Logistics Executives Say Brexit Will Rattle European Supply Chains
Effects may take years to play out as the U.K. rebuilds trade relationships while companies rethink distribution channels and pause their acquisition activities
Logistics companies said the “Brexit” vote could have a two-pronged impact in the near term, potentially cutting into the movement of goods but also fueling more demand for services to help retailers and manufacturers navigate changing regulations and trade rules.
“There clearly is going to be a period of transition here where everyone is trying to figure out exactly how Brexit will take place. But it’s not like the U.K. will stop trading with the EU and the U.S. or anyone else,” said Andrew Clarke, chief financial officer at Minneapolis-based C.H. Robinson.
Shares of transportation and logistics companies took heavy hits in trading on world markets on Friday. Shares in XPO Logistics Inc. XPO -5.36 % plummeted 14.9% by midafternoon, to $24.16. A research note by Citi said the U.S.-based logistics operator is heavily exposed to the impact of Brexit, with 12% of its revenue from the U.K., according to Barron’s.
United Parcel Service Inc. UPS -0.61 % shares were off 2.2% to $104.83 and shares in FedEx Corp. FDX -2.95 % declined 3.8% to $151.93 in New York trading. In Europe, shares in A.P. Moller-Maersk, AMKBY -7.87 % parent of ocean cargo carrier Maersk Line, fell 3.1% and logistics provider DSV DSV -4.15 % A/S declined 5.2% in trading in Copenhagen.
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Brexit also could give U.K. retailers a short-term sales boost, as the weakened pound makes their goods cheaper for buyers in other countries, said Lila Snyder, president for global e-commerce at Pitney Bowes Inc. PBI -4.21 % The Stamford, Conn.-based company provides international shipping services for U.K. sellers on eBay Inc. EBAY -1.77 % as well as other retailers.
“It just means European countries now look a lot more like the U.S. or China or Japan for a U.K. retailer,” Ms. Snyder said. “What was a very simple process of shipping into the EU gets more complex.”
Ms. Snyder said the outlook gets murkier further out, as retailers would face new hurdles to reach European buyers, such as customs duties and restrictions. She said that process is likely to play out over the next two or three years.
Over time, logistics experts say, retailers may rebuild their distribution channels to match the new trade map.
“We have customers that have said, look, if the U.K. does leave we might look at holding our stock in Holland, Germany or somewhere rather than U.K.,” said Mark White, chief commercial officer at SEKO Logistics Worldwide, a U.S.-based company with extensive operations in Europe. “If they have a good proportion of sales on the continent, they may move their distribution centers. But until a decision is made on cross border regulations and trade rules, and we really, really know what it means, it’s going to be difficult to make decisions to pick up and leave.”
UPS said it could take years before the U.K. is able to negotiate its new trading relationship with Europe. “Nothing is changing in the short term. The way that we do business to and from the U.K. isn’t going to change in the short term,” said Richard Currie, UPS’s U.K. senior government relations director.
“We do believe in free trade. We believe that open borders are a good thing. We don’t like to see trade slow down. So as far as we’re concerned, everything that speeds that up is a good thing. For the moment, there’s no stopping or slow down,” Mr. Currie added.
Frank Appel, chief executive of Germany’s Deutsche Post AG DPSGY -2.91 % , the parent of global delivery giant DHL, said the transition period for the U.K. could last up to two years.
Still, logistics operators said one immediate impact would be a likely halt for a time in mergers and acquisitions involving companies both British and EU countries.
“I would absolutely be pausing everything for the next few months,” said Mr. White of SEKO. “Everyone will be very, very cautious. We need to let things settle.”
C.H. Robinson, the largest U.S.-based third-party logistics operator with $13.5 billion in annual revenue, said it may review its own global growth plans. The company said in April that expansion of freight forwarding operations in Europe was part of a “strategic imperative” the company has for international growth.
Mr. Clarke said the vote “doesn’t change our strategy of wanting to grow and expand in Europe, but it does affect the manner in how you do that. In general, I would expect you would see a pause in companies doing acquisitions in Europe and the U.K. during this period.”