A labor strike at East and Gulf Coast ports would further slow volume growth or may result in temporary declines as shippers reroute cargo to West Coast ports in the short-term, Fitch Ratings says. However, stable, contractually guaranteed revenues and robust liquidity limit the effects of volume declines on port credit profiles.

The International Longshoremen’s Association (ILA), representing workers at East Coast and Gulf Coast ports, has indicated its members are prepared to strike if they are unable to agree on a new contract with the United State Maritime Alliance (USMX) by Sept. 30, 2024, when the current agreement expires. This would be the first East and Gulf Coast strike since 1977. The ILA and the USMX are currently at an impasse, with no bargaining talks scheduled. Major points of negotiation are wages, benefits and automation.

Contract negotiations affect 29 East and Gulf Coast ports, which together handle roughly 49% of U.S. container volume. Fitch expects a muted impact on the largest rated East Coast port, the Port Authority of New York and New Jersey (PANYNJ, revenue bonds AA-). PANYNJ operates the largest port on the East Coast and benefits from broad pledged revenue sources. These sources generate yoy operating revenue growth from a diverse transportation infrastructure asset base, including airports, road, rail and ferry crossings as well as port terminals. Additionally, PANYNJ has over 400 days cash on hand.
East and Gulf Coast ports have long-term contracts (typically 10 to 30 years) with terminal operators that insulate them from volume and revenue fluctuations. These contracts include minimum annual guarantees and twenty-foot equivalent units (TEU) rates, which typically include periodic CPI escalators to partially protect port authorities from inflation. The new ILA contract will likely lead to higher labor costs. Terminal operators, in turn, are expected to pass along higher costs to shippers via rate increases where possible.

The U.S. Department of Labor has reached out to the USMX, although the Biden administration stated it did not intend to invoke the Taft-Hartley Act to prevent a strike. The administration was involved in negotiating last summer’s West Coast labor contract. We do not expect a protracted strike, nor do we anticipate a longer-term shift in cargo to West Coast ports due to price arbitrage, as a wage increase was also part of the agreement reached between Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) last year.
TEUs at U.S. ports increased since the beginning of last year through 1H24 and are entering a period of higher volumes, as retailers stock up for the holiday season. East and Gulf Coast volumes have been higher than West Coast port volumes since 3Q22, when the PMA and ILWU were negotiating a new contract.

West Coast ports have subsequently regained volumes and recently experienced accelerated growth due to cargo rerouting from East and Gulf Coast ports amid concerns over work stoppages. TEUs increased 10% in 2Q24 from the same period last year, compared with 8% for East and Gulf Coast ports. Congestion could become an issue at West Coast ports with increased volume due to cargo diversion during the busy pre-holiday season. East and Gulf Coast ports could also face congestion as they resolve post-strike backlogs.