How Will Brexit Affect Shipping?

The historic Brexit vote has had huge impacts on a multitude of industry sectors around the world, and shipping is by no means an exception. Shipping is an extremely important part of both the EU and the UK economy.

In 2014, more than 51.5% of external EU freight was via sea, not to mention that annually more than 400 million people are transported via sea from more than 1,200 seaports, which provide employment and indirect support to over three million more people. In the UK alone, this sector employs 240,000 people and contributes around €12m to the UK economy, making it one of the top ten ship owning nations in the world. As such, it is no surprise that Brexit will create irreversible changes and brand new challenges for the industry. 

Shipping will be affected as UK/EU trade is also affected by Brexit. Almost half of the UK’s exports are currently to rest of the EU, with almost half of the UK’s imports coming directly from the EU. Part of the reason for these high percentages is that, as an EU member state, the UK can trade within the Union without internal customs barriers or tariffs, as well as benefiting from a range of trade treaties and preferential access to EU goods and services. Without this EU membership, UK businesses no longer benefit from any of this, unless a bilateral trade agreement can be struck between the UK and the EU. As it also remains unclear whether the UK will seek to be a part of the European Economic Area (EEA) or strike its own agreement with the EU, operating within the EU market faces a high possibility of incurring greater expense for UK operators. 

The UK would need to negotiate its own trade treaties, not just with the EU, but also with other countries that previously held bilateral agreements with the UK via the EU. Exporting goods would become a far more complicated process, and this complexity would continue into competition law. EU competition law currently polices any cartel activity and mergers, but upon Brexit the UK will lose this. As such the UK will need a separate competition regime, resulting in dual clearances and more onerous rules and regulations. This could also create slower delivery times and higher costs all round for shipping.

Yet the drop in the value of the pound, as a result of Brexit, might possibly be beneficial. With a weaker pound, UK shipping contracts and British products might now appear more desirable to foreign buyers, who could possibly look to increase exports. 

The UK will also have to make a decision with regards to sanctions. While a part of the EU, the UK has to comply with the sanctions regime imposed by the EU, currently against states such as Russia, North Korea, Syria and Yemen. Upon leaving, the UK will need to create their own sanction regimes, which could be harsher or less strict, although they will still have to comply with any UN mandated sanctions. 

Currently any insurer in the EU is automatically entitled to provide insurance to any other business in one of the member states, a process known as ‘passporting’. Brexit, however, would remove this possibility, restricting the ability of insurers, or those buying insurance to search for the best price and terms for their business. 

Contract Terms
At present, no one knows whether shipping contracts signed prior to Brexit will continue to be valid in all clauses, even those which refer to the EU. Many contracts provide trade to particular countries or geographical regions that presume the UK has membership to the EU. When contracts come to be renewed, clauses can be doctored and amended as the per the financial, geographical and political landscape, but as for existing contracts, only time will tell how these will play out. 

One of the biggest impacts of Brexit is the reduction in freedom of movement to live and work throughout the EU. As a result, the talent pool for recruitment to the shipping industry will shrink, and the UK will have to negotiate appropriate arrangements for any UK nationals currently working in the EU shipping industry and vice versa. 

The fallout from Brexit for the shipping industry is unlikely to be completely disastrous. With careful contingency planning, much of the shipping industry can be kept in place, or at least steadily rebuilt. Until the final exit occurs, however, and solid agreements with the EU are generated, there is little that can be accurately predicted. 

Posted in categories: Shipping