Strong financial margins and balance-sheet liquidity should support the credit ratings of U.S. East Coast port operators in the face of a longshoremen's strike, said S&P Global Ratings today.
The International Longshoremen's Assn. called a strike at midnight on Sept. 30 for its approximately 45,000 members, shutting down most cargo- and container-handling operations at about 36 ports along the U.S. East and Gulf coasts. Wages, productivity, and automation are at the heart of the strike against the shipping lines and carriers, acting through the United States Maritime Alliance, a multi-employer bargaining group.
Specifically, in 2023, U.S. port operators had the strongest median debt service coverage (DSC) of any transportation infrastructure asset class at 2.8x and among the highest median liquidity levels, with more than two years of unrestricted days' cash on hand on their balance sheets (see "U.S. Not-For-Profit Transportation Infrastructure 2023 Medians: Demand And Revenue Growth Improved Financial Medians To Post-Pandemic Highs," Sept. 25, 2024). These metrics, combined with the operators' strong market positions and generally resilient financial profiles, provide ample cushion to withstand what we assume will be a relatively short-term interruption in normal operations.
U.S. port operators are inherently exposed to volatility due to normal business and economic cycles, shifting trade patterns and supply chains, drastic fluctuations in commodity prices, and changes in bilateral and multilateral trade policies. Despite these factors, many of the U.S. not-for-profit ports rated by S&P Global Ratings have very strong market positions due to their critical role in supporting various industries, local and regional economies, and the overall health of the U.S. economy. Combined with strong financial metrics, port operators have the long-term credit strengths to absorb near-term volatility. (See "U.S. Transportation Infrastructure Port Sector Update And Medians: Ports Are Resilient In Shifting Tides," Dec. 13, 2022.) Over the longer term, rated port operators that experience significant growth in labor costs may see historically strong margins narrow with pressure on DSC ratios and debt capacity.
The previous U.S. East Coast strike occurred in 1977 and lasted three months, but that was before global economies became so dependent on international trade. Shipping lines and U.S. West Coast longshoremen averted a strike in 2023 with the encouragement, but not the intervention, of the Biden Administration, which has authority granted to the U.S. president under the Taft-Hartley Act to postpone a work stoppage under an 80-day cooling-off period. The last time the act was used was by President Bush in 2002 in response to a West Coast port strike that lasted 11 days.
By all measures, the scale, scope, and overall impact of the strike will compound, with some high-end estimates that the strike could cost the U.S. economy $5 billion every day. While the strike deadline was well known for months and some cargo was shipped in advance or diverted to predominantly U.S. West Coast ports, these actions can only partially mitigate economic losses. In addition to the economic effects, a prolonged strike would disrupt supply chains and trade networks that rely on a global balancing act of cargo and containerships, intermodal containers, chassis and trucks, rail cars, and other equipment; and a long list of importers, exporters, and logistics providers. According to S&P Global Market Intelligence, the ability of some importers to switch to air transport is limited, given the strike coincides with the peak season for the shipment of high-end electronics and the additional cost of shipping by air rather than shipping goods can significantly erode margins.
We will continue to monitor the strike's impacts on individual port operators and update our views as developments warrant.
