An uncertain future for the ferry industry

HFW’s William MacLachlan comments on the impact of Brexit on the many operators serving the UK and Ireland

An uncertain future for the ferry industry

This article was first published in the Spring/Summer 2019 issue of Spring/Summer 2019 issue of International Cruise & Ferry Review. All information was correct at the time of printing, but may since have changed.

Even those readers farthest removed from the UK and European Union (EU) would be hard pressed not to have considered Brexit. As the deadline for the UK’s withdrawal from the EU approaches with no certain terms set out, Brexit is all-consuming for all involved in the British and Irish ferry industries and the wider UK maritime cluster.

HFW has advised clients on contingency plans for a no-deal Brexit. It is now confirmed that UK-flagged vessels will not be treated as EU-flagged vessels in the event of a no-deal Brexit. This may result in restrictions applying to UK-flagged vessels trading between EU ports. Operators with UK-registered vessels that are enrolled in the tonnage tax regime of another EU member state are feeling the pressure to re-flag because EU state aid rules prevent more than 25% of their fleet from being registered outside of the EU. Companies of all types, including passenger ferry operators, are now acting on contingency plans and more ships are being re-flagged to other EU member states.

The uncertainty is doing little to encourage those considering entering or remaining in the UK’s tonnage tax regime. However, the UK Government recognises the importance of this well-developed and stable regime and is seeking a suitable agreement with the EU to ensure it remains attractive to operators.   

Some are questioning the continued dominance of English law and dispute resolution in London. However, English law is chosen because of the long-established precedent and adaptability of common law and the excellence and impartiality of English judges and arbitrators, not because the UK is part of the EU. Brexit should do nothing to undermine this. London arbitration awards will continue to be enforceable worldwide. The UK has taken steps to ensure the continuing recognition and enforceability of UK court judgments in the EU. 

Whatever happens, crucial ferry services will need to be maintained with minimal disruption. For this to happen, multiple practical matters require urgent clarification. For example, there needs to be a consensus on customs arrangements. Indications are that in a no-deal Brexit, the UK will focus on avoiding blockages in and around ports and by carrying out minimal border checks on goods imported from the EU. However, it’s likely that goods entering the EU from the UK, and passengers travelling on UK passports, will undergo more rigorous checks in EU ports.  

Discussions have been ongoing between the UK Government, the shipping lines and other affected stakeholders. Each set of discussions is subject to a non-disclosure agreement, preventing stakeholders from discussing matters and developing a coherent industry-wide response.

Despite considerable challenges, Brexit does present potential opportunities for the ferry industry, such as re-establishing duty-free shopping. The risk of freight backlogs and difficulties moving goods and people from the Republic of Ireland to mainland Europe has seen new routes being launched. Ferry travel also has a greater profile among the general public. There is much work to be done, but the UK ferry industry will continue to lobby hard for a deal that safeguards essential services.

William MacLachlan is a senior associate at law firm HFW 

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Monday, April 8, 2019