Seaborne Freight has had its contract with the government cancelled after it emerged the firm had no ferries to carry vehicles or goods across the channel.
The Department for Transport (DfT) agreed a contract with Seaborne worth £13.8m in case a no-deal Brexit occurred.
However, the DfT revealed it has terminated the deal with the freight company after Irish company Arklow Shipping, which had provided backing to the deal, stepped away.
"Following the decision of Seaborne Freight's backer, Arklow Shipping, to step back from the deal, it became clear Seaborne would not reach its contractual requirements with the government,” a DfT spokesperson said.
"We have therefore decided to terminate our agreement.
"The government is already in advanced talks with a number of companies to secure additional freight capacity - including through the port of Ramsgate - in the event of a no-deal Brexit."
Labour has called upon transport secretary Chris Grayling to step down in the wake of the decision after he last month said the decision to award Seaborne the contract was “not a risk”.
"When is the PM going to take action and accept that Chris Grayling is not up to the job,” the party said.
Seaborne was one of three companies that the government agreed deals with back in December to transport goods across the channel from the end of March – when the UK is due to leave the EU.
The contracts awarded totalled £108m and were intended to ease the pressure on Dover crossings.
Seaborne had planned to conduct twice daily sailings between Ramsgate and Ostend from March and claimed back in 2017 that plans were in place for Ramsgate to be used for crossings again from 2019.
Ramsgate’s Conservative councillor, Paul Messenger, told Sky News he was pleased that the deal had died because it would have threatened the town’s historic docks.
"Ramsgate should not be used as a sacrificial lamb for 'Brexit No Deal Resilience' as at best it could only service a 3% contribution to cross channel [roll-on/roll-off services] if a ferry link with Ostend was established,” he said.
"The DfT have done the right thing by pulling away from Seaborne as they were proven to be not fit for purpose."