The so-called “Brexit” vote, in which voters will decide whether the United Kingdom should remain a part of the European Union, could have wide ranging effects on the shipping industry, according to legal experts and industry analysts.
Come tomorrow, the shipping industry in the United Kingdom could be headed toward operating under a new set of rules if the country votes to leave the European Union.
The law firm Norton Rose Fulbright noted if the so-called “Brexit” referendum passes, it would not impede the right of UK shipping companies to carry goods to or from EU ports, but that “Being part of the EU offers U.K. companies access to a single European market, with no taxes or duties payable on goods moving across internal EU borders and the benefit of legislation intended to promote the single market, such as the right of EU member states to offer maritime cabotage services (i.e. transport services) across the EU (pursuant to Council Regulation (EEC) No 3577/92).”
Another law firm, Ince, noted the European Union is the United Kingdom’s largest trading partner, accounting for about 45 percent of exports and 53 percent of imports of goods and services. A vote to exit would send the United Kingdom into uncharted waters, affecting a wide number of commercial issues. But it noted if the Brexit is approved, change will “not happen overnight; under the existing treaties, a two-year exit process is envisaged.”
Norton Rose said, “Should a Brexit occur, the U.K. might still have access in some form to the single market and transport legislation (for example if it became a member of the European Economic Area (EEA)) but the degree of access would clearly depend on the type of exit scenario.”
David Davis, a conservative member of parliament, told the U.K. Chamber of Shipping leaving the European Union would benefit shipping because free trade deals would be signed more easily by two countries negotiating with one another, instead of 28 countries negotiating among themselves before later negotiating with target economies and that often the European Union’s negotiating stance was not in Britain’s best interests.
Labor MP Ian Murray disagreed, arguing the shipping industry’s success was due to its membership in the European Union’s single market the level regulator playing field it creates.
The historic importance of trade and shipping to Britain is evident during a stroll in the City of London past the London Stock Exchange (LSE), Lloyds of London, and the Baltic Exchange, all of which can trace their origins to 17th and 18th century coffee houses once located in the financial district.
In March, LSE and Deutsche Börse announced plans to merge. In early June, Carsten Kengeter, chief executive of the German stock exchange, said the merger could still happen in the aftermath of a Brexit approval, even making the pan-European merger more valuable.
Interestingly, Lloyd’s List reported that LSE representatives were present in June at the massive Posidonia shipping conference in Greece to pitch the LSE as an attractive place to list shipping shares.
In May, it was announced that the Singapore Exchange Limited (SGX) had entered into exclusive discussion to acquire 100 percent of the Baltic Exchange.
SGX is reportedly offering $100 million to $120 million for the Baltic Exchange, which today has about 380 owners. Larger owners include brokers such as Clarkson, Howe Robinson, and Furness Withy, Greek shipping companies and the Royal Bank of Scotland. Income from the sale of the exchange could provide a windfall at a time when shipping is experiencing rough seas.
The Baltic Exchange creates freight indexes for both the dry-bulk and tanker markets that are used to settle derivative trades and used in floating time charter agreements and benchmarking. The rates underlying those indexes are created by panels of independent ship brokers.
A second function of the Baltic Exchange is to provide a code of conduct, summed up by its motto: “Our word, our bond.” Ship brokering is an unregulated market, and exchange members have to demonstrate both quality and ethics.
SGX has promised to keep end-user Baltic Exchange data fees and fees for SGX clearing of freight derivatives at current levels for at least five years and maintain a commitment to the multiple clearing house model
While the Baltic Exchange is primarily concerned with dry-bulk ships and tankers, last fall it took a tentative step into the container industry, agreeing to publish on a weekly basis the Ningbo Containerized Freight Index on its website.
SGX is active in clearing iron ore and forward freight agreements, or FFAs, for dry-bulk ships.
Richard Ward, a container derivative broker at Freight Investor Services, said, “Technically, you can trade on SGX for containers but obviously the liquidity in trading is very, very limited.”
He does not believe that if the SGX buys the Baltic Exchange that container derivatives will get any immediate boost, since the container and dry-bulk market are distinctive and separate.
Ward said there is interest from shippers who want to lock in prices, but not much interest from “carriers, who should be using the product to secure their income…They’ve been so hung up on reducing costs that to a certain degree they’ve ignored the income side of the calculation. Until you get one or two major carriers in the market that are vocally supportive of the product then it’s going to be a while before any real trading in terms of volumes are significant.”
Brexit and the Baltic: UK to vote tomorrow on whether to leave the EU
