UK-based business management consultant Maritime Strategies International (MSI) has reported that Brexit, the vote for the UK to withdraw from the European Union (EU), will have an impact on the container shipping market.
The company’s analysis of the Brexit vote revealed that the downside risks for this market have been extended beyond this year and into next as the risk of recession grows at a time of short-term political and economic uncertainty.
The UK market only represents around 5m twenty-foot equivalent units (teu) out of a global total of 185m teu, and the impact of the country’s reduced economic growth as a result of Brexit will be slight for container shipping.
MSI senior analyst James Frew said: “Prior to the Brexit vote, we had believed that the stabilisation of the euro would lead to significant inventory restocking in 2016, which in turn would push up Asia-Europe westbound trade growth to over 7% year on year in the second half of 2016.
“This rapid Asia-Europe trade growth, and its knock-on impact on intra-Asian cargoes, is integral to our projections of the rapid elimination of idle capacity, or at least its reduction to below 500,000 teu, which is the level at which we believe some pricing power shifts back to the owners.”
According to MSI, Brexit may have a greater impact on container shipping market in three ways.
Firstly, it is on a wider European project in which policymakers are not willing to impose structural reforms on recalcitrant countries, and secondly, there could be a long-term impact not merely on sterling but also on the Euro.
In case the Euro weakens further, the expected improvement of the market next year would be pushed back.
Thirdly, the impact on sentiment in Europe as well as worldwide is also a factor.
MSI said that the possible effects of Britain’s decision to exit the EU are potentially severe.
MSI added: “Taken in isolation Britain’s decision to leave the EU is not going to sideswipe the shipping markets.”