Section 1: Introduction
The historical vote of Britain to leave the European Union is evidently going to have a global impact. From the stock prices of the plans for travel, people and activities in every sector are getting affected by the notion known as the “BREXIT” in some form. However, the shift may not have been felt by the majority, those dealing in international activities are evidently feeling the impact (World Maritime News, 2017).
The landmark decision taken by Britain after conducting a referendum to leave the EU has had both positive and negative consequences. However, for many, the mystery released from the phenomenon of BREXIT is a source of constant stress. The implications of these factors for the business and logistics are troublesome.
The international shipping industry faces new opportunities and challenges while entering into the phase of the UK leaving the European Union and for the long run as well. In this study, I am going to study the impact of the BREXIT on the shipping industry regarding the trade volume, uncertainty, and legislation (WTA Group, 2018).
BREXIT
BREXIT refers to the UK leaving the EU. The referendum conducted in the UK giving the public the right to decide if they want to remain within the EU or want to leave. The decision to leave the EU has sent the country into the unchartered waters as this has not been done before (UK Defence Club, 2016). Although the long-term effects are not known, there are some implications which can be predicted. Like, for instance, it is known that after the BREXIT the money market was complete chaos. The British Pound Sterling at one point went at the 35-year low point as compared to the USD (Bringg Team, 2016). In the shipping industry, it is known that the impact would be more relevant on the UK Exports to Europe, Imports from Europe to the UK, domestic Shipping (Bringg Team, 2016), and legislation. It is known that the future trading relationship of the UK with the EU will certainly take some time to get clear. It is to be realised, however, that nothing has changed as an aftermath of the BREXIT. The transportation of the goods, people between the UK and EU and the trading relationship, and laws applying to the contract arrangements and business is same as before (Farley & Williams, 2016) until early 2019. Hence it is important for the shipping industry to look forward in this challenging time and face the challenges with having proper strategies to cater to it. This study will give the industry the proper insight regarding effects of BREXIT (Sampson, 2017).
Section 2: Test Design
This study is committed to research the impact of BREXIT on the shipping industry regarding trade volume, uncertainty, and legislation. I am going to test these separately and with different methods as relevant to the factor. The trade volume will be tested by looking at the changes in the trade flow after BREXIT as compared to the pre-BREXIT period. The Uncertainty can be tested by looking at the stock market response to the BREXIT decision. It will also be supported by the literature study and researchers which will show the higher or decreased level of uncertainty from BREXIT results. The legislation will be tested by looking at any changes which are made to the laws, rules, regulations that govern the shipping industry or involve the activities held within the shipping industry to provide evidence. Collectively, these three factors will provide insight into the positive or negative effects of BREXIT on the shipping industry.
Trade Volume
Trade fuels the international shipping industry. Trade is the fundamental reason, because of which international shipping industry is needed. The transportation of the goods and people is dependent on the logistics industry, which includes shipping industry as well. The trade, in turn, is dependent on the global economy. The BREXIT landed at a time, which the shipping industry was already facing many challenges. The bulk freight was certainly facing quite challenges already. Lowest rates of the dry bulk freight witnessed in 2016 evidently show the results of a long persisting problem which was present even before the BREXIT happened. The problems persisting in this sector include the over-supply of the ships, the rebalancing of the Chinese company after the boom of the last decade impacting the global trade.
The event of BREXIT in itself may not be considered a highly impactful event regarding global trade volume as per the CEO of Euronav. However, this is in combination with other factors like the rise of Donald Trump in the White House, the uncertainty related to the Italy banks, and the coup attempt in Turkey along with BREXIT can become a meaningful risk for the crude demand expectations consequently impacting the demand for the tanker shipping service and freight rates (Eversheds, 2016).
However, for UK trade volumes, the changes in the cost of trade with the EU are expected to affect it. The trading relationship which is settled with the EU and other partners will affect the trade volumes (Eversheds, 2016). A study has shown that the BREXIT will make the UK poorer by reducing the trade flow and investment flow to the country. The research, however, shows that it will depend mostly on the trade relations with the EU (Dhingra et al., 2017). The benefit which has been enjoyed by the UK in the form of free trade market with the 28 member states of the EU will be lost to the UK (John Good Shipping, 2017). About 44% of the total export from the UK is dependent on the EU accounting for about $288 billion (2015). This trade was not imposed with tariffs and it is going to change in future. All exchanges with the EU will be imposed with tariffs however; this also implies that all exchanges entering EU will also be imposed to tariffs (Icontainers.com, 2016).
However, it is expected that the UK will benefit from more favourable trading with the Outside EU countries increasing these trade volumes. These non-EU countries also constitute the major portion of the UK bulk port container traffic which is expected to be increased in the future (John Good Shipping, 2017).
Uncertainty
The buzzword after the BREXIT landscape includes the word “uncertainty”. There is nobody who can tell for certain the long-term effects of the BREXIT on the global and the local economies (Hellenic Shipping News, 2016). A large contributor to the uncertainty is the instability of the nature of the trade agreements and the legislation that will cover the shipping industry. UK has to forge new alliances and form new agreements (WTA Group, 2018).
As per the IMF, the BREXIT vote has led the country into a substantial increase in the political, economic, and institutional uncertainty. The negative macroeconomic factors have led the IMF to downgrade the expected GDP growth predictions consequently slowing down the maritime trade as well. It is said that the greater risk implies to the negative impact on the box volumes which is fuelled by the uncertainty and slowdown in uncertainty (Buxbaum, 2016).
As per the stock market, after one year of BREXIT vote, the pound has lowered 16 percent to $1.27 and 14 % against the Euro (Blitz, 2017). Currently, it is evident that the shares in the UK focused companies have not shown growth this much as the shares of the blue-chip global companies because of the strong dollar (Bowsher, 2018).
A Study showed the reaction of the stock market after BREXIT and translated it as uncertainty in the stock market (Amewu et al., 2016).
Legislations
The BREXIT is likely to make a lot of changes in the legislation. However, it can be positive. The BREXIT had shown an economic impact, but the nature of the legal relationship has not yet changed. English Law is expected to be retained in full force until the UK exit. Even though the substance of the English contract law and the maritime law will be mostly unaffected by the exit of the UK, however, the shipping and all related contracts are not expected to be immune to it. The full context of the impact of the exit of the English law is currently uncertain. The UK laws of importance to the shipping industry that will have an impact from the exit include directly the EU institutions make laws which directly incorporate into the UK law; this will be stopped. Indirectly, the directive issued by the EU, which was aimed to create common rules within EU countries will also not be considered (Bowler, 2017).
The contract terms and conditions which were decided pre-BREXIT with the EU will have uncertainty regarding its legality and inclusion of the UK. These types of contracts will give rise to disputes. Employment law, insurance law sanctions imposed by the EU, and competition law in the UK will all be affected by the BREXIT (INCE & CO Law Firm, 2016).
Section 3: Test: Results
It is evident that the UK exports and imports have risen by Pounds400 Million and Pounds 300 Million (Bowler, 2017). It shows that even with an uncertain situation ahead, trade flow has increased because of the increment in the trade from non-EU countries. However, it is still early to predict as the UK has not yet left the EU.
The uncertainty is certainly dense. The various law firms studied, and expected low growth and actual low GDP growth of the UK shows its market is expecting an uncertain future. However, it is not all bad here. The new environment regarding the opportunity for new free trade legislation and law formations, UK can use it for its benefits and build a free relationship with the non-EU countries like India, US, and etc (Fox, 2017).
Section 4: Reflections on Results & Suggestions for Further Test
The results show that the uncertainty, increased legislation changes, and changes in the trade volume in the shipping industry after BREXIT are expected. However, the UK and its shipping industry can better use it as an opportunity to use its oversupply of the vessels for increased trade with non-EU countries.
The further study conducted after 2019 will be more relevant as the government of the UK will have devised most of the EU exit strategies and its post-BREXIT relationship with the EU will be clearer to predict the effect more accurately.
References
Amewu, G., Mensah, J.O. & Alagidede, P., 2016. REACTION OF GLOBAL STOCK MARKETS TO BREXIT. Journal of African Political Economy & Development, 1(December 2016).
Blitz, R., 2017. How has market reaction to Brexit affected the UK? [Online] Available at: https://www.ft.com/content/afcdd928-5664-11e7-9fed-c19e2700005f [Accessed 11 April 2018].
Bowler, T., 2017. How has the economy fared since the Brexit vote? [Online] Available at: http://www.bbc.com/news/business-36956418 [Accessed 11 April 2018].
Bowsher, E., 2018. The ‘Brexit effect’ on UK domestic stocks. [Online] Available at: https://www.ft.com/content/6814223c-faaf-11e7-9b32-d7d59aace167 [Accessed 11 April 2018].
Bringg Team, 2016. 5 Ways Brexit Affects The Shipping Industry. [Online] Available at: https://www.bringg.com/blog/industry-trends/5-ways-brexit-changes-shipping-industry/ [Accessed 11 April 2018].
Buxbaum, P., 2016. What Does Brexit Means for UK Shipping? [Online] Available at: http://www.globaltrademag.com/eu-trade/brexit-means-uk-shipping [Accessed 11 April 2018].
Dhingra, S. et al., 2017. UK trade and FDI: A post‐Brexit perspective. Regional Science, 97(1), pp.9-24.
Eversheds, 2016. Brexit: Implications for global shipping and sea trade. [Online] Available at: https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Shipping/brexit_Implications_for_global_shipping [Accessed 11 April 2018].
Farley, W. & Williams, 2016. POTENTIAL IMPLICATIONS FOR THE Maritime Sector. [Online] Available at: http://www.wfw.com/wp-content/uploads/2016/07/WFW-Maritme-Brexit.pdf [Accessed 11 April 2018].
Fox, L., 2017. A free-trading Britain can prosper after Brexit. [Online] Available at: https://www.ft.com/content/b913db84-c623-11e7-b30e-a7c1c7c13aab [Accessed 11 April 2018].
Hellenic Shipping News, 2016. Brexit: Implications for global shipping and sea trade. [Online] Available at: https://www.hellenicshippingnews.com/brexit-implications-for-global-shipping-and-sea-trade/ [Accessed 11 April 2018].
Icontainers.com, 2016. The Impact Of Brexit On Ocean Freight Transportation. [Online] Available at: https://www.icontainers.com/us/2016/07/19/the-impact-of-brexit-on-ocean-freight-transportation/ [Accessed 11 April 2018].
INCE & CO Law Firm, 2016. WHAT COULD BREXIT MEAN FOR THE SHIPPING INDUSTRY. [Online] Available at: http://www.incelaw.com/en/documents/pdf-library/shipping/what-could-brexit-mean-to-the-shipping-industry.pdf [Accessed 11 April 2018].
John Good Shipping, 2017. What Does Brexit Mean for the Shipping Industry? [Online] Available at: https://www.johngood.co.uk/2017/05/23/brexit-shipping-industry/ [Accessed 11 April 2018].
Sampson, T., 2017. Brexit: The Economics of International Disintegration. Journal of Economic Perspectives, 31(4), pp.163-84.
UK Defence Club, 2016. Brexit: Impact on shipping contracts. [Online] Available at: https://www.ukpandi.com/fileadmin/uploads/uk-pi/Latest_Publications/UK_Defence/701-UKDC-Brexit-v6FINAL.PDF [Accessed 11 April 2018].
World Maritime News, 2017. UK’s Reports Downplay Brexit Challenges for Ports Sector. [Online] Available at: https://worldmaritimenews.com/archives/238960/uks-reports-downplay-brexit-challenges-for-ports-sector/ [Accessed 11 April 2018].
WTA Group, 2018. How will BREXIT impact Your Shipping. [Online] Available at: https://www.wtagroup.com/news/how-will-brexit-impact-your-shipping [Accessed 11 April 2018].
+447462439809