June 24, 2016

As Europe, world reel from Britain's vote to leave EU, concern turns to "Nexit"

Transport, logistics providers pledge continuity in wake of stunning outcome.

By Mark B. Solomon

First it was "Grexit" that, last year, put the international business and trade communities on tenterhooks, before Greece voted in July to stay in the European Union (EU). Then there was "Brexit," which hit everyone right between the eyes last night after Britain voted to leave the EU. But what scares many is a word that, in the wake of yesterday's stunning outcome, is sure to become part of the global blurb lexicon: "Nexit."

Other than dazed and confused reactions from millions in Britain, across Europe, and around the world, it appears to be business as (somewhat) usual on the continent. For example, UPS Inc., the Atlanta-based transport and logistics giant, said today it laid the cornerstone on a $100 million package-sorting and delivery hub in the communes of Corbeil-Essonnes and Evry, located south of Paris. The facility, due to open in the first quarter of 2018, represents UPS' biggest-ever investment in France. It is part of the company's US$2 billion program to upgrade its pan-European infrastructure by 2019 in order to shave as many as two days off the normal five-day transit time for cross-border traffic.

Given the momentous outcome, however, there are significant concerns about the fallout. A survey by U.K. supply chain publication Logistics Manager found that more than 80 percent of the 320 respondents had no contingency plan if Britain voted to leave, despite more than 52 percent saying Britain's departure would have an impact on their business. The survey, conducted earlier this month, said that maintaining economic stability would be the respondents' biggest concern if Britain left the EU.

Meanwhile, several transport and logistics firms with strong European networks issued statements today that sought to convey continuity. "As the process moves forward, we remain committed to serving our customers with effective and reliable service across our global network," said Memphis-based FedEx Corp., which a month ago completed its US$4.8 billion acquisition of Dutch delivery concern TNT Express LLC, one of the three top European package-delivery firms. The multi-year integration of the two firms will play out during Britain's cord-cutting process.

Ceva Logistics, the Dutch logistics company with one of the largest pan-European freight infrastructures, said it expects no negative impact on its business from Britain's exit. Ceva said it "will use the transition time to adapt to any changes to the operating environment."

The departure of a single country, albeit one which is Europe's second-largest economy, may not be enough to worry folks. And under EU rules, a departing country has up to two years to prepare for the transition to full sovereignty. The question is whether nationalist organizations in other EU countries will feel emboldened to push their governments into holding similar referendums. Other unknowns: whether those countries' citizenry is resentful enough of dictates from EU bureaucrats in Brussels and the influx of immigrants from other member nations to follow Britain out the door.

The departure of several key member nations could cause the EU to unravel, ending a grand experiment in unification that began in 1973.

There have been noises coming from right-wing groups in France, the Netherlands, Denmark, and Italy about distancing their governments from the EU. Greece, while currently out of the headlines, has been concerned that Britain's exit will weaken the eurozone's desire to strengthen Greece's position in the continent's single currency. (Britain never joined Europe's monetary union.)

A logistics executive, who asked for anonymity, said Britain's departure could introduce increased complexity in cross-border flows. Larger providers will have the resources to adapt to a more difficult compliance environment, while smaller providers will find it tough going, the executive said.

James A. Cooke, a principal analyst at consultancy Nucleus Research, said he expects renewed demand for specialized trade-management software as more nations withdraw from trade blocs and exert sovereign control over goods movement.

"Global supply chains have been one of the biggest beneficiaries of free-trade treaties and multinational trading unions like the EU as they have eliminated country regulations and restrictions on cross-border shipments," said Cooke, who believes trading blocs worldwide will splinter in coming years. "Companies will still run global supply chains in this era of renewed nationalism, but they will need software tools … to help them navigate the coming patchwork" of sovereign regulations and ensure their goods get moved.

Cooke also expects a growing use of "control tower" solutions to give companies the supply chain visibility needed to address issues that arise if shipments get caught in cross-border controls.

For now, however, Britain's impending departure is enough for Europe and the world to digest. The Centre for European Reform, a British think tank, said today that although it is highly unlikely another EU country will leave any time soon, "centrist politicians who run nearly every EU member state will henceforth be on the defensive against the populist forces who oppose them and the EU."

But perhaps Britain's overarching dilemma was outlined by the same organization in a paper published two and a half years ago: Whether to negotiate access to the EU's single market and play by its rules, or to lose access in return for regulatory sovereignty that the paper said at the time "would be highly illusory."

Whatever Britain's future, it will move toward it without Prime Minister David Cameron, who will step down by October when a new government is expected to be in place. Cameron, who supported Britain's remaining in the EU, took a huge risk in January 2013 by offering a referendum on EU membership. It backfired on him last night.

For more on the Brexit, see "Brexit to boost U.S. exports to Asia, depress activity to Britain and Europe, economist says."

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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