Shipping Prepares for a Brexit
On Friday, the citizens of Britain voted to leave the European Union, with widespread consequences that will take years to fully determine – including as-yet-unknown effects on shipping.
The most immediate impact was felt in the markets: the S&P 500 lost all of its gains for the year to date as Wall Street suffered its largest selloff in 10 months; the Nasdaq shed four percent; the Dow lost 3.4 percent; the pound sterling fell to its lowest level in three decades, and is expected to keep falling; and shares in the UK's largest banks fell by nearly 18 percent.
"The word 'unprecedented' is often used too much, and people often reach for the hyperbole. But this is truly unprecedented," said Steven Major, head of global rates strategy at HSBC in London.
The UK Chamber of Shipping remained neutral on the question of Britain's departure during the runup to the vote, and on Friday it issued a statement emphasizing the industry's importance in all events. "We are still an island nation that has to make its way in the world through buying and selling, and the shipping industry is here for that purpose . . . shipping moves 95 percent of the UK's international trade and we don't see that changing," the organization said. It called for strategic thinking and an emphasis on free trade – specifically, the timely, well-managed establishment of new agreements with trading partners to boost international commerce. "We believe that Government should establish a new Free Trade Commission, working across the Department for Business and the Foreign Office, to train trade negotiators and begin the process of establishing new trading ties around the world and be ready for the negotiations with the remaining members of the EU."
However, John Nelson, chairman of the Lloyd's of London insurance market, has said it was "fantasy" to expect bilateral negotiations to be simple. "It would be impossible to do that except over many, many years," Nelson told Reuters in April.
Others are also skeptical on the idea that bilateral agreements would allow a smooth transition. In a forecast earlier this year, analysts A.L. Goodbody noted that there will likely be "trade agreements between the EU and a Brexited UK, but the difficulties involved and the time such arrangements would take to adopt should not be underestimated. The EU-India Bilateral Trade and Investment Agreement negotiations commenced [nine years ago] and are stalled . . . Work on [the EU-Canada trade agreement] commenced in October 2008 . . . [and] in regard to the EU-US 'Transatlantic Trade and Investment Partnership,' the negotiations are currently in their thirteenth round."
"No one has left the European Union before, and the EU may seek to ‘punish’ the UK for leaving, in order to discourage others from leaving too. The Brexit negotiations are unlikely to be quick or easy," acknowledged Guy Platten, chief executive of the UK Chamber of Shipping, speaking to Reuters in April. "If it is lengthy, with tariffs and other penalties built in, then the consequences could be profoundly negative."
The impact on the UK's extensive maritime services sector remains to be seen, and Nick Brown, marine and offshore director of Lloyd’s Register, forecast a period of uncertainty ahead. "It is clear that we are now in a period of significant political, economic, legislative and market uncertainty," he said. "Our view is that whilst we believe an exit from the EU is unlikely to have a significant impact on LR, the general uncertainty in the financial markets will not make trading conditions any easier going forward. However, we are a strong and resilient business that benefits from a global footprint, so we are in a good position to deal with the immediate aftermath."
Brown also highlighted the regulatory questions ahead for the class society: "One question, in transition from being in an EU member nation to one outside the EU, is the possible effect this could have on the process by which LR receives its status as a Recognised Organisation (RO) within the European Union. This will be addressed in due course," he said. "Lloyd’s Register is a global business supporting clients and flag states all over the world, including within the European Union, and this will continue to be the case."
Britain is also a partner in the EU's Navfor anti-piracy effort off of Somalia, and cooperates with the EU and NATO on a variety of maritime security measures; some are concerned that the Brexit vote could impact these agreements. British Defense Secretary Michael Fallon spoke Friday with NATO Secretary-General Jens Stoltenberg on Friday regarding cooperative maritime security arrangements; he provided his assurance that the vote would not impede joint EU-NATO naval operations in the Mediterranean. In March, the UK deployed the amphibious assault ship RFA Mounts Bay to assist with NATO's migrant-trafficking mission in the Aegean Sea.
"It is a more unpredictable situation than before the UK decided to leave. I think that's quite obvious," Stoltenberg said at alliance headquarters in Brussels. "I am concerned about a more fragmented Europe."
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.