ABP's Group Head of Corporate Affairs David Leighton meets Niels Smedegaard, Chief Executive of Denmark's DFDS, to discuss the impact of Brexit and DFDS' plans for the future.
In his top floor office, Niels Smedegaard, Chief Executive of Denmark’s DFDS, contemplates the impact of Brexit.
DFDS’s operations include shipping services connecting ABP’s Port of Immingham with Esbjerg and Dover with Calais. Last year the company was responsible for moving significant quantities of freight and 5 million passengers between the UK and mainland Europe. Under Mr. Smedegaard’s leadership, DFDS has achieved remarkable success that has doubled revenue from DKK 6,6 billion in 2009 to nearly 14 billion in 2016. Results in recent years were the highest in the history of the company and have sent the share price up to a level that, according to the Boston Consulting Group, has ranked DFDS as number one among the world’s transport and logistics companies when it comes to creating value for shareholders. But for a company which depends on the UK for a major part of its revenue, Brexit is a concern.
“I respect the decision of the British voters but I think Brexit is a big mistake” Mr. Smedegaared says. With the UK inside the European Union, “we are all better off”, but outside the European Union, “everyone will be poorer than we would else have been, particularly the UK.” Despite the UK’s large trade deficit, the economic damage to the UK will be greater than to the EU as a whole; Mr. Smedegaard notes declining growth forecasts for the UK.
For the first time since 2013 we are seeing balanced growth in both developed and developing economies
“Focussing on Denmark, the fall in the value of sterling since the UK voted to leave the EU is already hurting Danish exporters and he sees the weakness of sterling as an ongoing issue. “Every time the rhetoric gets tough the pound
takes a beating” and he anticipates more tough rhetoric as the Brexit negotiations progress.
The impact of additional customs checks after the UK leaves the Customs Union is another concern, especially in Dover given the physical lack of space to hold vehicles. Mr. Smedegaard hopes a new “very smooth set up” can be achieved and suggests that “new IT systems can maybe help” but cautions that delivering this will require a “long transition period.” The potential risk of disruption at Dover means that “one can imagine that some accompanied Ro-Ro trade will convert to unaccompanied Ro-Ro” and DFDS is “factoring this into scenarios that could potentially happen.”
Despite this, DFDS is investing heavily in new vessels, including two recently delivered Ro-Ro vessels from a German shipyard and four of the largest ro-ro vessel in the history of the company to be delivered from China from 2019/2020. Part of the reason, Mr. Smedegaard explains, is that the 30-year lifetime of new vessels means that investment decisions have to be based on a long-term view and he believes that Brexit-related economic turbulence is “a big blip on the radar screen”, in other words a short to medium term issue which is perhaps set to last “4 years or so.” Further, he points out that the increased efficiencies and reduced unit costs offered by larger vessels improve competitiveness and consequently creates the potential to grow even in a flat market.
Mr. Smedegaard welcomed the initiative that ABP has taken to reach out to other European ports who share a commitment to make sure trade between the UK and mainland Europe can continue to grow. ABP has already reached agreements with the ports of Zeebrugge and Esbjerg to promote trade links and enable ports to keep trade flowing as smoothly as possible after the UK’s departure from the Customs Union and many more agreements with other ports are in the pipeline. Such co-operation Mr. Smedegaard believes can also help “stop politicians making foolish decisions.”
Mr. Smedegaard struggles to see any positives in Brexit but acknowledges that the possible return of Duty Free shopping could be one opportunity. he return of Duty Free could even herald the, albeit slim, possibility of a
return of DFDS’ service from Newcastle to Denmark. In addition, the UK may see more UK-flagged vessels if it determines to adopt a Singapore-style approach after Brexit. Mr. Smedegaard is also Chairman of the European Community Shipowners’ Association (“ECSA”) and he acknowledges that more aggressive competition from the City is a concern for some. However, there is no prospect of DFDS re-flagging vessels to the Red Ensign, as DFDS already has three ships flying the UK flag and three flying the French flag on the important Channel routes– which is a good balance.
Putting Brexit to one side, Mr. Smedegaard is optimistic about the global economic outlook. “For the first time since 2013 we are seeing balanced growth in both developed and developing economies”, which he argues signposts at least two years of reasonable economic growth worldwide. But that positive note, or the loving message his young daughter has written on the office whiteboard, cannot obscure the overriding sense of Mr. Smedegaard’s sadness at seeing the UK leave the EU. He doesn’t want Denmark to “lose a friend”; Denmark is a friend that many in the UK do not want to lose either