As Britain trundles down the uncertain road of Brexit, what it will actually entail and how it will affect the economic future of the country remain far from clear. Within the UK leisure marine sector we do, however, seem to be getting at least something of an indication about the impact of the decision to leave the EU – and it’s a bit of a mixed picture.
On one hand, in spite of Brexit (or, some might argue, because of it), the luxury end of the industry seems to be doing rather well. The British Marine Federation released statistics at the start of this year which showed sales in the yacht and luxury boating market were on the rise, up by 1.6% and surpassing the £3 billion (US$3.95 billion) mark for the first time since the 2008 financial crash. The size and scale of this year’s Southampton Boat Show in the UK, which appeared to be the most widely attended for 10 years, also gave evidence of further buoyancy in the sector.
The current position for brokerages and agents operating within Britain’s yacht and luxury boat market is, however, not so rosy at present. Both groups are feeling the pinch as the weak Pound presents new foreign exchange (FX) challenges in their international dealings.
Sterling plunged by more than 20% against the US Dollar in the immediate aftermath of the Brexit vote and has continued to fluctuate against other major currencies ever since. The value of the Pound against the Euro has gone from a pre-referendum high of around 1.47 to just under 1.08 since June 2016.
UK-based yacht brokerages are facing challenges with this as they are often required to purchase used vessels in Euros but are now increasingly likely to be paid in Sterling by their clients, who are keen to secure a discount on the back of its currently low value. This is an even bigger issue for UK-based luxury marine agents. Because the negotiation period from when an agent purchases a yacht – typically paid for in Euros or US Dollars – can take several months, they risk losing out if they are paid by their clients in Sterling. I know of one agent who lost £20,000 on a single yacht transaction due to the volatile Pound.
Raising costs to cover any shortfall resulting from these fluctuations is a risk as it threatens to drive international clients towards European companies. UK-based yacht brokerages and agents are now seeking support in hedging their currency exposure in an attempt to mitigate this risk.
There are a number of tools which can be deployed to help including the use of hedging contracts such as forward and FX options, which are specifically designed to deliver flexibility and convenience for their business and reduce the risk of FX exposure.
For example, considering the typical lead times of at least three months when acquiring a new yacht, using a forward contract to lock in the exchange rate at the time of purchase until the final payment is made can potentially save an agent significant sums in a transaction.
It will probably take years before we know the true impact of leaving the EU but it is already creating very tangible challenges within the UK yacht and luxury marine sector. Through strategic FX planning, these can be managed.
Nathan Abbott is an online currency consultant at London, UK-based foreign exchange (FX) specialist Global Reach Partners