Brexit to Limit Capital for Dry Bulk and Boxship Sectors?

Shipping executives and analysts are warning of negative implications for the dry bulk and containership sectors in the aftermath of last week’s UK vote to leave the European Union, according to IHS Maritime & Trade.

Overall, there is a strong potential for further constraints on capital availability for shipping, already a growing issue over the past year, which could further keep vessel capacity growth in check but could negatively impact depressed, capital-dependent sectors such as containers and dry bulk.

The Brexit vote represents yet another hit on European commercial banks, the traditional lenders to shipowners whose stocks have plummeted in the wake of the Brexit vote. These institutions – which are already besieged by new regulations – are likely to be even more reluctant to lend to shipping than they were prior to the Brexit vote, Greg Miller from IHS Maritime & Trade said.

That might be positive for currently healthy sectors like crude and product tankers, as their capital constraints are a positive because they create a barrier to entry and protect against new capacity that could dampen future earnings. On the other end of the spectrum are depressed shipping sectors like dry bulk and containers, in which cash reserves have been whittled down by years of depressed rates and a rate recovery is still potentially years away. Such owners require capital not for growth, but for survival – and financial unrest following the Brexit vote could cost them their lifeline.

The UK would not by itself have a major impact on petroleum volumes, rather the expected volatility and uncertainty in the petroleum markets over the timing and duration of the UK’s separation from the EU could be positive for the tanker sector.

Other factors that could support the tanker markets include the increase in the value of the yen since the Brexit vote, which will make Japanese-built ships more expensive and thus potentially curtail vessel supply. IHS believes that the US and Japan will likely see significant unwelcome appreciation of their currencies, given their roles as global safe havens.

Global trade is already lagging global GDP growth, and an economic slowdown in Europe could threaten to bring containerised demand growth into negative territory by lowering European demand for Asian containerised imports and negatively impacting US exports due to a higher US dollar.

“For UK shipping, the impact will potentially be broad but not immediate. The key issues for UK shipping are visas and work permits, fiscal arrangements including tonnage tax, border controls at ferry terminals, and naval collaboration within Europe to counter piracy and rescue of migrants,” Miller added.

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