Brexit: changing the business model

05/01/2019

Understandably, Morris's efforts get short shrift from the Twitterati, but most of his critics are so bound up with their "project fear" meme that nothing he could write would convince them that we have a serious problem in the making.

Perhaps if the situation was better explained, more people might accept it, although I doubt whether it would have much effect on the Twitter bubble. That has its own version of reality which has absolutely nothing to do with the real world.

Nevertheless, the inability of so many commentators to bring any lucidity to the table has had me wondering what it is about the Dover corridor that makes the effects of Brexit so difficult to explain. But when one starts to look for the explanation, one finds not one, but multiple, complex, interacting factors which exert their effects in combination.

Why this is not better explained, it seems to me, is because the Dover corridor functions in the way it does more by accident than design. A series of entirely independent components have come together to create a perfect system, precisely equipped to serve the needs of EU-UK trade. But, because it was never designed as such, and multiple systems are involved, few people are able to take the overview, and therefore fail fully to appreciate the extent or sophistication of the system, or why the components work in the way they do.

As to those components, these are many and diverse. In hardware terms, we have the physical ports of Dover and Calais, and the Tunnel complex which, by historical accident, have been established in the optimal geographical positions to service the major markets in the UK and Europe.

That we have a substantial area in Dover harbour for ferry operations is, for instance, entirely an accident of history. It is not a natural harbour and the eastern dockyard was originally a Royal Navy base. During the Second World War, it was the home to base ships, submarines, destroyers, mine layers and fast patrol boats. Without naval interest, it is unlikely that the port would ever have reached the size that enables contemporary operations.

The eastern dockyard was taken over by civilian interests in 1946, when it ceased to be a naval base. It is now the site of the modern ferry terminal. But roll-on, roll-off ferries were not introduced until 1951, when a converted Bailey bridge was pressed into service as a loading ramp. Up until that point, cars were being craned onto ferry decks (pictured).

The now-familiar drive-through ferry, with deck openings on the bow and stern, is a relatively late development. It first appeared in Dover in 1965. And it was only with the appearance of these specialist ships that we saw the progressive development of high capacity loading ramps which enabled the ships to be turned round so quickly.

Then we have the road systems – the motorways in the UK and the autoroutes in France, which provide efficient connections to the markets served. On top of that, we have a fleet of lorries, optimally designed for efficient and reliable operation – complete with temperature control equipment, where necessary -with a plentiful supply of cheap drivers which make the driver-accompanied transport package an economic proposition.

On the demand side, we have retail and industrial systems geared to high-frequency, timed deliveries and minimal storage and stockholding, which give scale to the operation and ultimately makes it affordable.

Then, in terms of "software", between them the nations hosting the systems have developed a sophisticated trading bloc where regulation and administration have been harmonised. Additionally, border taxes and controls have been abolished, the whole speeding the flow of goods and making the operation possible.

The totality of these components came together and expanded to their current levels after the UK had joined the EEC. Some would not have developed without the EEC morphing into the EU with its Single Market, and some would have developed in a different way. When we leave the EU's Single Market, functionality will be irrevocably altered.

Importantly, the thing to appreciate is that the system relies on and becomes greater than the sum of its parts. Thus, Dover as a port does not prosper just because it is a ro-ro operation working within the framework of the Single Market. It works because it has the right mix of special characteristics that make it uniquely fast, reliable and cheap, entirely suited for the purpose to which it has been put.

The speed comes with the abolition of border controls in the first instance. But then the location and the motorway access give it a further edge, and the shortness of the crossing gives a further advantage. The fact that Dover is then paired with Calais with the same advantages makes the package even more attractive.

As to the technical attributes, the multiplicity of berths, the double-deck "male" ramps and the drive through ferries with ample deck heights for lorries, not only mean that loading and unloading speeds are maximised, but waiting times are reduced. With over 40 sailings a day, the "turn up and go" operation means that if a vehicle just misses one ferry, there will be another loading and preparing to depart. With the Tunnel offering eight departures an hour at peak times, vehicles can often drive on within minutes of arriving at the terminal.

Added to all that is the unique combination of port and tunnel, with dissimilar failure modes. When the Tunnel first arrived, some thought that this might spell the death-knell of the ferries. Over term, though, they have turned out to be mutually self-supporting.

Bad weather, for instance, may delay ferry sailings, while technical faults may interrupt tunnel movements. But it is very rare that a problem that affects the one will affect the other. Therefore, the Tunnel and ports provide back-up for each other. Shippers know that, even if one system fails, they will still get their loads through with a minimum of delay spent on relocation.

Needless to say, transport modes are not easily interchangeable. Driver accompanied loads cannot be handled by container ships, while drive-through ferries cannot take any significant number of unaccompanied loads without seriously slowing up loading and unloading.

Thus, we have developed a unique short-sea shipping route where the components feed off each other. The easing of border controls would have meant little without the corresponding technological changes and infrastructure improvements. And equally, it would have been pointless developing the high intensity, high capacity model if the border formalities prevented use of the expensive assets required to make it function.

And there we see the essential issue. The system, comprising many parts, functions as a whole. Interfere with any one part and the others will be affected, potentially threatening the viability of the whole.

The economics of Dover (and the Tunnel), for instance, are geared to volume. If the operation is slowed down, forcing a reduction in volume, the entire business model is at risk. At the very least, ferry prices increase and the route becomes less attractive to shippers, reducing the quantity and variety of goods traded. Slower transit times reduce the types of goods that can be carried, and lower frequency makes "just-in-time" shipments less certain.

As far as the Dover corridor goes, therefore, Brexit is not simply a matter of introducing border checks and slowing down traffic. The new regime fundamentally alters the operating environment and thereby renders existing business models less valid – to the degree that they will require major adaptations. And this is not a temporary condition. The facilities as they stand only exist in their current form because of the Single Market. Take that away and downscaling is inevitable.

Whatever the Telegraph might say, giving succour to the malign stupidity of Lord Lilley, if you change the fundamentals which determine the success of a particular business model, it is illogical to expect there to be no consequences.

There can always be debate about the nature and extent of the consequences, but simply to pretend that nothing will happen – as Lilley insists on doing – is utterly perverse. In his case, as predicted, he simply repeats his lies and ignores both criticism and reality. That's the way his business model works.