BREXIT: Trains, planes and ships in transport muddle

In the aftermath of Britain’s decision to leave the European Union, the only thing that can be said with any certainty is that the country faces a sustained period of uncertainty.

Given the damaging implications of this, there have been a whole host of ‘business as usual’ reassurances coming from Government press offices. In this vein, Chris Grayling, the Secretary of State for Transport, recently affirmed the Government’s commitment to major infrastructure programmes, including High Speed 2, the Northern Powerhouse, rail electrification and the roads investment strategy.

Beyond transport infrastructure, the European transport sector is heavily regulated, and the UK’s EU membership brings with it a wide range of EU laws covering rules on market access, safety, security, state aid, the environment, employment conditions, and more.

The possible impact of Brexit on transport, including the aviation, road, maritime, and rail sectors, depends much on what deal the British government negotiates post-Brexit, and to what extent it will seek to sign up to this existing regulatory framework.

However, it must be said that the UK has been a leading advocate for the development of the single market in transport across all modes, to which end the UK has usually found itself aligned with the European Commission in promoting liberal market-based transport sectors.

As such, the likelihood is that, because the UK played such a role in establishing those standards in the first instance, the post-Brexit landscape may not look vastly different to how it looks now.

 

Aviation

Passengers have benefited from and got used to cheap short-haul flights across Europe. We owe this to the liberalisation of air transport across the EU and the single aviation market.

Airlines, and passengers, will therefore want the UK government to negotiate continuing access to this liberalised regime post-Brexit. However, depending on how quickly aviation agreements could be re-established following Brexit, leaving the EU could restrict operations by UK airlines in Europe, and by EU and international airlines in the UK in the short-term.

This could also extend to US airlines due to the UK exiting the EU–US Open Skies Agreement. If the UK is unable or unwilling to replicate the existing market access arrangements through the European Common Aviation Area, however, it could potentially lead to higher air fares for passengers.

In terms of operational costs, fuel is one of the more significant items in the profit and loss accounts of airlines. Since oil is sold around the world in US Dollars, a weakened Pound Sterling could have a profound impact on fuel prices, which would have immediate consequences for British airlines especially. For instance, Easyjet, the UK’s largest airline, has warned that the weakened Pound will cost it £90m in its current financial year.

For capacity too, a casualty of the Brexit-precipitated hiatus was the delayed decision on the location of a runway in the South East of England. Ministers have now however, approved a third runway at London Heathrow Airport. A statutory consultation period will now be held on the effects of airport expansion, with a final decision by the Government, part of a National Policy Statement on Aviation, made in 2017-18. Nevertheless, it is likely that other key infrastructure decisions, like Gatwick and Birmingham City Airport, will remain stuck in the same queue, delaying further progress.

Indeed, it is conceivable that slower decision-making will remain a function of Brexit, since government’s focus, and hence a good deal of Whitehall resources, will inevitably be diverted towards negotiations with the EU over the terms of Brexit.

 

Ports

UK ports are largely privately owned and competitively run, which is a very different scenario to that of many other EU member states. The UK port sector has always had concerns about state-owned subsidiaries in other EU countries, and the consequential effect on competition.

Brexit therefore presents a real opportunity for ports to gain a competitive edge, set to escape the proposed Ports Services Regulation that critics have said would hit UK ports unfairly.

Trade implications too will have a significant impact on British ports. At present, in excess of 90% of UK trade is handled by ports, and the EU is the UK’s largest trading partner. Changes to the costs of trade with the EU due to Brexit are likely to affect the volume and pattern of freight activity at ports, while the need for new customs checks on imports and exports is likely to cause considerable congestion at UK and mainland European ports.

Any negative impact could be mitigated through EEA membership or free trade agreements, although delays in negotiations could mean a significant period trading under World Trade Organization (WTO) agreements.

 

Rail

The potential impact on rail especially is likely to be much more indirect. Any slowing in the economy will, in turn, reduce growth in rail demand, putting further pressure on operators’ profitability, but perhaps giving the industry breathing space to provide much needed extra capacity.

With the potential for slow growth, public spending may then have a much greater focus, and with cost concerns, High Speed 2 will be under greater scrutiny. In London specifically, it is expected that less developed projects like Crossrail 2 are likely to slow as Government departments turn their focus to EU negotiations.

However, with the Government announcing that the National Infrastructure Commission is being put on a permanent footing, with its own budget, freedom and autonomy, it is clear at least that Theresa May’s administration is keen to signal that long-term infrastructure must be prioritised.

In terms of regulatory developments, removing EU legislation would enable a return to having the same company providing tracks and trains. Currently, the EU’s Rail Directives require separation of the two, and the forthcoming Fourth Railway Package will continue the process of separation.

Brexit could make the package irrelevant and would mean that a future government could renationalise the railways. It would also allow a Government that no longer applied EU procurement rules to award rail services and train contracts to British-based companies.

 

DFT Key Figures

•  The Rt Hon. Chris Grayling MP – Secretary of  State (Overall responsibility)
•  The Rt Hon. John Hayes MP – Minister of  State (Roads, freight and maritime)
•  Andrew Jones MP – Parliamentary Under Secretary of State (HS2, local transport, vehicles)
•  Lord Ahmad of Wimbledon – Parliamentary Under Secretary of State (Aviation and TfL)
•  Paul Maynard MP – Parliamentary Under Secretary of State (Rail)

 

So what next?

Now is the time to identify opportunities and risks from this fluid situation. It is also the time to engage at EU and member state level. Governments will need help to understand and try and mitigate the impact of this process on key sectors. Hume Brophy can help you understand the impact in the short medium and long term. Our teams in the UK, EU, Asia and key member states can advise on how to engage and with whom at EU and member state level.