The UK plans to begin formal Brexit (the departure of the United Kingdom from the European Union) negotiations by the end of March 2017 says the BBC. Nobody knows how fast changes will come and what exactly those changes will be. The EU has no procedures established for countries to exit – only enter. Once Article 50 of the Lisbon Treaty is invoked, that will trigger two years of negotiations. If all goes as planned, the UK could be out of the EU as early as summer 2019.
We are entering uncharted territory and as negotiations begin, everyone is wondering how much the eventual outcome will impact international trade and the shipping industry. Reclaiming border sovereignty in Europe will likely create a period of ideological battles and posturing before any real economic value (good or bad) is realized.
The global front
While the global shipping market is experiencing challenging times, it isn’t a result of the Brexit decision. There’s an international over supply of ships and a rebalancing of the global economy taking place, forcing the hand of many shipping stakeholders to find ways to cut costs and, well, survive.
Maritime activity in and out of the UK accounts for a small percentage of global trade. While there may be a slowdown in the UK economy (and Eurozone in general), experts predict the impact on global freight volumes to be minimal. Regional issues like the Brexit vote do have the power to affect the market, but may not be significant enough to seriously change global supply and demand for products.
The UK side of things
From the UK’s perspective, it’s a different story. Post-Brexit, the British Pound sunk to a 35 year low compared to the dollar. With the severe depreciation of the Pound and the UK’s decision to stand alone, predictions abound. Here are a few:
- With a cheaper currency under their belt, UK shipping companies may seem more desirable to foreign buyers spurring growth and profitability.
- A decline in the Pound increases the purchasing power of other international currencies and makes British products more affordable. This could result in an increase in British exports, alleviating some of their trade deficit.
- As it currently stands, the EU states make up roughly 45% of British exports. Once Brexit is final, the tenants of free trade may leave along with the UK, resulting in an increase in taxes on all goods exported to the EU. Additionally, goods shipped between member states are considered domestic and not subject to additional rules and regulations that non-Eurozone countries experience. Upon leaving the Eurozone, there may be an increase in shipping complications, slower delivery times and higher costs.
- If free trade agreements currently in effect become void, UK consumers may have to pay tariffs on products coming from the Eurozone. This may push UK consumers to look at other countries (cough…China…cough) outside the EU as viable trading partners.
Cover your bases
Understandably, any event that spurs global uncertainty is going to add to the challenges ahead for the global shipping industry. The question is how much? The impact will vary depending on the extent to which companies work with and trade with the UK.
It’s important to maintain a proactive attitude throughout the Brexit process. Take the time to analyze what impact this situation may have, not on the shipping industry in general, but on your specific trading networks, partnerships, and channels. The potential risks involved may be minimal, but if you aren’t aware of them in advance, what could have been small, snowballs into something much bigger.