Moody’s: U.S. port outlook negative
Moody’s has revised its outlook for the U.S. port industry from stable to negative, as weak consumer confidence and the economic downturn have deteriorated global cargo movement and port revenues, a trend that is expected to continue into 2010, the bond rating service said in a recent report.
“Revenue flexibility will deteriorate as competition for limited trade activity accelerates and customers (shipping lines and operators) seek rate relief,” it said. “In addition, while ports have managed through revenue declines to date with cost cutting, much of this expenditure flexibility has been exhausted.”
Moody’s said most ports were financially well-positioned going into the recession, but “metrics will likely deteriorate if the downturn is protracted.”
The drop in nationwide cargo activity “has substantially increased the competition between ports to attract a decreasing supply of new business and offer existing customers rate relief to retain their business. While this can be a sound strategy for medium and long-term maintenance of market position, it may further erode the revenue base in the near term.”
While “some ports have successfully leveraged these incentives by gaining contract extensions or other concessions from their customers,” Moody's noted that for “ports serving significant levels of discretionary cargo to Midwest markets, competition has few geographic barriers as intermodal flexibility, rail rates, and volatile bunker fuel prices play into the relative cost structure.
“As shippers and shipping lines continue to look for opportunities to maximize profits, ports that can help cut costs and improve transportation efficiency will have a strong competitive advantage,” it said.
The ports' ability to raise rates may be limited by the need stay competitive.
“This will highlight ports with flexible labor costs, manageable congestion and state-of-the-art facilities that can provide high productivity. Productivity is constrained in some cases by restrictions on growth due to land scarcity, political constraints, and environmental considerations. For these ports, productivity improvements will depend on efficiency gains, an area in which U.S. ports have generally lagged ports in Asia and Europe,” Moody’s said.
It noted the 2014 expansion of the Panama Canal may result in a shift of more Asian cargo from West to East Coast ports, and some ports — particularly Los Angeles and Long Beach — “have increased rates and other fees to fund intermodal and environmental projects in the past several years. These combined fees remain a fraction of total shipping costs and commodity values, however they reflect priorities that may ultimately create market distinctions between East Coast and West Coast ports.” ' Chris Dupin