The credit ratings of major West Coast ports will not be significantly impacted in the short to medium term by the cargo-handling disruptions that occurred during the protracted dockworker contract negotiations, but continued labor problems would cast the ports as unreliable, and would likely lead to permanent cargo diversion, Fitch Ratings stated Wednesday.
“Reliability is the ‘currency’ of the shipping business. Continued and frequent labor troubles, such as the recent backlogs, slowdowns in LA and Long Beach during clerical worker contract negotiations in 2012 and the 10-day lockout that occurred during the general ILWU contract negotiations in 2002, all serve to devalue this currency, eroding shippers’ confidence in port reliability,” Fitch stated in a release.
The International Longshore and Warehouse Union and the Pacific Maritime Association on Friday concluded nine months of negotiations, announcing a tentative five-year agreement that must now be ratified by the PMA and ILWU memberships. During the last four months of the negotiations, the ILWU engaged in non-stop, crippling work slowdowns at all of the ports, the PMA stated.
Cargo was diverted from West Coast ports during past disruptions going back to 2002, and “with each labor event, some diverted cargo has not returned,” the rating agency stated. Discretionary cargo is most at risk to permanent diversion. That cargo, which can be shipped through competing gateways in Canada and on the U.S. East and Gulf coasts, comprises a large share of the containers moving through West Coast ports.
Many shippers surveyed by JOC.com this week said they plan to divert discretionary cargo away from the West Coast following the most recent round of disruptions.
Therefore, although approximately 50 percent of the cargo shipped through Los Angeles-Long Beach moves to and from local destinations and is therefore largely immune from diversion, the remaining 50 percent is subject to some degree of diversion. Continued and frequent labor disruptions will impact the discretionary cargo.
The ports of Oakland and Portland have experienced more disruptions in recent years than other West Coast ports and are therefore especially vulnerable to any events that affect their reliability, Fitch stated. In fact, last weekend, when the ink was not even dry on the tentative coastwide agreement, the ILWU engaged in work slowdowns in Portland and Oakland, according to the PMA.
All of the West Coast ports experienced congestion and work slowdowns in recent months, so fiscal year 2015 results will ultimately show some reductions in container throughput. Since container volume is tied to revenue, the ports’ bottom lines will be affected. Fitch noted that year--over-year container volumes in recent weeks in Los Angeles, Long Beach and Seattle-Tacoma were down 29 percent, 18 percent and 13 percent respectively.
However, given the importance and strategic location of the major West Coast ports, and assuming an absence of further disruptions, the ports’ high credit ratings (AA) should not be impacted in the short to medium term.
Fitch, though, issued the following warning: “Longer term, the question becomes one of ports’ ability to guarantee reliability to shippers as well as the inherent risk of labor peace when contract renewals are coming due.”
Contact Bill Mongelluzzo at firstname.lastname@example.org and follow him on Twitter: @billmongelluzzo