Our Richard Smith passed along this short but important tweetstorm, which in turn draws on Parliamentary testimony by Eurostar, the company that operates the Channel Tunnel rail business, that has not gotten the attention it warrants.
Eurostar: "should the UK leave the customs union… these new customs obligations would be very difficult to put in place in the restricted space available in stations, and would make our current cargo business (Eurodespatch) economically unviable."
— Matthew Holehouse (@mattholehouse) January 19, 2018
The testimony itself points out that Eurostar is an independent, middling size rail company, with revenues of roughly £820 million in 2015 and 1,800 employees. The short document makes clear that Brexit would put Eurostar under. For instance:
Eurostar depends on the operation of “juxtaposed” controls, similar to those in force at Calais and established under the Treaty of Sangatte. Although not linked to EU treaties, recent developments in France have made clear that there are pressures in some quarters of French society on this set-up following Brexit.
Experience suggests that removing juxtaposed controls and replacing them with “on arrival” controls would increase journey time by c.40 minutes each way. That is the equivalent of taking away the entire UK investment in HS1. The number of passengers using the service might be expect to fall significantly in such an eventuality, with a particular focus on time-sensitive business travel. Eurostar could not sustain such a re-alignment in its present form.
In addition to juxtaposed controls, Eurostar depends on the joint and rapid processing of UK and EU citizens at the border. Eurostar operates out of highly capacity-constrained stations in each of its principal locations. These are listed buildings in city-centres and cannot be re-modelled without significant investments and years of planning. There is no capacity at these locations to remodel the use of space (nor does UK Border Force have the current resources) in order to process UK and EU separately and/or to process EU citizens at the border.
Lastly, should the UK leave the customs union and re-establish custom controls, these new customs obligations would be very difficult to put in place in the restricted space available in stations, and would make our current cargo business (Eurodespatch) economically unviable.
And Lambert helpfully found an EY report on the importance of the Channel Tunnel. Key section (emphasis ours):
The Channel Tunnel is vital for transporting high value time sensitive products
1.4 million trucks and 2,900 rail freight trains passed through the Tunnel in 2014. In total the Channel Tunnel carries 38% of all freight units between the UK and France via the Short Straits4 .
There are two types of freight transport service provided by the Channel Tunnel: the Le Shuttle Freight service (trucks) and the rail freight train service. Freight carried by the Le Shuttle Freight service accounts for 92% of the total volume of freight transported through the Tunnel. Truck freight benefits from an overall time saving compared to other forms of transport, due to the Tunnel’s speed, reliability, frequency and flexibility. This enables businesses receiving and sending goods through the Tunnel to operate integrated, cross-border, business models and benefit from the efficiencies of just-in-time production processes. Meanwhile, rail freight, while carrying a much smaller share of Tunnel freight volumes, offers a distinct value to those businesses wishing to import or export bulk goods5 . Around 77% of rail freight transported through the Tunnel in 2014 was bulk, including steel, aluminium and automotive parts. Without the Tunnel it would be more expensive or time consuming to transport bulk freight across the Channel and could require businesses to adopt less efficient production processes. The total value of trade passing through the Channel Tunnel in 2014 was £91.4bn, equating to 25% of UK trade with EU countries.
The impact of Brexit on Eurostar will literally be a train wreck. A new set of customs controls will greatly reduce its capacity. It has no way to ameliorate the impact since it can’t speed up the hard border controls process, nor does it even have space to build more in the way of storage facilities. And the EY description indicates, the Eurostar truck service is critical for just-in-time manufacturing. As we’ve said regularly, the hassle of dealing with a hard border will more than offset any advantage of a cheaper pound for multinationals who use the UK as part of their supply chain to make goods for sale in the EU. Many transport parts manufacturers have surplus capacity in their EU factories, so except when the plant has highly specialized equipment, it will not be all that difficult for them to move production out of the UK into Europe.
I wonder why UK businessmen are not more alarmed. They must believe the UK press, that the EU will relent and give them a special, bespoke deal, despite Merkel, Barnier, Tusk, and everyone in authority in the EU saying the opposite. Their refusal to sound alarms will cost them dearly.