Brexit should cut queues at Dover, not create them

Brexit should cut queues at Dover, not create them

Philip Hammond fears Dover gridlock if new customs checks are imposed after Brexit,” ran a recent headline in The Times. The prospect of delays in freight transport is rapidly emerging as a useful political tool. Reluctant Brexiteers are using the fear that Britain could move from frictionless trade to chaos overnight to argue for a free-trade deal with the EU at any cost, in the case of some, or for staying in the European Customs Union tout court, in the case of the Lib Dems and – every second U-turn – Labour.

We shouldn’t be seduced by this argument. Of course, contingency planning is necessary to minimise short-term disruption in a no-deal scenario. But transporting freight to and from Europe is hardly frictionless now. Queues of lorries trying to get to Dover are already a reality. Operation Stack, which is used in emergencies to queue freight vehicles on the M20, cost the UK an estimated £250 million in summer 2015, when the combination of industrial action in Calais and the migrant crisis brought cross-Channel traffic to a standstill.

Although it is seldom acknowledged, membership of the Customs Union actually exacerbates this congestion. In a paper published by the (now defunct) UKIP Parliamentary Resource Unit last year (archived here), Mark Reckless and I explained that EU trade barriers artificially increase the volume of road freight that travels from Continental Europe to the UK, thus intensifying demand on motorways in Kent. Far from provoking gridlock, Brexit is likely to alleviate some of this pressure over time.

Here’s why.

One of the effects of Customs Union membership, as Patrick Minford has written, is trade diversion. The EU’s Common External Tariff artificially raises the prices of products from the rest of the world – especially industrial and agricultural goods – and makes the equivalent EU-made products more competitive. Consequently, Brits buy more goods from EU countries, relative to the rest of the world, than they otherwise would.

Trade diversion has a knock-on effect on patterns of freight transport in the UK – largely due to the seemingly innocuous “Europallet”. Most unitised goods in Europe are moved on standardised pallets, which (as specified by the European Pallets Association) are 1.2m long. Unfortunately, these Europallets are too long for the standard intermodal containers used in deep-sea transport and on UK rail. At 2.44m wide (as defined by the International Organisation for Standardisation), these containers are marginally too narrow to accommodate two columns of Europallets comfortably. At the same time, the slightly wider Continental-gauge rail wagons, which can accommodate Europallets, can’t fit on British railways.

Consequently, the vast majority of unitised goods transported between Europe and the UK are transported in lorries (as RO-RO freight, or Roll-On/Roll-Off in industry terminology). Most of those take the shortest route via Dover – either by sea, or by freight-vehicle trains through the Channel Tunnel, and so rely heavily on one major trunk road: the M20. According to the Transport Select Committee’s 2016 report on Operation Stack, 88% of powered goods vehicles travelling from the UK to the Continent use the Dover Straits, and 70% of these reach Dover via the M20. Some 48 million tonnes of RO-RO freight passed through the port of Dover and the Channel Tunnel combined in 2016.

By contrast, the goods Britain trades with the rest of the world are generally transported in ISO intermodal containers (LO-LO freight, or Lift-On/Lift-Off in the jargon), which can be transported to port on the rail network. Britain’s LO-LO ports are also more evenly distributed geographically, with the top three – Felixstowe, London, and Southampton – spread across southern and eastern England. The largest – Felixstowe – dealt with 25 million tonnes of LO-LO freight in 2016, barely half the volume of RO-RO travelling via the Dover Straits.

If trade diversion has concentrated pressure on Dover and the M20, it follows that, in the medium term, leaving the Customs Union should reduce it. As the diversionary effect of the Common External Tariff recedes and EU goods lose their artificial competitive edge, the proportion of British imports from the EU is likely to fall to some extent, while the proportion from outside the EU will rise.

That, in turn, entails a rise in the proportion of LO-LO freight relative to RO-RO freight; which means a greater share of freight will travel around the UK by rail, where recent declines in overall freight transport have potentially created space capacity, and a smaller share will target the overworked M20. Less reliance on Dover should also mean that future disruption in Calais will cause less disruption to overall trade.

Better freight distribution is not the only benefit Brexit has in store for British ports. Leaving the single market means Britain will no longer have to face the Port Services Regulation, which would have destroyed the economies of scale in many British ports, and consequently raised costs. British officials spent years lobbying against the regulation, to no avail. Now the UK will escape it entirely.

With a bit of imagination, we could go further still. As Rishi Sunak MP highlighted in his paper for the Centre for Policy Studies last year, leaving the Customs Union enables the UK to create free ports: free-trade zones on British soil but outside UK customs borders which allow goods to enter and leave the UK without incurring tariffs. Though common in the US, EU law makes them practically impossible for member states to establish. Brexit will give the UK the freedom to do so – creating both commerce and jobs in the process.

The port issue is perhaps symptomatic of the current state of Brexit. While a full reversal now happily looks unlikely, the potential benefits of Brexit could easily be lost in the minutiae. We may find that ministers and civil servants cite discrete technical obstacles in a number of areas as excuses for maintaining the status quo. Pro-Brexit think tanks and lobbyists should now be fighting not just on the broad case for Brexit, but on the detail. That’s a battle we must win.