Brexit: effects on the container shipping market

According to an analysis of the Maritime Strategies International (MSI), the vote of the United Kingdom to leave the European Union (Brexit) will have far-reaching effects on the container shipping market, adding that, among the short term political and economic uncertainty, the downside risks for container industry will be extended beyond 2016 and into 2017, while the risk of recession grows.

On the one hand, the impact of reduced UK economic growth as a result of Brexit will be slight for container shipping, as the UK market only represents around 5 million TEU out of a global total of 185 million TEU; on the other hand, however, there are three ways through which Brexit could have a far greater impact.

Firstly, it was emphasized by MSI that policymakers are far more reluctant to impose structural reforms to recalcitrant countries, adding that, because of populism, further measures to liberalize or encourage trade seem increasingly imperiled.

Secondly, a significant impact for container shipping will be caused by a weakening in the long term, not only on sterling, but also on euro. According to MSI, negative growth on the Asia-Europe trade in 2015 was largely due to inventory destocking, which in turn reflected the significant falls in the euro of that year. If the euro weakens further, it is reasonable to expect a protraction of the high amounts of idle capacity, which will lead to a deferral of any meaningful market improvement to 2017.

Thirdly, there is the effect on sentiment both in Europe and globally. As markets are skittish and economies weak, if recessionary fears filter into the real economy, container shipping will certainly be negatively affected.