The UK’s eventual departure from the EU is likely to cause major changes in occupational demand. The industrial and logistics sector will be at the forefront of this change, given its role in creating, moving and storing physical goods.
UK and European businesses have built deep and complex supply chains over the past 45 years of EU integration, as they have come to rely on the free movement of goods across the border. The Toyota plant in Derbyshire, for example, uses just-in-time stock deliveries from across the EU for efficiency, with components arriving less than four hours before they are needed. Moreover, households expect faster fulfilment of online orders and retailers expect rapid stock replenishment.
Tariff-related trade barriers will affect the cost of EU goods, as they disrupt the business models of UK exporters and importers. To mitigate the impact of tariffs, UK-based manufacturers serving the EU could relocate abroad to remain part of the single market. Not only would this lead to direct factory closures, for large manufacturers it would adversely affect the myriad local suppliers that depend on them. Conversely, European-based manufacturers serving the UK market could elect to set up new facilities here to avoid import tariffs on finished goods.
However, non-tariff trading barriers could have the biggest impact on occupational demand. Businesses are highly sensitive to transport delays and increased border customs checks would lengthen import times. This may lead to more stock being held within the UK, increasing demand for suitable storage space.
As the role of ports changes from solely a disembarking point to an actively enforced customs border, backlogs at the busiest southern ports could see cargo re-routed through northern ports, which have additional capacity. If supply chains shift in this way, new localised patterns of occupational demand will emerge.
East Midlands Airport (EMA) is the UK’s second-busiest handler of air freight. It has a dedicated cargo airport and 24-hour operations with no slot restrictions. Cargo growth has already been strong and EMA has scope to increase capacity without an additional runway, unlike its southern competitors. Therefore, it is likely to benefit.
In terms of seaports, Grimsby and Immingham currently handle the largest volume overall – some 58 million tonnes in 2018, according to Department for Transport statistics. Much of this cargo relates to heavy industry but its owner, Associated British Ports (ABP), is investing £100m in upgrades so it can better handle a broader spectrum of cargo. Other northern ports are following suit. The Port of Liverpool has spent £400m to create a new deepwater container terminal. ABP has invested further capital into the Port of Hull.
Whatever the form of the UK’s trading terms with the EU, and indeed the world, supply chains will recalibrate, and occupier demand will evolve. This will create opportunities for logistics and industrial real estate investors, which should closely monitor trade negotiations to position portfolios accordingly.
Tom Duncan is senior analyst of investment strategy and risk at Mayfair Capital
Industrial & logistics supplement November 2019
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