The news of a Brexit immediately rattled the financial markets as the Pound plummeted to a thirty year low against the Dollar, and the Euro also fell slightly. Obviously, this may only be a knee jerk reaction to the result and in fact, only a couple of days later, the markets stabilised whilst experts have already re-assured that this drop will not bring about a recession and that the Pound will recover. Also, it is too early to say how bad Brexit will affect the global economy because negotiations between Westminster and Brussels have yet to kick off and only then can we have a clearer idea of how the future will pan out. Obviously, this political uncertainty will essentially slightly curtail economic growth in the UK and in Europe. However, one cannot help but wonder how Brexit will affect the numerous businesses and millions of workers who have set up shop in the UK thanks to the free movement of persons and the benefits offered by the Single Market.
And thus the question beckons; how will Brexit affect the Shipping industry?
Obviously, generally speaking, the Shipping industry in the UK is seeing the referendum result negatively because it disrupts trade, movement of goods and also affects labour issues which are all regulated by EU law and may need to be re-negotiated if the UK does not join the European Economic Area. There are fears that the major banks who provide ship financing may decide to set up shop in other EU Member States with a strong flag. This would mean a strong blow to the UK’s maritime services sector, which to date has been considered the pre-eminent sector for the British economy.
One final important point relates to contract terms and dispute resolution. Many shipping contracts provide clauses dealing with trading to specific countries or regions. The uncertainties which may arise relate to those contracts, signed prior to Brexit, since such clauses make reference to the EU as an entity; but will the EU continue to include the UK? If such contracts are drafted in a way which presumes the existence of an EU including the UK, such contracts may give rise to disputes as to the meaning or ambit of the contract. With regards to dispute resolution, the rules by which UK courts determine jurisdiction over, and the law applicable to, the majority of disputes arising within the EU for contractual and tortuous claims are currently determined by the Brussels I Regulation and the Rome I and Rome II regulations. Thus, it is uncertain whether the UK will continue to apply similar rules or whether new rules will be adopted.
Being an economic superpower and one of the largest importers and exporters, it is important to understand how Brexit will affect the United States and, more specifically, its container trade with Europe and the rest of the world. According to Mario Moreno, Senior economist at IHS Maritime & Trade, Brexit will have a negative effect on US exports rather than imports. The only way imports may be affected is due to decreased consumer and business confidence in the US which may be reluctant to conclude purchases from the UK. On the other hand, exports pose a different story. US container exports may likely be downgraded primarily due to the strength of the Dollar against the Euro, which will make exports for US businesses less competitive. In fact, before Brexit, the forecast for US containerised exports towards Europe were at +1.3% for 2016 and + 4.7% in 2017, which are likely to be revised downward. US exports specifically to the UK were already forecasted at around -0.8% and this trend is expected to continue.
As stated earlier on, it is difficult to properly pin down the exact after effects of Brexit until negotiations with Brussels begin. It is clear that a feel of uncertainty will reign across Europe and other continents. However, one must also keep in mind that the UK is still currently within the EU and, thus, we should keep on working as we currently are and not let this uncertainty shackle economic growth. All eyes are on Europe at the moment and we would not be doing ourselves a favour if we allow this result to affect us negatively.
Co-author: Mr Saman Bugeja