There are signs that the investment rating agencies are becoming less complacent about the short-term future of US ports, with Moody's saying they will be "operating under challenging financial, competitive, and credit conditions that could result in negative rating pressure over the next 12 to 18 months."
In March (this blog March 4), Fitch's was pretty confident that LA/Long Beach was leading the pack in assuring a stable and financially viable environment. Although taking a cautious view in some respects, notably the Panama Canal effect, Fitch's reckoned that a smooth ride was ahead.
Moody's is taking a more critical view of the nation's ports. "Downside risk endures despite early signs of recovery, and the outlook remains negative," says the report's author, Baye Larsen. "While economic conditions are stabilizing, negative credit pressures will continue in the sector due to the slow, fragile, and uneven recovery in cargo movement, which is not expected to return to its historic highs until 2012."
"Revenue flexibility" will be tough as competition for limited trade activity accelerates, and customers -- shipping lines and operators -- will remain "financially constrained" through 2011 and continue to seek rate relief and operating efficiencies.
"Reduced cargo activity and reduced congestion due to the economic downturn have alleviated capacity-related pressures at many ports. This, combined with industry anticipation of Panama Canal expansion have increased the potential volatility of trade patterns, which exposes some U.S. ports to relative competitive deterioration, and pressures others to modernize their facilities."
One intriguing observation is that heightened competition will mean that some ports will undertake (or possibly already are doing so) costly and potentially speculative capital plans.
That is a huge red flag of warning – but specific projects are not detailed. If Moody's has voiced its reservations to individual ports, the ports are duty bound to put the word out.
In the long-term, ports will follow long-term trends of GDP, but below the previous level of 6-8 percent.
As an indicator of which way the investment wind is blowing, Moody's has given Tampa an A2 rating for its $145 million revenue bonds.
Moody's analysis of all ports notes that financial health is under strain, " leaving narrower margins to manage through the long, unpredictable recovery." Los Angeles has cut its budget by a huge 20 percent for the 2010 fiscal year, which surprised some industry observers, who were expecting possibly a 10 percent drop.
The port has kept its AA bond rating.