Richard North, 31/10/2018  

To absolutely no one's surprise, Norwegian prime minister Erna Solberg yesterday dismissed the so-called "Norway then Canada" option. This came as Mrs May attended the Northern Future Forum in Oslo, only to be told by Solberg said that for Britain to "enter into an organisation which you're leaving is a little bit difficult for the rest of us".

The only possible surprise here could be is that this ill-conceived idea has had so much traction of late, after being promoted by Tory MP Nick Boles. It was readily apparent to anyone who had given it the slightest thought that it was a non-starter.

Nevertheless, some argue that at least it has had the merit of raising the profile of the Efta/EEA (aka Norway) option, but the net outcome is that it has given Mrs May yet another opportunity to reject the concept.

Thus she says: "The existing relationship that Norway has with the EU is one that has elements that don't, wouldn't, deliver on that vote of the British people", walking away yet again from the only option that can deliver a workable Brexit.

Unless there is something waiting in the wings, of which we are completely unaware, this brings another day closer to a "no deal" Brexit, which the credit rating agency Standard & Poor's is now predicting could tip the UK into recession.

Why this is even news is only to be imagined. I was pointing out on this blog 18 months ago that this could be the outcome, suggesting that a botched Brexit could rival the Great Depression in its effects on the UK economy.

What is different, I suppose, is the S&P is issuing a warning to investors that they should no longer ignore the danger of a "no deal", adding to the growing weight of sentiment which is finding it harder by the day to see any other outcome to the Brexit talks.

Even then, the agency is being more optimistic than I would allow. It argues that the UK would only experience a "moderate" recession lasting four to five quarters. This, it says, would shrink the world's fifth-largest economy by 1.2 percent in 2019 and by a further 1.5 percent in 2020.

Interestingly, it also says that most of the economic loss of about 5.5 percent of GDP would likely be permanent, representing a long-term contraction of the UK economy.

Already though Brexit is costing us serious money, part of which is being borne by the Treasury, with Hammond telling us that the £3.7 billion already allocated to Whitehall for contingency planning would need to rise by another £500 million. He has also implicitly warned that the cost would rise further in the event of a "no deal".

Predictably, the chancellor does not put a top limit on the spending, and nor is he prepared to estimate the total losses to the economy, as S&P have attempted to do.

In my opinion, it makes sense to take a pessimistic view and then to double down on that to expect far worse than the high-level pundits are predicting. And the reason for this is that the trading infrastructure of the UK is far more fragile than we are led to believe, and far less capable of withstanding the shocks of a "no deal" Brexit than is generally assumed.

Some clues to this come in a report which has received no media attention from Felixstowe-based hauliers James Kemball, brought to my attention by one of this blog's readers.

Headed "UK Container Transport Crisis 2018", this points to a UK container transport industry currently at crisis point, evidenced in recent weeks with major disruption to supply chains during this year's peak season period.

Heightened by congestion at the UK's major container ports, it tells us, the UK container transport sector has been overrun and struggled desperately to cope with the demand due to changes in the shipping industry over the past decade.

Hampered by driver shortages, poor infrastructure, legislation, escalating costs, decreasing revenues and the introduction of mega ships and mega ports, the future of the industry is in doubt without immediate change and reform.

The essential point here, from the Brexit perspective, is that many of the more optimistic pundits, confronted with warnings of disruption to the ro-ro traffic passing through the Dover-Calais route, argue that the slack can be picked up by other ports and, where there is a shortfall in ro-ro capacity, goods can be diverted into shipping containers and handled by the container ports.

Even in the best of times, this would lead to a significant loss of flexibility and extended transit times, rendering some goods uneconomic or impractical to ship.

But, even if swapping routes and transport modes is theoretically possible, the Kemball report suggests that an industry on the brink would not be able to cope with the additional traffic, on top of the disturbance and delays brought about by newly implemented border controls.

Looking back through recent reports in the trade press and other sources, it appears that Kemball is far from alone in raising the alarm in what is a hidden crisis, scarcely reported by the legacy media – and hence ignored by policy-makers and financial analysts.

Not least of the problems of late have been the IT troubles at the poster-child port of Felixstowe, which have become so protracted that some shipping companies are swapping ports to avoid the delays and the costs of diverting ships that the port has not been able to handle. Traffic is moving to London Gateway, Southampton and even Liverpool.

But if this was a (relatively) short-term problem, shifting ports seems to have spread the contagion to Southampton, with the trade press reporting that the UK’s two biggest container ports appear to have hit crisis level.

UK retailers, we are told, potentially face weeks of delays in getting their Christmas stock onto the shelves in time for the peak consumer spending rush. Meanwhile, UK exporters to Asia can virtually forget about getting containers shipped in November, due to carriers blanking a huge eleven eastbound voyages in the month. Many of those sailings that survive will be "cut & run", without loading, due to the port congestion.

This points to structural issues within the shipping industry which are adding to long-standing problems in the road haulage sector, amongst which is a growing shortage of drivers, where a shortfall of 75,000 will be exacerbated by Brexit. The combination of problems is set to create a perfect storm, damaging operating margins to the extent that the viability of the entire haulage industry is threatened.

According to another haulage company, container collection and delivery performance levels across the country are now under such pressure as the crisis in the UK container haulage sector spreads to all ports, that failures are reportedly affecting up to 20 percent of container traffic.

So sclerotic has the system become that advance road bookings now require up to ten days lead time, in an industry now described as one plagued by "turmoil" and "chaos".

Even without Brexit, therefore, it was near-certain that the transport industries needed to go through a spell of painful readjustment, on top of which there is an urgent need for infrastructure spending, to improve road communications and transport hubs, including rail interchanges.

What is significant, though, is that the local disruption in UK ports is spreading to European ports.

Diverted ships and the need to transship cargoes is disrupting schedules in Rotterdam and Hamburg, delaying the delivery of goods and hampering the efficient operation of the ports. Remarkably, the disruption reaches out as far as the Salerno Container Terminal in southern Italy – something that was never expected by even seasoned port operators.

Factoring in this, it would be fair to say that there is no ready means of predicting where the extent of disruption arising from Brexit might end, while it seems entirely reasonable to expect the worst. If the logistics systems are already under stress, Brexit could prove the last straw which brings industry crashing down and triggers Europe-wide shortage of vital commodities.

So badly is the crisis being reported by the popular media, though, that there is only very limited appreciation of its scale – amounting to widespread ignorance of its existence by politicians and other groups. Thus, any optimism that the system will be able to handle the perturbations of Brexit has to be considered ill-founded. The only responsible thing to do is expect the worst.

The one thing for certain though is that, if the ro-ro system falls down, the container industry is not well-placed to pick up the slack.

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