In a report issued this week, Fitch says, “Demand for infrastructure investment remains strong. Infrastructure as an asset class remains resilient, but is not free from risk. In the transportation space, Fitch Ratings’ median rating between 2007 and 2017, which included the effects of the global financial crisis and the subsequent recovery, remained largely stable, with airports and seaports remaining at ‘A’ and toll road projects moving up a notch to ‘BBB+.’”
The report did not discuss specific ports in depth.
While it says, “Port cargo traffic growth is expected to keep pace with a growing U.S. economy,” Fitch also points to a number of longer-term trends that could affect ports in the future.
It says tensions over trade have not resulted in immediate changes in bond ratings and that “events are still unfolding and outcomes are uncertain. While shippers may be moving cargo ahead of specific tariffs or reducing risk by lowering inventories, “reducing production levels and delaying purchases or sales may also have an effect in the near term, but changes are expected to be marginal for now.”
The risk of competition to primary ports in major metropolitan areas is seen by Fitch as moderate, as “the more monopolistic or efficient the related infrastructure is, the greater its credit strength.”
As an example, it points to the Alameda Corridor Transportation Authority that serves the ports of Los Angeles and Long Beach, which it says “has tremendous strength. The two main railroads serving the port, Union Pacific and BNSF, use the same line and cover nearly all operating costs. There is competition from trucks, but this is largely limited to the two-thirds of cargo that stays in the L.A. metro area; for longer distance deliveries, the higher cost of trucking gives rail an advantage.”
It says, “The same may be true to a lesser extent for terminals and storage yards, as they will have relative strengths and weaknesses depending on location relative to the greater port complex and the markets they serve; the relative quality of their supporting infrastructure; and ease of ingress/egress. Their levels of demand and pricing will vary accordingly.
“As observed during periods of stress, such as various labor disputes on the West Coast and through the global financial crisis nationwide, most ports can absorb volatility of up to 10 percent in their volumes for a short period of time,” says Fitch.
However, “midrange” ports “that have concentrations in certain products or commodities, less sizable and diverse service areas and/or exposure to competition from nearby alternative port facilities are likely to see greater effects. Not surprisingly, those assessed as ‘weaker’ will have few options to diversify their throughput and offset any major losses in imports and exports.”
Over the long term, it said rising sea levels and melting of the polar ice cap could present risks as shippers route ships through the Arctic, with the possibility that some ports could be bypassed. Port infrastructure also may need to be made more resilient to storms and rising sea levels.