Another Brexit Casualty: The Channel Tunnel, aka Eurostar

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.

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.

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  1. PlutoniumKun

    Back in the 1990’s I worked for the company building the Channel Tunnel Rail Link. It is exactly true to say that the main stations are, for historic reasons, very space constrained (St. Pancras in particular, but this applies to all the main stations). There was a major political battle (which the company lost) over even having passport controls at St. Pancras – it proved very problematic to fit these into an early 19th Century structure which was primarily designed for bringing in beer from the north of England to thirsty Londoners. No consideration was given at any time in the design to customs requirements, only security checks and barriers for illegal immigrants (and these don’t really work).

    On a related matter, there is a good article here from an English financial journalist in an Irish Newspaper on Brexit and how and why the UK still can’t see what is staring them in the face about the impending disaster. As he notes, Britain almost seems to have given up preparing for it, all the work is being done in Brussels and other national capitals.

    1. Colonel Smithers

      Thank you, PK, and happy new year.

      Your second paragraph is spot on. It’s not “it seems”, but really is. It’s not an exaggeration to say that the British government and most UK firms are winging it and hoping for the best, much of it still informed by an imperial arrogance that Johnny Foreigner will soon buckle, especially the Irish colonials.

      I often point contacts to this blog and for insight, the only blogs that don’t live in fantasyland, and ask that they pay particular attention to what Vlade, Clive and you have to say BTL.

    2. Colonel Smithers

      I forgot to add that, for much of the British government and trades like haulage, it’s only when the likes of Eurostar pipe up that they pay attention or become aware of the issue.

      With regard to Eurostar, even the staff at St Pancras, many of whom are Mauritian (a relatively easy job for the islanders as they are bilingual), have been talking about this since last spring. Some of the UK based EU27 staff with young families are getting ready to leave once their children have secured schools on the continent.

    1. Lee

      To Nell, checks on passengers yes. I got kicked off on the way out of Russia and had to return to Moscow as visa had expired while on the train. I would presume a good place to do the kicking off would be in the middle of the chunnel and run a bus service back to France.

      In modern reality no human should be able to get past a digital gate these days unless with fake digital ids so it’s all a lot of hot air. UK wants an open but secure digital border, essentially freedom of movement with onus on landlords and businesses not to give housing or jobs to those who shouldn’t be in the country. It should be effective. The EU doesn’t want to use latest tech as it brings the EU house down. Trade nor free movement doesn’t require there to be an EU.

      This article however is more about transporting goods and clearance, again they would have to adapt or lose trade to a competitor. In my view, better to move a business than people, there are too many people on the planet, cheap labour has increased reliance on humans when industry was moving to wholesale robotics – now hopefully humanity can get back on track without the wasteful irresponsible EU leading a pack of fools to doom.

    2. Colonel Smithers

      Thank you, Nell.

      There are spot checks on Eurostar. This came about as some people were buying tickets from Brussels to Lille, but staying on and going to London.

      1. Arizona Slim

        Spot checks on trains? Boy, can I tell you a story about that one.

        Last week, I was riding the Tucson streetcar, and a rent-a-cop came up to me and demanded to see my SunGo card. (That’s Tucson’s fare care for public transit.) Guy was dead serious and wouldn’t leave until I showed the card.

        Reason behind this interruption of my ride: Freeloading is a big problem on the streetcar. And, yes, I did pay for my ride into Downtown.

    3. PlutoniumKun

      I’m not an expert on customs requirements, but it is certainly possible to do customs checks on trains for passengers, although for whever reason it was rarely done – I remember taking the old Vienna to Belgrade sleeper train which crossed multiple borders and it had to stop each time for a check. I recall vaguely that back in the mid 1990’s Eurostar tried to persuade the Home Office to allow Passport controls on the trains, but this was rejected, they insisted on a control point at each station.

      However, the big issue is for rail freight and the shuttle (where trucks drive onto railcars), and its simply not possible to do this, there needs to be a customs area where each container can be inspected. This is very space consuming and there is simply no such space easily available at the main Eurostar stops.

      1. Yusu

        I took the Belgrade to Vienna sleeper a couple years ago. You now give your passport to the conductor, and they give it back to you after entering the Schengen area. In the Balkans, passport checks on trains and buses are standard, which slows down travel quite a bit.

    4. Yves Smith Post author

      I don’t see how this could possibly work when you are crossing national borders. It isn’t just a matter of “checking”. If the papers are not in order, the individual cannot be allowed entry. That would put Eurostar staff in the position of being government agents, or assuming that role, and having to detain passengers who didn’t have valid passports and visas if needed and return them. That entails physically restraining them if they resist, and either way, putting them on a return train, which means hassle and loss of revenue.

      No airline does it this way. They don’t take responsibility for customs checks when a hard border is involved.

    5. sleepy

      Just a note of nostalgia. I remember 45 odd years ago when taking the train from London to Paris involved a train to Folkestone I believe, then a ferry to Dieppe, then a train to Paris. I may be mistaken, but it seems like it took 8 or 9 hours. It was early evening leaving London and sunrise arriving in Paris.

      Last year my wife and I were planning a trip to London and Paris and I wanted to take the same route. Of course that’s long gone and impossible now, but it was great for a tourist with leisure time to spare back in the day.

      I understand fully though how it’s not so great for a modern, integrated economy.

  2. Phobos

    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.

    No wondering necessary – we know the answer here. Brexit is a historic catastrophe, but at least it is a daily refutation of the basic neoliberal tenet that the capitalist class have any special insight into how an economy works.

    1. PlutoniumKun

      I think you raise a very good point that we assume capitalists are all on the same page about major topics and have a clear grasp of the major issues. Its not always the case at all, Brexit showing that a narrow nationalism is a stronger driver for many than a rational assessment of their own companies needs. I encountered this many times in a past life as a consultant when I found major companies opposing regulations that actually (and very obviously) benefited them against smaller competitors. Their response was pure knee-jerk, it had nothing to do what a strategic overview of what their companies needed.

  3. Chris

    Passport checks could already have been happening on the train, if it hadn’t been for the demands of UK authorities in years past: they asked for a suite of prison cells on every train, in which they could detain illegal immigrants. Obviously that was out of the question.

  4. paul

    Yet the press are all over Johnson’s showboating like a dog on sick re his imaginary channel bridge.
    All without asking; what are we going to need this bridge for?

    1. Colonel Smithers

      Thank you, Paul, and happy new year.

      It’s good entertainment, though. There’s no need to worry about such substance. We can be royally entertained by Johnson as the ship hits the rocks.

      Perhaps, Alex “Kemal” Johnson wants to emulate his Turkish cousins. They have a shiny bridge across the Bosphorus, so he wants one, too. #Metoo.

      As per the pair on the Titanic, have you dressed up yet?The only thing missing is the lack of a band to accompany us. Perhaps, the Guards will oblige soon.

    2. R H Stoll

      >what are we going to need this bridge for?
      Seems pretty clear; where else would you find the place for long lines of trucks waiting for customs?

  5. Colonel Smithers

    Many thanks, Yves.

    Your last paragraph is spot on, but it appears that many firms / people just listen to the rubbish fed by the MSM, especially state-owned BBC and Channel 4, and, as per my first reply to Plutonium Kun, labour under an imperial delusion that johnny foreigner will surrender shortly.

    This said, there’s an interesting development in the City. Bruegel and Peterson’s Nicolas Veron and Greek former MEP and legal advisor to the EU George Zavvos will give an update to a City audience over breakfast tomorrow. Unfortunately, I can no longer attend, but will try to get a read-out for the NC community. Apparently, the forum will be packed. The waiting list is long, too. One of the organisers told me that a sense of panic is building as many more firms and individuals ask for tidbits from and attend such fora.

    Apparently, Veron has said, “It is too late to hope that the City… could emerge unscathed from Brexit. (It) will suffer relative to its competitors and to how it would have performed without Brexit – and probably in absolute terms as well. Harm is now unavoidable.” Zavvos is equally pessimistic. Neither foresees a deal that scopes in financial services. The pair think that the chance of the UK crashing out without a deal is still high. Even Brexiteer regulars accept that there will be a loss of business, so it’s only a matter of degree. The Roman concept of decimation is often used to quantify the extent, not just describe the impact.

    Readers should pay attention to the business summit at Versailles that Macron has arranged just before the 1% and their hangers-on head to Davos. Foreign business leaders, including finance ones, have been asked to bring a plan to invest in France if they want to attend. The heads of Goldman Sachs and JP Morgan Chase are doing so. One could see a firming up of Brexit preparations.

    1. visitor

      a sense of panic is building

      By the time the deadline will be reached, the panic will have spread — and the UK will rescind the brexit, since its consequences would be so dire. I suspect it will be in a roundabout way with interested help from the EU, such as equating the rejection of the (terrible, incomplete, intolerable) brexit deal with remaining in the EU.

      The other thing that is filling me with growing unease is that 25% of the UK-EU trade depends on just one heavily trafficked and easily congested link. Another confirmation of how concentrated the arteries that irrigate modern economies are — besides pipelines bringing oil and gas, high-voltage electric lines distributing power, fat optical cables making up the Internet backbone, or railway lines (a single building accident in Rastatt last year thoroughly messed up the railway traffic from Italy to the Netherlands and every country in-between for months, with firms frantically trying to divert freight through France, on Rhine barges, or on trucks).

      1. rusti

        The other thing that is filling me with growing unease is that 25% of the UK-EU trade depends on just one heavily trafficked and easily congested link.

        I wonder how clogged the other 75% (by value, I guess) links are and how (un)prepared they are? It seems like Eurostar’s assumption that their business won’t be viable doesn’t take into consideration just how screwed some of their competitors might be if they were hit simultaneously with all the new demands of being outside the customs union. Although I guess the physical space restrictions that PK attests to aren’t easily fixed so they might really be in an especially bad spot.

        1. Yves Smith Post author

          Please re-read the post.

          1. They won’t be able to turn trains around anywhere near as quickly. Their raison d’etre for many passengers and users is speed.

          2. #1 also implies WAY WAY fewer trips. They are already not very profitable and rail transport is a very capital intensive business, so #2 alone sounds as if it will push them into a loss-making position.

          3. They will also have to invest a ton in facilities (except they don’t have the space!) meaning their truck transport business will collapse too.

    2. PlutoniumKun

      Thanks CS. I find it interesting at how concern over Brexit seems to ebb and flow – the end of Phase I seemed a signal to the media and a lot of the establishment to heave a sigh of relief and move on to other topics. My sense is that people ‘on the shop floor’ (especially in tech) in many manufacturing and service companies are the most concerned as they know the enormous work involved if Brexit isn’t at least postponed, but in many respects that sense of urgency just hasn’t floated to the top levels yet, with the exception of non UK banks and financial institutions, which seem to have been quickest off the mark to prepare their Plan Bs. I’ve lost count the number of times I’ve heard comments along the line of ‘something will be sorted out’, or ‘they’ll agree some sort of fudge at the last minute’.

      1. Lambert Strether

        > ‘something will be sorted out’, or ‘they’ll agree some sort of fudge at the last minute’.

        Sounds like the British equivalent of our “symbol manipulators.”

  6. Colonel Smithers

    Further to Vlade’s quip last year about the royal family taking one for the team, when Prince Harry’s engagement was announced, another royal wedding has just been announced for the autumn of 2018, a distraction from Princess Eugenie nicely timed.

    It’s a bit early for distractions in the spring of 2019. Perhaps, Eugenie’s sister Beatrice could oblige in due course.

    The UK is running out royals for more entertainment, and races to be named after at Royal Ascot, so others will have to do their bit.

    1. windsock

      Eugenie is strictly B list royalty. She’ll get a mention on the BBC, and maybe Channel 5 will cover the ceremony. Plus her Dad is suspected to be a bit dodgy. Not a big distraction, unless one is terminally Windsor-addicted. Even Zara Tindall didn’t get too much coverage – and she’s and Olympic sportsperson and married to a former England Rugby star.

    2. AbateMagicThinking But Not Money

      Regarding Harsh Realities:

      If British big business owns the Tory party through financial contributions there is going to be a lot of buyer’s remorse. How will such bad-blood become manifest?

      Just as the American political scene has become absolutely fascinating, the Tory’s woes seem to be reaching a crescendo too. Could this be the year when the convenience of right-wing political-party branding falls apart on both sides of the Atlantic?


      1. Anonymous2

        I’m not sure big business does most of the funding of the Tories nowadays. I am not absolutely sure but think a lot of it now comes from hedgies (disaster capitalists?).

        1. AbateMagicThinking but Not money

          Regarding ‘hedgies’: Are they not big-business? Would you knock back a wodge of the returns of the hedge-funds who make a rudely healthy profit? I certainly wouldn’t.

          Even hedge funds are not totally insulated from the non-parasitical economy (as represented by the Chunnel in this case), but their directors can always be elsewhere when the patient dies.

          Pip Pip

          1. Anonymous2

            By big business I meant major corporations, in the UK’s case firms like Rolls Royce and BP come to mind though I suspect that they would not rush to be classed as British nowadays. One of the reasons for Brexit I reckon is that the firms which used to think of themselves as British now regard themselves as multinationals, and are less bothered if the UK shoots itself in the foot. They can always do business somewhere else.

  7. jabawocky

    Bizarrely, when i’ve spoken to British exporters and hauliers some are looking forward to leaving the EU. They are miffed about the EU posted workers directive, which means that workers must be paid the minimum wage in the country they work, not the country of their employment. Poor pay means truck drivers’ wages have to change as they transit from country to country, with Germany’s higher minimum wage and strict enforcement the subject of particular huffing and puffing. Of course the Germans rightly want to stop poorly paid workers coming over the border and undermining the minimum wage by competing with domestic labour.

  8. David

    Not to sound complacent, but I think there’s a lot of difference between freight and passenger questions. Freight questions (at the the Folkestone Terminal) could well be enormous, and are well highlighted in the EY Report. On the other hand, all Eurostar is claiming about passengers is that “although not linked to EU treaties,” – so not directly relevant to the Brexit negotiations – “there are pressures in some quarters of French society on this set-up following Brexit.” In other words, the problems described are hypothetical, based on the idea that the French government would decide to be awkward, and massively inconvenience its own citizens, because of “pressures” which I haven’t seen any evidence of in the French media.
    But St Pancras in London already has a very large arrivals area, comparable at least with an international airport terminal receiving 6-10 aircraft per hour, or the equivalent of a couple of Eurostar trains. There are already customs checks, under some recondite exception the UK has negotiated, and a full complement of scowling, black-uniformed Border Force heavies to welcome you to London. It’s unusual to pass through St Pancras without seeing at least one customs search in operation. (There are also French customs people hanging around at the Gare du Nord.)
    Brussels or Paris to London already involves travel from the Schengen to the non-Schengen area, and this won’t change. New, partly automated, passport facilities have recently been installed at both ends, and there’s actually no reason why juxtaposed controls should not be continued. In any event, back in the day (and I’ve used Eurostar pretty much since its inception 25 years ago) arrival controls were actually the norm. Likewise, you could check passports on the train if you really wanted to – that was standard practice on European long-distance trains in the 1970s and 80s, as I recall.
    In other words, yes, a French government that wanted to make trouble and didn’t mind hurting its own citizens, could, hypothetically, decide to create problems, but it’s not clear why it would want to do so. And frankly, you’d have to crapify Eurostar’s service enormously before people started going by air instead. As someone who did London to Paris by air frequently in the days before Eurostar, and has done it occasionally since, I always found it a nightmare to be avoided if at all possible.
    The freight problem is very real, but most people don’t know about it, so I think Eurostar are trying a flanking maneuver, getting people worried – excessively in my view – about a much higher profile service.

    1. PlutoniumKun

      Thats interesting to hear – although I spent two years of my working life on the rail link project, I haven’t actually been in St. Pancras since the Eurostar opened. The big issue for the architects was that it was anticipated that passengers would arrive in ‘pulses’, as it was anticipated that the great majority would arrive by tube. The modelling at the time anticipated huge problems at passport control and there was a major problem in trying to find some way to dissapate the anticipated pulses of travellers from arriving tube trains to the passport gates. This was at a time when security issues were considered largely minor. There was at the time significant pressure from the government to maintain a ‘border’ at the main stations, when Eurostar of course wanted to emphasise a frictionless journey to and from Paris. I would guess you are right that with the correct will a solution could be found for regular passengers.

      But certainly, no consideration whatever was given to customs barriers for freight (apart from random checks for security). From memory, there was no mention of it whatever in the enabling legislation and I can’t recall it ever even been mentioned by the design teams.

      1. David

        I virtually always arrive at St Pancras by tube (underground) and, whilst there are variations for time of day and day of the week, the time taken from arriving at the terminal to passing through check-in, security and immigration and into the departure area is typically about 10-20 minutes. In my experience it’s not so much “pulses” as the arrival of organised groups (fifty Chinese tourists for example) that slow the system down. You’re right, of course that the British fixation with “borders” (I’ve never understood how an island can have borders) has conflicted with Eurostar’s desire for frictionless travel, which remains one of its great comparative advantages. That said, Europe is, ironically, moving in the British direction; These days you have to go through security and identity checks to get on the Thalys to go to Brussels from Paris.

      2. Fazal Majid

        Going from the platform to immigration requires a U-turn at the bottom of the escalators and can get incredibly congested due to poor foot traffic flow. St Pancras is spacious and much more pleasant than Gare du Nord, but most of the space is allotted to luxury retail, not actual passenger facilities.

    2. AmusedInSF

      I agree. Comparing the departure experiences between France and the UK shows that it’s probably a matter of investment in the clearance facilities, and not some unsolvable problem. St. Pancras has lots of room, logical flow, etc. In Paris, it’s crowded chaos (or was 2 years ago, when I last took the Eurostar). When departing in Brussels, the terminal is amazingly poorly maintained, considering that it is the capital of Europe.

      The Eurostar is a pretty miserable experience for the price compared to most other long-distance rail, so I suspect it’s poor management or excessive profit taking that’s the issue.

  9. rd

    For frequent travelers, something like Nexus that allows expedited customs/immigration between the US and Canada will likely be necessary. A series of kiosks set up with that would allow them rapid passage.

    I suggest that they have detailed discussions with US ICE on how to make crossing the border a pleasant and quick experience. :)

  10. Lynne

    There was a radio segment recently on food reserves, which raised the question of which governments have reserves to handle shortages. There was condescending talk of India’s storage of rice, with much condemnation by the WTO for allegedly distorting trade. They interviewed someone from the British government about how it had decommissioned its food storage facilities after WWII because they were a modern economy and Modern economies were able to manage just in time stocking. Because markets are much more important than people having something to eat, of course. Suppose that will change now? /sarc

    1. Mel

      Winds up reminding me of Donald Fagen’s song I.G.Y. (from the Nightfly album) about the times around the 1950s when we were sure all this would be possible. Brings a little tear to the eye. How young we were!

      1. Angie Neer

        Tangent here, but that song reminds me in turn of “G.O. Fizzical Pogo,” Walt Kelly’s satire of that period. It was before my time and I’m sure many or most of the topical references go over my head, but Kelly was a genius at multi-level humor.

  11. EoH

    The only way for Britain as we know it to survive is for it to reverse course, hold another referendum, and tell the EU in its best Emily Litella voice, “Never mind.”

    If it doesn’t, the Brits will spend close on a trillion pounds and two decades reinventing itself as a small island on the back end of Europe, with a Home Office that will make Hungary’s look liberal. It will be back to the post-Macmillan 1960s, its politicians all trying to outdo Enoch Powell in their zeal.

  12. Irrational

    Prepare for the next Eurotunnel default – there have been so many, what’s one more between friends?

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