000 trailers only in 2019, which is still above the typical level of the market before the GFC.

“The Brexit effect, which has already dropped the UK average investment growth forecast below one per cent for the 2016-18 period, will result in uncertainty and low business confidence during the run up to the UK leaving the EU in 2019.  However when (if) the Brexit terms have been settled there will be a resumption of trailer market growth.”

US-based big data company, Trading Economics, has forecast in its 2018-2020 outlook that the UK’s gross domestic product (GDP) is expected to slow further in 2018 as public spending cuts and Brexit-related uncertainty weigh on the economy. The unemployment rate is expected to remain around 4.5 per cent in the near term although wage growth is likely to stay low, resulting in falling wages. Inflation is expected to fall towards the Bank of England’s two per cent target until the end of the year, easing the squeeze on household finance, and house price inflation is seen to average just over three per cent. Also, business investment and exports are likely to be supported by the pickup in global growth. Interest rates are set to rise slowly, too.

Following these projected trends in global growth, Polish OEM, Wielton, announced its multi-stage €29.2 million acquisition of semi-trailer builder, Lawrence David, explaining that it is entering a stable, receptive market.
Lawrence David is a family company that has been in operation for over 45 years and is one of the leading OEMs of semi-trailers and rigid bodies in the UK, with capacity to produce about 23,000 vehicles annually.

Wielton Group CEO, Mariusz Golec, spoke at a press conference held at the 2018 IAA Commercial Vehicles Show in Hanover, Germany, in September and seemed unfazed by the state of the UK market despite all the talk about the country removing itself from the EU. Instead, his optimism about the future of manufacturing throughout Britain has spurred solidarity for the inevitability of Brexit.

According to Golec, the Group finds its strength in consolidating recognisable brands, referring to its development strategy as ‘multibranding’. “For us, this acquisition is an opportunity to enrich the Group’s offer with the company’s unique products,” he said – adding that by integrating with the Group, trailer builders like Lawrence David benefit from increasing the economy of purchasing scale, which ensures the purchase if cheaper, raw materials and components, as well as strengthening technological flow and technical know-how. “Acquisitions also increase the number of highly specialised service points and partner points in Europe. All these activities strengthen the entire position of the Group on key international markets.”
These same international markets are vital for the UK’s commercial activities in general which is why the Government’s negotiations with the EU are ongoing.

The UK generally echoes this sentiment of working It is this international mindset of working with businesses on a global scale that helps drive negotiations, between the UK and the EU in the right direction.

According to Australian Financial Review (AFR), Jean-Claude Juncker, President of the European Commission, said there is increasing potential for Britain and the EU to reach a deal. Europe’s national leaders, including British Prime Minister, Theresa May, are expected to finalise the Brexit deal in October however it is likely that another summit will be held mid-November. Also, AFR suggests that the EU’s plans could spell delays and disruptions to flights and road transport in the event of a ‘hard’ Brexit, increasing the urgency to find a deal.

At the time of writing, there are two separate agreements to be finalised: The withdrawal agreement, underpinning Article 50 – the UK’s official exit from the EU (29 March 2018, midnight – Brussels time); and the ‘framework agreement’ that outlines what the future cross-channel economic, political and security relationship will look like.

The withdrawal agreement reportedly ensures that there will be a two-year transition period, so that there is no regulatory, administrative and customs ‘cliff-edge’ on 30 March.

May said in late September that the Brexit negotiations were always bound to be the toughest in the final straight. “While both sides want a deal, we have to face up to the fact that – despite the progress we have made – there are two big issues where we remain a long way apart,” she said – explaining that the first option would involve the UK staying in the European Economic Area and a customs union with the EU. “That would make a mockery of the referendum we had two years ago. The second option would be a basic free trade agreement for Great Britain that would introduce checks at the Great Britain/EU border.”

Northern Ireland, in this instance, would, according to May, remain in the Customs Union and parts of the Single Market, permanently separated economically from the rest of the UK by a border down the Irish sea. “Creating any form of customs border between Northern Ireland and the rest of the UK would not respect that Northern Ireland is an integral part of the United Kingdom, in line with the principle of consent, as set out clearly in the Belfast/Good Friday Agreement,” she said. “It is something I will never agree to do.”

May said the best outcome for the UK on Brexit is to leave with a deal. “We proposed a third option for our future economic relationship, based on the frictionless trade in goods. That is the best way to protect jobs here in the EU and to avoid a hard border between Ireland and Northern Ireland, while respecting the referendum result and the integrity of the United Kingdom.”

Fast Fact
The European Union (EU) is a political and economic union that comprises 28 member-states. Its headquarters is based in Brussels, Belgium, with members including Austria, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Ireland, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Spain, Slovakia, Slovenia, Sweden and the UK.

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