Fitch: US ports shielded from tariff

The landlord-based operating model at many of the more exposed west coast ports include contractual minimums to provide a floor for revenues should volume declines worsen, explained the report. Imports, which make up the largest share of volumes at many of the ports with higher exposure to Chinese trade, have thus far been resilient to the imposition of tariffs, though the risks to volumes will rise if trade protectionism is prolonged.

On 10 May the US increased existing tariffs to 25% from 10% on US$200bn 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 US$60bn of US goods was announced on 13 May.

Loaded exports decline

Of the larger west coast, east coast, and Gulf of Mexico ports, there is a levelling off or decline in loaded exports, other than Port of Houston, since tariffs were put in place in January 2018. This trend worsened in second-half 2018 onward as additional tariffs went online in June and September.

The steepest declines occurred at Virginia Port Authority; City of Long Beach (Port of Long Beach); Port of Oakland; and in recent months, Los Angeles Harbor Department (Port of LA) and Port Authority of New York and New Jersey.

“Empties” are rising by double digits, partly due to a catch-up effect as shippers reposition containers back to Asia after the tariff-driven rush in fourth-quarter 2018 led to congestion for many west coast ports.

However, port volume declines are unlikely to directly translate to revenue reductions or affect ratings, said Fitch Ratings.

In contrast with exports, all Fitch-rated ports continue to see volume increases in loaded imports since tariffs were introduced in January 2018, although with stronger growth for east coast and Gulf ports.

As US imports from China tend to be made up of higher value cargos than exports and comprise roughly 70% of loaded cargo for the Port of LA, Long Beach, and PANYNJ, and 50%-60% for the other ports considered, the revenue effect of a decline in export cargo will likely be muted, said Fitch Ratings.

Any long-term imposition of higher tariffs would result in lower US consumer demand, which would reduce US imports and curb trade volumes beyond 2019.

By Rebecca Jeffrey