Logistics sector eyes ongoing Brexit boom as border chaos continues
As the Brexit deadline loomed at the end of 2020, a number of London’s listed logistics firms found themselves seeing a boom in business as companies scrambled to shore up their supply chains and stock up on goods in order to cushion themselves from any disruption.
While the chaos of a no-deal Brexit was avoided with a last-minute trade deal, the first weeks of 2021 have seen a steady stream of reports chronicling businesses struggling with a newly imposed customs regime between the UK and the continent that has left hundreds of lorries stranded at ports on both sides of the English Channel.
For example, two weeks ago retailer Marks & Spencer Group PLC (LON:MKS) said that complex administrative processes resulting from Brexit, as well as tariffs on some products, were “significantly impacting” its activities in Ireland, France, Czech and supplies of Percy Pig, while angry seafood hauliers have staged protests outside Downing Street after being “tied in knots with paperwork”.
Despite these incidents, the worst appears to have so far been avoided at Dover and the Eurotunnel terminal because of abnormally low traffic, however, the situation looks set to worsen in the coming weeks when freight traffic returns to usual levels and stockpiles begin to run out.
Hauliers are now being warned by the UK Cabinet Office that tailbacks at ports could increase as more and more lorries arrive without adequate paperwork, a Times report on Thursday revealed.
When combined with the new requirement for drivers to provide a negative coronavirus (COVID-19) test, this has the potential to exacerbate the chaos currently unfolding at ports.
“There could be more disruption as trucks come through that aren’t prepared with paperwork or drivers who haven’t been tested for Covid. There will be more issues. Then we could see some of these lorry parks starting to fill up,” Stephen Bartlett, chairman of the Association of Freight Software Suppliers, told the newspaper.
Freight managers could cash in
However, while the avalanche of additional paperwork may be causing a headache for many businesses, those involved in the management of freight could find themselves cashing in on the increased demand for their services.
AIM-listed Xpediator PLC (LON:XPD) recently said its freight forwarding team was continuing to help businesses adapt to the new regulations, having also set up a new customs brokerage team at the tail-end of last year to handle what it said was “a likely increase in declarations whatever the Brexit deal outcome”.
This trend seems to have been reflected in the company’s share price, which has risen 17% to around 38p since early December.
Sector peer Wincanton PLC (LON:WIN) also seems to be befitting, with the company saying in a trading update on Wednesday that it has benefitted from work commencing on a number of recent contract wins, including a mandate to provide logistics services at a number of Inland Border Clearance Centres and a contract for the storage, order fulfilment and customer delivery of testing kits to priority locations across the UK.
Shares in the firm have also surged into the post-Brexit era, rising just under 21% to around 309p since December 8.
Other logistics groups receiving share price bumps in the same period include DX Group PLC (LON:DX.), which has jumped 52% to 37.3p, and Clipper Logistics PLC (LON:CLG) which has continued to inch higher after more than doubling last year.
Seeing a similar trend amid the Brexit chaos are companies controlling logistics warehouses, which look set to be in high demand as customs backlogs leave firms searching for places to store their goods as paperwork is filed.
In an update on January 14, Tritax Big Box REIT (LON:BBOX) said the large-scale logistics real estate market in the UK had “significantly strengthened” last year as demand for leases increased, pushing up the value of its portfolio beyond market expectations.
The company’s shares have also jumped 18.4% to around 186p since early December.
But the rest of the UK economy could suffer
While the prospect of hundreds of businesses needing help with a newly expanded pile of customs paperwork may have left the freight management industry and its investors salivating, analysts at UBS have warned that the ongoing disruption is unlikely to be a positive for the rest of the British economy.
In a note on Wednesday, the Swiss bank forecast that the additional checks and regulations at the border brought on the Brexit, in combination with the drag on the economy caused by pandemic lockdowns, will contribute to an estimated 1.5% decline in gross domestic product (GDP) for the first quarter of 2021, highlighting Bank of England forecasts from November that the adjustment to the new trade arrangement and customs checks could reduce first quarter GDP by 1%.
UBS added that the additional red tape could risk “long-term investment and employment plans”.
“The new [Brexit] agreement has avoided a damaging imposition of tariffs. However, the increased administrative burden (to some extent softened by a number of provisions) poses risks to companies’ long-term investment and employment plans. For example, our earlier work suggests that disruption to services trade stemming from non-tariff barriers (NTBs) could be equivalent to a tariff of anywhere between 6% and 26% depending on the sector, with a cumulative GDP growth impact of -106 [basis points] over time”, the bank said.
Looking at the logistical challenges and resulting disruption in food supply chains and delays and shortages of certain goods, UBS economist Anna Titareva specifically saw an impact on the food and transport sectors.
“While some issues such as additional paperwork are likely to be resolved over the coming weeks and months, there are also risks of more permanent shifts in supply chains that could have a negative impact on the UK food production and transport services sectors”, the analyst said.