International maritime trade faces new opportunities and challenges, both in the run-up to the UK leaving the European Union (expected in early 2019) and in the long-term.

In a recent report, the London-based maritime consultancy Drewry gathered industry opinions from shippers, ports, and carriers in an attempts to provide an informed preliminary assessment of the impact of Brexit.

Will UK maritime traffic rise or fall because of Brexit?

According to the International Monetary Fund, the Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences. The IMF has just downgraded 2016 and 2017 GDP growth forecasts for the UK, and a slowdown in UK GDP will mean a slowdown in UK maritime trade.

This led Drewry to conclude that UK container traffic will see more muted growth than expected a few months ago, at least in the short term.

Patrick Walters, Peel Ports’ Group Commercial Director, believes that the bigger Brexit-related risk for UK container ports is a short-term negative impact on box volumes caused by economic and political uncertainty and GDP slowdown. But Walters stresses that there will be both positives and negatives in the medium and long term.

Positives include opportunities to have new or improved bilateral trade agreements between the UK and countries such as India, the United States, Canada, and South American countries. It may be easier for the UK government to strike an agreement with India without the need to get consensus approval from the other 27 EU countries, Walters observed.

The UK load on-load off container port sector derives 31 percent of its total volume from trade with the rest of the EU. Any new tariffs on trade between the UK and the EU will pose of risk of lower intra-Europe maritime trade volume.

Roll on-roll off maritime trade in the UK—primarily trucks and trailers on cross-Channel and Irish Sea ferries—is much more exposed than container maritime trade to the risk of new intra-Europe tariffs and onerous customs export, and import procedures. UK government statistics show that intra-Europe trade represents 78 percent of the UK’s ro-ro volumes, although Drewry pointed out that the figure is somewhat inflated because it includes UK traffic via EU ports to and from non-EU areas such as Turkey.

The key questions are how much difference tariffs and non-tariff barriers will make and, to the extent that they do, whether or not there will be tariffs on UK/EU trade and more complex customs procedures.

Drewry concluded that it is too early to tell what the outcome will be because it will depend on what new trade agreements are negotiated with both the EU and non-EU trading partners.

Some shippers see opportunities for more favorable trade agreements to be concluded on a bilateral basis between the UK and countries in Asia, Oceania, and the Americas. Politicians in Australia have already said that they are happy to discuss a bilateral deal.

What will be the impact of the depreciation of the UK currency since the Brexit vote? The pound sterling has lost more than 10 percent against the U.S. dollar in recent weeks. Because the UK has a large merchandise trade deficit with the rest of the world and is a large importer of consumer goods, it would be reasonable to expect that more expensive containerized imports will become less appealing to UK consumers.

However, Drewry noted, a comparison of the trends in the dollar/pound exchange rate and total UK port volume over a 10-year period shows only a weak link between exchange rates and total trade. This implies that a small change in the unit value of imports and exports has only a limited influence on total UK port volumes.

Drewry belives UK consumers will continue to buy large quantities of products made in Asia and will not return to made-in-the-UK sourcing. “The differential in labor costs with producing countries in Asia remains huge and compelling,” the report said. “What could happen, though, is a switch between some sourcing countries, particularly if the UK strikes a favorable deal with countries such as India, Bangladesh, or South American countries.”

Will container lines skip UK ports because of Brexit?

British importers and exporters prefer direct mainline container services calling at their national ports and tend to dislike feeder services. Drewry believes that the container lines will continue to call directly at UK ports. Even if the UK enters a small recession, UK volumes are more than large enough to justify direct calls with mainline vessels. The UK imports more containers from Asia than any other North European country, even Germany.

Will UK trade benefit from moving away from EU rules and regulations?

Drewry sees a risk of new inefficiencies and costs here, which trade negotiations with the EU will have to tackle. British companies are already lobbying their government to ensure that simplified trade processes are on the agenda.

A return to tariffs for UK merchandise exports and imports, if this is the outcome of trade negotiations with the EU, will be detrimental to UK trade with the EU, and may result in a small reduction in UK-EU maritime volume.