NEW YORK--(BUSINESS WIRE)--The ongoing risk of a strike or work slowdown at West Coast ports may already be diverting cargo to other distribution methods and setting the stage for broader economic impacts, Fitch Ratings says. The International Longshore and Warehouse Union (ILWU) workers are currently working without a contract and could strike at any time. However, Fitch notes that recent negotiations between the ILWU and the Pacific Maritime Association (PMA) are said to be amicable, and cargo has been moving through West Coast ports without incident since the expiration of the previous contract on June 30.
While a long-term strike is not likely, we believe some shippers may be diverting their cargo to avoid potential problems. On Friday, DP World Vancouver, one terminal at the Vancouver port seeing diversions of West Coast cargo, stopped receiving U.S.-bound containers destined for rail transfers at its Centerm terminal, reporting a shortage of rail cars. Afterwards, TSI Terminal Systems, operator of Vancouver's Deltaport and Vanterm terminals and Port Metro Vancouver's largest container terminal operator, announced it will continue to handle U.S.-bound rail cargo, honoring already established allocations of railcars to shipping lines by CN Railway (based on past U.S.-bound volumes for each shipper).
If this shift were to persist from weeks into months, some shippers may continue to use alternative ports even after the ILWU contract is finalized and the risk of a strike or slowdown has passed. The impact of such diversion could be exacerbated by the annual peak in shipping, which precedes the holidays. We believe many shippers are likely speeding up their current shipments to build inventories and planning diversions to ports in British Columbia, such as Prince Rupert and Vancouver.
These ports handle approximately 20 million 20-foot equivalent units (TEUs) of cargo per year and their potential impact on the U.S. economy could be in the billions. Any potential labor action is expected to be relatively short, as the size of the impact is likely to motivate President Obama to invoke the emergency provisions of the Taft-Hartley Act.
A short strike or labor slowdown would not affect the ports' credits. Short-term shipments may decline and would likely be mitigated through their strong contracts with terminal operators and substantial liquidity reserves. According to Fitch's recently released peer review of U.S. Ports, the largest rated West Coast ports (Los Angeles and Long Beach) have over 600 days cash on hand and minimum annual guarantees accounting for over 70% of operating revenues.
Additional information is available on www.fitchratings.com.
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