Increased tariffs on goods moving between the U.S. and China may result in decreased traffic at some U.S. ports, says Fitch Ratings, but “revenues are not likely to be similarly affected in the medium term given the landlord-based operating model at many of the more exposed West Coast ports in which contractual minimums provide a floor for revenues should volume declines worsen.”
The credit rating agency explained that although imports make up the largest share of volumes at many of the ports with high exposure to Chinese trade, “they have thus far been resilient to the imposition of tariffs, though the risks to volumes will rise if trade protectionism is prolonged.”
In addition to the tariffs imposed last year, on May 10 the U.S. increased existing tariffs to 25% from 10% on $200 billion of imports from China and additional tariffs on almost all remaining imports are being contemplated. China’s corresponding increase of 20% or 25% on approximately $60 billion of U.S. goods was announced Monday.
“In the cases of both Port of Long Beach and the Port of Los Angeles, the ports’ long-term guaranteed contracts with most tenants provide a revenue floor, which helps to insulate port revenue from trade-related volume volatility,” Fitch said.
Fitch noted that “shifts in production centers may be exacerbated by ongoing trade turmoil with China. This trend, already underway, has the potential to more permanently affect port cargo levels and shipping route decisions. Depending on where goods are produced, all-water routes via the Suez Canal may become comparatively more cost-effective for importing goods to the U.S. compared with traditionally dominant transpacific routes.”