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How, and when, will the UK leave the European Union? And how will this impact yachting?
Prior to the Referendum on June 23, UK government departments were expressly forbidden to complete any form of contingency planning for a Brexit vote. It was viewed as a waste of resources as the “remain” vote was well ahead in all the polls.
So when the counting was complete and the voice of the British population was heard to leave the EU, instantaneous and incoherent responses came from politicians around 6 a.m. on the 24th of June.
Worse still was the response from the financial markets a couple of hours later, which began a four-day plunge that saw a 15 percent drop in the pound sterling (GBP) versus both the U.S. dollar and the euro. Although the stock indices bounced and have now returned to pre-Brexit referendum levels, foreign exchange between GBP and both the dollar and euro remains almost unchanged from immediate post-Brexit.
About 33.5 million voters in the UK do not know what is going to happen next, and this is weeks after the vote.
So how does Brexit impact yachting? Owners have to make the money to buy the yachts that keep us all employed. Making money in the current financial climate is extremely difficult and fraught with danger.
Owners with a large property portfolio may not be safe either. Nine investment funds in the UK that have a large commercial property portfolio have closed their doors to investors seeking to withdraw their money. Financial pundits are forecasting a property value plunge in both commercial and domestic sectors. In plain English, the price of houses are expected to fall by as much as 10 percent in the next month alone. (This may be just the right time for UK crew to consider buying a house in the UK.)
Companies with a large operating base in Europe are making contingency plans to relocate their headquarters from the UK to Europe. When this happens, the value of commercial property will tumble, which may start an earthquake in the UK financial markets that could be felt around the world. Property devaluation in the UK could be the first card removed from a house of cards that might fall to the ground, wiping billions off the world’s financial markets.
If you look hard enough, a large silver lining may be found for owners. British shipyards and marinas are now roughly 20 percent cheaper for foreigners than they were on June 22, thanks to the change in the exchange rate. This has made the UK a cheap place to operate and refit yachts. Careful planning by captains and management companies could use the weak pound to their benefit by organizing refits and maintenance as they pass by the UK at the end of summer.
Further benefits will become apparent once the UK leaves the EU. If that happens, the UK will become a great export destination to receive duty-free fuel and duty-free yard periods, and will also allow the vessel to be outside the EU, which may be advantageous to commercial yachts.
The downside is that visas will have to be arranged for non-UK crew to enter the UK, and this may be a huge sticking point as immigration (even temporary) is a hugely debated point in the UK at the moment.
Crew have also benefited as the pound has weakened. Hopefully, they have noticed it in their paycheck. And employing UK crew means paying them in pounds could result in savings for the yacht. I don’t think it will be long before we see crew salaries offered in pounds instead of dollars or euros.
The bad news is that the financial pundits expect parity in six to 12 months. That’s where 1 dollar is worth 1 pound is worth 1 euro. If this happens, owners could save even more by paying crew in GBP now.
Speculation, yes, but in an uncertain future, yacht operational costs have to be reduced wherever possible.
At the minute, it is still business as usual. The UK is part of the EU until the government activates Article 50. That’s the trigger that starts the departure countdown clock running, so it will be two years from Article 50 activation before the UK leaves. (However, there is a law firm in London that is putting together a case to challenge the validity and legality of the referendum. If it wins the case, the UK may never leave the EU.)
Brexit is not a 100 percent certainty. Planning, international negotiations, debates in government, and legal challenges have to be overcome before the Article 50 trigger is pulled. This is scheduled for the fall under the new UK prime minister.
Until then, the UK is still part of Europe. The only thing that has changed is the 15 percent weakening of the GBP. If owners, captains and crew are savvy, this can be used to their benefit by reducing overall operating costs of the yacht. Furthermore, by closely watching the political landscape unfold in the UK during the next two to three months, other savings could be made by booking yard periods as soon as the path forward to Brexit is known.
Sadly, with suitable large yacht repair facilities in the UK limited (compared to the Cote D’Azur and Ft. Lauderdale), managers will have to be quick off the mark (and well informed) to realize huge savings.
Capt. Andrew Brennan holds master (Yachts < 3000 GT) and engineering Y4 certificates. He also has 22 years of private investing experience. Contact him through firstname.lastname@example.org.