Skip to content

The Murky Effects of Brexit on Shipping

16 August 2016
– 4 Minute Read


Perhaps one of the most important referenda in recent history resulted in Britain successfully voting to leave the European Union. Uncertainty and volatility in international markets is the by-product of such a momentous decision. ‘Brexit’ has implications not just for local British markets, but for the international arena as a whole, and the international shipping industry is no exception. This is especially so given that London is a global shipping hub and is home to some of the industry’s most important insurers, underwriters and legal service providers.

The EU is premised on free movement of goods, services, people and funds. These are the life blood of international trade and shipping. One of the greatest causes for concern is that the UK may no longer have access to the unitary European market once it officially exits the EU. Fears abound that higher tariffs and customs could be imposed on the UK and further that the EU could seek to penalise the UK for withdrawing. Although higher tariffs and customs could be detrimental to the UK, many experts opine that they are unlikely to constitute a major trade barrier.  Moreover, it would be short-sighted of the EU to seek to impose penalties on the UK as the latter is one of the economic powerhouses of the region and its markets are important to Europe’s economy. The prompt negotiation of trade agreements to alleviate uncertainty is of the utmost importance.

A further concern is that the UK may lose its passport to freely provide cross-border financial services in the EU, which has allowed the UK to become a global leader in shipping insurance, among others. In a worst case scenario, UK based financial services providers could be hindered by being required to obtain trading licences in other European countries and complicated compliance procedures could drive up the cost of doing business, causing spikes in insurance premiums and other financial service offerings. If uncertainty is allowed to prevail, some financial services providers may opt to move headquarters from the UK to the EU. It would be a pity if London lost its status as an international maritime centre capable of catering to all the needs of shipping industry, given its rich concentration of shipping specialists.

English law is commonly chosen as the applicable law for contracts in the shipping industry, as the UK’s law is well developed and its arbitrators are world renowned for their extensive experience and expertise. There appears to be no reason for ‘Brexit’ to cause a dip in the UK’s popularity as one of the preferred dispute resolutions centres for shipping matters.

In fact, nothing will change in the short-term. Firstly, no date has been set for the UK formally to notify the EU of its intention to withdraw in terms of Article 50 of the Treaty on European Union. Secondly, once it does so, it must stay a member of the Union for two years. This gives some much needed breathing room to negotiate the terms of the exit and conclude new trade deals. The withdrawal may be delayed beyond two years if the European Council, in agreement with the UK, unanimously decides to extend this period. It should also be kept in mind that the exit agreement must be approved by the European Parliament. In other words, there is a long road ahead and in light of the unknowns, the British adage “Keep calm and carry on” holds true.

According to a 2015 survey published by the UK Chamber of Shipping, 65% of the global maritime industry professionals believe that the European Union has a positive effect on the global shipping industry. However within the same survey, when asked whether they felt that Britain’s membership to the EU was important to their business, 51% answered neither, not very, or irrelevant.

The various viewpoints expressed by numerous economists and academics do not suggest one-sided implications. Instead, there have been arguments from both sides of the spectrum highlighting both positive and negative implications of ‘Brexit’ for the shipping industry. Furthermore there exists a school of thought that ‘Brexit’ will have no real impact on the shipping industry. Due to the contemporary nature of ‘Brexit’, its implications – whether positive or negative – have not yet manifested. Therefore whatever the pundits may postulate, all that is clear is that ambiguity and uncertainty prevail in terms of the effects ‘Brexit’. The effect of Brexit on South Africa is, of course, equally unclear but perhaps the opportunity exists to conclude a favourable trade deal with one of our major trading partners.