Having made the case for the use of ‘Superports’ in last week’s Forecasting Eye, we turn our attention to another key part of trade infrastructure – airports. In particular, we will analyse the value of freight carried by air and the potential impact of free trade zones around the UK’s airports.
The value of goods carried by air is expected to exceed $6.2 trillion by the end of 2018. From the parts used to make our cars, to the latest mobile phone craze, cargo by air has been transporting an increasingly large share of goods in recent years. Nearly every passenger flight has some form of freight on it. Unknowingly, almost every time you board a plane, there’s a chance you are travelling with your latest online order. Airlines transport over 35% of the value of global trade in value terms. To visualise this, a Boeing 747-400 (one of the world’s largest passenger planes) can hold 416 passengers, as well as 5,330 cubic feet of cargo, roughly the same amount of cargo that can be held in two 16.5 metre lorries.
Looking specifically at the UK, between June and August alone, almost £30 billion worth of exports left the UK’s airports. Nearly £21 billion worth of goods was imported in that same time period. We need look no further than London Heathrow to highlight the importance of airports for post-Brexit trade. Heathrow exports have expanded rapidly, with growth of 24% in the year to June 2018. In Q2, 37% of all trade outside of the EU & Switzerland took off from the airport.
Following its departure from the EU, there is a risk that the UK will see a significant hit to its exports, under the assumption it leaves the single market. Not only will it lose out on the free trade enjoyed by member states, it will have to find new ways of keeping businesses who will be tempted to relocate outside of the UK to maintain access to the single market. Sectors with a high level of trade between the UK and EU, such as the automotive industry, will be especially exposed. More than half of all the cars assembled in the UK in 2017, were exported to the EU. Meanwhile, 65% of all British built automotive components were sold to the EU [1].
The disruption to trade will force the UK to consider new ways of attracting inward investment. To achieve this, Cebr suggests free trade zones (FTZ) to be implemented around selected airports.Figures from 2016 [2] show that the top five airports to handle air cargo, according to their value, were Heathrow, East Midlands International airport, Stansted, Manchester Airport and Gatwick.These airports would be a starting point for the UK to consider implementing free trade zones, in order to maximise on the air freight that already travels through them. Indeed, with a third runway already panned at Heathrow, this airport in particular would have more scope to manage an expansion.
According to the International Air Transport Association, countries with 1% better air cargo connectivity engage in 6% more trade [3]. If the UK were to implement and manage FTZs well, it would join a list of other countries who have experienced its benefits. For example, the free trade zone in Shannon, Ireland, creates over €3.3billion of annual trade and employs over 7,000 workers. Katowice has also been a success story in Poland, employing over 9,000 personnel and working with over 200 companies. Should the UK leave the EU as well as the single market (as seems most likely at the moment), free trade zones around the UK’s airports are most certainly a viable option to offset the potential damage to trade after March 2019.
1 SMMT Motor Industry Facts 2018. https://www.smmt.co.uk/wp-content/uploads/sites/2/SMMT-Motor-Industry-Facts-June-2018.pdf
2 Airport Watch. http://www.airportwatch.org.uk/air-freight/
3 IATA – The Value of Air Cargo. https://www.iata.org/whatwedo/cargo/sustainability/Documents/air-cargo-brochure.pdf
Contact: Marina Mensah-Afoakwah mmensah-afoakwah@cebr.com, 020 7324 2820.