With Brexit only a few weeks away and still no firm withdrawal agreement between the United Kingdom and the European Union uncertainties abound about a new border regime hindering lubricants industry trade.
The U.K.s lubricants trade organization is advising its members to plan for an exit without a deal, considered to be the worst-case scenario, whereby the U.K. leaves the economic and political bloc with no agreement on trade terms.
A key contingency is to consider levels of stockholding immediately prior to, during and after the date of exit, in order to smooth out any disruption to supply chains between the U.K. and the EU over the short term, United Kingdom Lubricants Association Director General David Wright told Lube Report.
At 565,000 metric tons per year, the U.K. is the third-largest lubricants market in Europe and is home to scores of lubricant blenders and marketers.
Weve already started increasing our packed product cover assuming a deal, as there may still be some friction for a short period through second quarter. Packed product inventory will be increased further if there is no deal agreed [and] until the future is clarified, Tony Ball, director of U.K.-based additive and chemical distributor Ashdowne, said.
As with other industries, such as automotive, the U.K.s lubricants industry currently takes advantage of just-in-time logistics made possible by an unobstructed border with continental Europe. Any delay caused by new customs regimes could be highly disruptive to the movement of goods including additives, base oils and finished lubricants.
The lubricant market relies on the passage of components across borders to make up finished formulations, Wright said.
In order to prepare for likely delays at U.K. ports of entry, suppliers to U.K. lubricant blenders are extending lead times to help manage the uncertainty in the supply chain. But importers of base oil said that finding storage, such as ISO tanks, intermediate bulk carriers or bulk tankage, is a challenge.
Holding bulk locally is more problematic on the grounds of availability of tankage or ISOs, with the related cost expectations of the providers, Ball said. An alternative long-term solution could be holding inventory outside of the country.
Whilst a U.K. company, SIP maintains storage in Antwerp and therefore the only potential impact in the event of a hard Brexit is supply to our U.K. customers. As such, we have been working with them should they wish to build inventory to mitigate any impact, Kerry Larkin, commercial director of specialty oils and fluids company SIP, told Lube Report.
The disruption is wide reaching. Even if a deal is negotiated, it may not guarantee U.K. chemical companies that supply key lubricants components access to European markets. Currently, free access is possible through registration of chemicals with the European Chemicals Agencys Regulation, Evaluation, Authorization and Restriction of Chemicals register, which regulates the flow of substances through and into the EU zone.
The Union of the European Lubricants’ Industry, a Brussels-based trade association representing European lubricants companies, reports that it looks unlikely that the EU will let the U.K. remain as a full member of the European Chemicals Agency, potentially jeopardizing the continuity of REACH within the U.K. post-Brexit.
The withdrawal agreement reached between the EU and U.K. Prime Minister Theresa Mays administration had made provision for REACH, giving the industry a degree of certainty. However, the parliament has still not accepted the terms mostly because of issues surrounding the border on the island of Ireland.
Prime Minister Theresa May promised a vote on March 12 to get the deal accepted after it was rejected by lawmakers in January. If members of parliament reject it again, there will be another vote on March 13, in which MPs will decide whether to exit the bloc with no deal at all. And if they decide not to leave the bloc with no deal, there will be yet another motion the day after to decide on whether to extend the withdrawal period. All of this makes planning for whatever outcome challenging.