trouble at the border?

European border controls – a threat for logistics?

Europe is struggling to cope with the continuous stream of refugees. What will be the impact of re-instating border controls within the EU on logistics and the economy?

What is happening in Europe? Achievements of the last decades that form the foundation for the process of European unification are suddenly put to the test. What’s even worse is that the discussion is often less about how to improve faults in the set-up of the European Union (EU) itself, but more strongly driven by some groups looking to bring back more nationalism. Opinions along the lines of ”less Europe is better for EU nations” currently run rampant.

One of the latest developments, fueled by the wave of refugees coming to Europe, is the introduction of border controls. Is this a threat for logistics and the economy?

Constant struggle: national versus regional goals

It all started with… well, with what, actually? Isn’t the struggle about the best way forward between the EU member states a constant companion since its very beginning? As early as the 1960s, first tensions surfaced when members discussed the acceptable extent of supranational power. Ever since then, disputes over influence, contributions, and benefits never really ceased. This should not come as a surprise, however, considering that the process involves nations giving up power in certain areas for the better of the whole region while national politicians continually need to convince their local voters that their nation enjoys more benefits than disadvantages from the community.

Resentment breeding grounds

These days, European nations are asked to take up a seemingly endless stream of refugees. Several aspects come together to paint a difficult picture: Some European countries are still experiencing serious economic challenges. In addition, various incidents over time – 15 years back and more – resulted in a breeding ground that stirs up resentments over the predominantly Muslim asylum seekers. This all seems to further emphasize and accelerate nationalist tendencies among people who are already overly challenged by globalization in general. A common response to this challenge or a plan by the European nations to solve both the root causes and resulting impacts is – unfortunately – not in sight.

One-sided action: tightening borders

To gain transparency and control over the amount of refugees coming into Europe but also – and very importantly – to route them through the proper registration processes, European countries are introducing regular border controls now. This is, of course, in contrast to the existing Schengen agreement, which facilitates free movement within the EU and only allows for random checks. However, under the current extraordinary circumstances such controls are both plausible and legal. Securing the external frontiers of the European Union comes with great challenges, so border controls also take place between the individual EU member states within the community.

Intra-EU trade and transport: facts and figures

Overall, the trade between the EU’s 28 member states sums up to 2,839 billion euros (see Eurostat 2013 “International trade in goods”). For most countries (except Greece and the UK) the intra-EU trade exceeds the volume of trade with countries outside the EU – which clearly underlines its importance.

Road transport accounts for 50% of all intra-EU trade (see Eurostat 2013 “Freight transport statistics – modal split”) – the mode of transport most affected by the latest border control developments. To give an example concerning volumes: In 2015, a total of 39.66 million trucks crossed the borders between Germany and its neighboring countries alone.

Inland waterway and railway transport amount to 16% of the intra-EU transport volumes and these will certainly suffer from new border controls as well. Sea and air transport, however, should be less impacted by the changes as they are subject to tighter controls anyway.

Expected changes for the flow of goods in the EU

Logistics concepts and cost structures have evolved over the past 20 years based on the absence of regular border controls between (meanwhile) 26 member states with a total population of over 400 million. Additionally backed by the cessation of customs duties, transport between these countries is almost equal to inland transport. Processes as part of a company’s value chain could be performed anywhere in the EU – for example, where it made most sense concerning costs structure, talent availability, etc.

Re-introducing regular border controls will essentially result in longer transport times. This, in various ways, makes transport more expensive. Working hours of drivers will increase – as will the operating times of trucks (or ships and trains) and the general transit times of goods in distribution. All of these reflect proportional cost increases. It will get even worse though once delays lead to drivers exceeding their allowed maximum hours of service.

Border control costs – the cheaper option?

Various studies try to illustrate the overall costs of re-introduced border controls within the European Union. The results vary. France Stratégie estimates additional costs of 100 billion euros per year for the EU. For Germany alone, costs could pile up to 235 billion euros by 2025. The Munich ifo Institute’s worst-case scenario describes additional costs of 15 billion euros per year for Germany, or 2-5 billion euros per year based on a more realistic scenario.

Interestingly enough, even though this sounds massive, these estimated costs are far lower than the costs stipulated for admission and accommodation of further uncontrolled immigration processes.

Potential impacts for logistics in Europe

The studies vary mainly because of major uncertainty about which borders will actually be controlled. Some worst-case scenarios presume a complete turn away from the Schengen agreement, which is unlikely at this point. To achieve the goal of gaining transparency and control over refugee flows, it would not make sense to tighten border controls from, for example, Germany into Poland because the general direction of the refugee flow is the other way around.

The assessment of the time delays caused by border controls is another area of high uncertainty. This uncertainty about delays alone bears a potential threat to logistics concepts – when they are unpredictable. Unpredictability is a killer for lean processes.

When border controls get out of control, the situation may require companies to build up buffer inventory in the destination country to still serve their customers on time – a strategy that has long been left behind driven by distribution efficiency and cost saving. Going back to this would in fact mean to abandon established logistics concepts. This is probably the bigger threat to supply chains than just the limited cost increases.

Border controls and political struggles – reasons to worry?

I would not know of any group of stakeholders that assesses temporarily limited border controls as non-feasible for logistics and the involved economies. What is crucial, however, from my point of view is this:

  1. To limit short-term impacts, the authorities must do their best to sufficiently staff the borders in order to limit delays caused by the controls.
  2. Border controls must only be put in place for a limited amount of time and only where absolutely necessary.

In my personal opinion, the real threat of the refugee crisis and border control discussion is the potential abuse by those who are already now trying to play havoc with the European project. A united Europe is just too precious to be lost.

As my colleague Steffen Frey already wrote in the context of free trade agreements (“Global unrest, TTIP, and chlorinated chickens to save the world”): aren’t close trade relations and interdependencies the best guarantee for peace and wealth? Too alarmist? Maybe. Still, quite a few developments in Europe worry me – and I’m certain I am not the only one.

Let me know what your thoughts on this are on LinkedIn. I’m looking forward to hearing from you!

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