Brexit: No Silver Lining for Container Shipping
Xeneta, a global benchmarking and market intelligence platform for containerized ocean freight, believes that the United Kingdom’s decision to leave the European Union will impact negatively on all parties involved in the container shipping segment – from shippers, to freight forwarders and the container carriers themselves.
The firm, which crowdsources freight rates on over 60,000 port-to-port pairings worldwide, believes that the only thing that is certain right now is uncertainty.
“The last thing the container segment needs is further unpredictability and disruption,” said Patrik Berglund, Xeneta’s CEO. “Rates for shipping 40-foot containers have effectively collapsed over the past two years, with the short-term average for Shanghai to Rotterdam now standing at 60 percent below its summer 2014 level. This has been driven by chronic overcapacity and cutthroat competition. Now we have Brexit to contend with.”
Berglund added that anything impeding free trade raises costs, but not to the benefit of any of the parties involved in the container supply chain. “For the last 40-plus years the UK has been part of a mega trading block capable of negotiating the most favorable trade treaties, and therefore import duties, with other blocks and nations,” he explained. “Now, all of a sudden, it’s going to have to sign new treaties with everyone, without the bargaining power of the EU in its corner, and that will undoubtedly lead to higher duties, and therefore costs for shippers.”
In terms of supply chain management, the decision looks certain to cause further headaches, as “Optimal supply chain management relies on a quick and efficient international logistics network, and it goes without saying that guarded border crossings impede that process,” said Berglund. “The flow of containers will face a new bottleneck, increasing complexity and potentially forcing shippers to consider alternatives, such as more local sourcing—meaning less shipping—or repositioning facilities in territories more conducive to easier trading.”
Supply chains in today’s globalized trading arena are complex and interconnected, yet fine tuned to run efficiently, taking the path of least resistance wherever possible, Berglund noted. “Container shipping is an integral part of this, with all parties relying on smooth operation and predictable deliveries,” he said. “The Brexit decision is like throwing a wrench in the works of this well-oiled machine.”
Berglund added it’s impossible to predict how the decision will impact on freight rates in the immediate future, citing the fact that the segment was unpredictable enough before this political bombshell exploded. His current advice to all parties in the container chain is simple: “Stay informed.”
“A complex web of sometime subtle factors impact upon freight rates keeping them in a constant state of flux,” Bergland explained. “Brexit is anything but subtle and the fallout will be widespread.”