The US government's broad-based tariffs will leave US ports the most vulnerable to trade losses. The extremely high tariffs on China are particularly significant for the Port of Los Angeles and the Port of Long Beach, which have the highest trade volume with China amongst US ports, Fitch Ratings says. Exposure to China nears 50% of the ports' imports, although exports to China make up less than a quarter of all exports according to a recent Fitch Ratings report..
While trade volume declines are hard to predict, some West Coast ports have indicated volume losses are likely to reach or exceed 10%. Some of this will be offset by shifts to trading partners other than China, although not all goods from China can be substituted or sourced elsewhere.
A portion of losses will stem from front-loading activity where shippers imported larger volumes earlier this year in anticipation of tariffs. Inventories are now considered to be high, so a temporary drop-off is anticipated for the latter half of the year as those inventories are sold down.
"A couple of factors are likely to contribute to steeper trade volume declines at West Coast ports than in the last six years since the first Trump administration imposed tariffs on a variety of goods from China: the 145% U.S. tariffs on China and China's retaliatory tariffs of 125% on US goods are at their highest-ever levels and slowing economic growth in the US. and China will also weigh on demand, keeping trade volumes lower than during the pandemic when consumer goods demand was robust," Fitch Ratings says.
Shipping lines may try to renegotiate contracts in a slower growth, low volume environment, although Fitch says it is not aware of any such attempts to date. "This could pressure operating margins, as West Coast port operating expenses increased with a six-year labour contract signed in 2023," the ratings agency says.
Conservative capital management
A majority of US ports are municipally owned and tend to be operated in a fiscally conservative manner, commonly using less debt than privately-owned counterparts, which allows them to operate with higher margins.
This conservative ownership approach leaves plenty of dry powder for volume declines and volatility. US municipal port debt is typically fully amortising. The US port median senior debt service coverage ratio (DSCR) is 5.3x, and median year-5 leverage is just 1.2x. Median days cash on hand is 1,050, providing ample liquidity and coverage cushion that offers substantial ratings headroom in a severe downside scenario according to Fitch.
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The ratings agency ran a downside sensitivity on the Port of Los Angeles, which assumed a severe 25% decline in shipping-related revenue with no growth through 2033. Average DSCR remained at 8.5x over the projection period.
"We also ran a breakeven that showed the port could sustain up to a 43% decline in base case total revenue assumptions and still pay debt service through debt maturity," Fitch says.
Government Support Insulates China Ports
Fitch-rated Chinese ports are municipal-owned and benefit from implicit government support that insulate them from trade volatility. While China's ports are vulnerable to a drop in volume as a result of the tariffs, China port ratings are unlikely to be affected as they are supported by the respective sponsoring government's credit quality.
Roughly 15% of Chinese exports are destined for the US, down from nearly 20% before the imposition of tariffs in 2018.
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Zhejiang Seaport runs Ningbo-Zhoushan port, the largest seaport in the world by cargo volume.Ningbo-Zhoushan port has greater exposure to US trade compared with Lianyungang Port. Zhejiang Seaport has substantial rating headroom to manage volume declines within its standalone credit profile. Moreover, the port's strategic importance in the supply chain enhances its competitive position and bargaining power.
Asian Ports Less Vulnerable.
The overall impact of US tariffs on other Fitch-rated ports in Asia, including those in Australia, India, and Indonesia, will be modest as they generally benefit from take-or-pay contracts and have relatively lower exposure to the US.
Higher tariffs on China will benefit other Asian ports as U.S. importers switch to suppliers in other countries and shippers reroute transshipments through other ports in the region, Fitch says. Vietnam, India, Thailand, Indonesia, and Malaysia could see an increase in intra-Asian trade and transshipment volumes, which could help offset the negative effects of a global economic slowdown. The Indonesian monopoly ports operator, Pelindo, holds a dominant market position in the country. It is owned by the Indonesian sovereign, and its ratings are aligned with that of the sovereign."
