Brexit and European Shipping
On the 23rd of June 2016, a majority of 51.9% of British voters chose for the United Kingdom to leave the European Union. As we near the end of this almost three-and-a-half-year ride, it is more important than ever to understand the effect that Brexit could have on European shipping as a whole. Just to put into perspective the significance of Brexit’s potential effects on shipping for the EU and the UK, British trade to the EU comprises just under half of the UK’s total trade volume. Overall, the general theme of the potential effects for the UK are increased delivery times, increased costs, a decrease in trade volume, and a fall in registration of British vessels & GT (gross tonnage).
Increased Delivery Times
After Brexit, even if the UK signs a free trade agreement with the EU, the ‘borderless’ international shipping the UK and EU share today will nevertheless come to an end. Following Brexit, thousands of tons of cargo will have to be inspected at arrival ports and stations, which would lead to a previously nonexistent inspection delay. This delay could be further increased if there are any discrepancy in the customs documentation.
According to an article published by the London School of Economics, border checks at the UK port of Dover on goods traded with EU countries currently take an average of 2 minutes compared to an average of 20 minutes on goods traded with non-EU countries. Obviously, the chances of those EU goods taking 20 minutes to be checked are very low, but it is almost certain that the average time will increase significantly from pre-Brexit levels.
These potentially significant delays have the possibility to disrupt supply chains, especially those of firms using a ‘just-in-time’ management system. Also, guaranteed delivery times for goods shipping from or to the UK to or from the EU, like goods sold on Amazon, might also have to be rethought.
In a post-Brexit Europe, it is very likely that Britain will no longer be part of the tax and duty free single European market. The most obvious impact of this will be that companies importing British goods after Brexit will most likely begin paying VAT on those goods, which could lead them to stray away from trading with UK firms in favor of EU counterparts.
Brexit would also lead to a cease of British companies’ access to EU maritime cabotage rights, which could have a serious impact on the shipping companies that operate between the UK and the EU. Since the exact consequences of Brexit are still uncertain, it is realistic to assume that shipping prices between the UK and the EU in general are likely to increase.
Fall in the Registration of British Vessels & GT
Some background information: all commercial ships must be registered, or flagged, with a particular country partly to comply with safety and environmental regulations.
Industry officials say that companies are leaving the UK’s shipping registry due to uncertainty over Britain’s departure from the EU and future commercial arrangements with the bloc. Part of Britain’s maritime services industry is made up of the UK’s ship registry; the loss of such companies from a British registration would be a blow to the tax revenues that the registry could be collecting. These departures would work against the British government’s attempt to secure extra space on ships to try to help cope with the burden of a potential trade disruption in a no-deal Brexit.
Official data shows that on May 31st 2019, there were 1,229 vessels flagged under the UK, representing 10.5 million GT, which was down from 1,315 vessels, representing 16.5 million GT, at the same time last year. Other data from valuation company VesselsValue showed that Britain was ranked 22nd in the world in vessel registry and GT.
Prior to the UK’s Brexit referendum, the French shipping group CMA CGM, with 49 shipping vessels, said:
“In light of Brexit and to avoid any uncertainty in the period with our fleet status and regulations … CMA CGM has decided to transfer its fleet under UK flag to other European countries,”
CMA CGM said it decided to make this move in order “to remain competitive”.
Norwegian company Wallenius Wilhelmsen sold 8 of its UK-registered vessels to its company in Malta to simplify its ship owning structure as Brexit nears. Stolt-Nielsen, another Norwegian company, said it was reviewing its UK-registered ships. In January, British ferry and shipping freight operator P&O decided to change the registration of its ships from the UK to Cyprus to keep its tax arrangements in the EU.
David Balston, director of policy with the UK Chamber of Shipping trade association, described the situation:
“Companies undoubtedly will have flagged out because of Brexit and it will be to do with either fiscal or financial considerations,”
“The flag is suffering both from the uncertainty and because of Brexit itself.”
Decline in British Trade Volume
Brexit risks potentially politically isolating the UK, which could lead to a deficiency of direct vessel calls. This would lead to shipping companies needing to rely on feeder services due to the absence of a large UK-based container fleet. However, due to the UK’s high demand for shipping services, Drewry Maritime Research believes that container lines will continue to stop at Britain’s ports, despite Brexit.
For the short term, the volume of shipments in and out of the UK are expected to slump, as Britain will be re-establishing itself within the global market. The unpredictable instability of the UK’s future trade agreements plays a large part in this, as the UK will now have to independently forge new trade agreements and alliances, which will certainly affect the current trade flow of the country.
At the end of the day, the possibility for increased costs and decreased efficiency in a post-Brexit world is very real. Nevertheless, some companies have already started lobbying the UK government to call for the simplification of shipping processes, which must be dealt with as soon as possible by the government to allow the UK to flourish after Brexit finally gets through.
Although things are not looking too bright for Britain at this moment, the increasingly globalized world we are a part of helps encourage open borders and beneficial trade agreements and alliances. Also, these new agreements that Britain will be getting itself into do not necessarily mean trade will be negatively impacted in the long run, instead they could very well end up benefiting the UK even more than its current arrangements.