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Brexit

A Red Letter Day for Global Trade


Brexit

July 24, 2016 is a day when two events impacting world trade became real – and create
a puzzle of after-effects. The implications of Brexit and the opening of a higher-capacity Panama Canal are going to ripple through a wide range of industries over the coming months and years.

At this writing markets are roiling around the world over Brexit. What’s puzzling is that there seemed to be almost no market adjusting in advance of the vote. What? Didn’t the polls continue to estimate the vote was too close to call? In those instances I always advise clients to be ready for either outcome and to take actions in advance to hedge, protect, and be ready to trigger pre-thought moves.

The EU is a key piece of the global economy. There’s no doubt it is weakened by this action. In economic forecasts recently I’ve been warning of the difficulty that arises when two major economic players are simultaneously at risk of recession. Britain and the EU may simultaneously dip after this action and the difficulties in Brazil, Argentina, Canada, and China could trigger a serious downturn.

The Canal? A longer-term but perhaps even more precarious situation. Panama took the low bid on the reconstruction of their overwhelmingly prime asset. The limitations to “Panamax” sized vessels limited shipping for at least the last 40 years of the century-old infrastructure. The rebuilding of the lock system enables very large container vessels through the “new” Canal.

Problems? Count em. Substandard concrete based on fracture-prone Panamanian rock. Poor design. Reliance on Spanish-built tugs that can only reliably operate in reverse, not forward. Not enough room in the locks for giant ships and the tugs at front and rear of the ships. Insufficient steel reinforcing in several areas of the new locks. And all that along in an El Nino-induced record drought that means that super-vessels don’t have enough water to float between the oceans.

One mistake. One super-ship into a lock wall and it all comes tumbling down. Planned volumes through the Canal like US grain into Asian markets are disrupted. China’s shipments to US East Coast ports. Months if not years of delays. Funding shortfalls that could topple the Panamanian economy.

Fiduciaries, leaders, directors, management? Sharpen up your implication thinking and start the discussions and actions now.

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