Minimum annual guarantees – guaranteed annual payments by port tenants – are looked at with suspicion by some people in the industry, but it turns out that they gain respect from the credit ratings agencies.
This has become apparent from Fitch's latest ratings review of US ports. Private sector investment also plays a weighty part and the agency approves recent deals at Oakland and with the Virginia Ports Authority.
Nonetheless, Oakland has taken a knock and is given a negative rating and has been downgraded to A- from A and earlier from A+ "Significant reduction in both airport and seaport operations causing revenue pressures on financial operations in light of escalating debt service obligations," says the report. (The report covers all ports in the US but I am commenting only on the West Coast ratings.)
Los Angeles and long Beach are both awarded AA and seen as stable. Fitch is impressed with their balance sheets – the debt load being easily manageable." Concerns include shrinking global trade volumes, competition from West Coast ports for trans-Pacific trade, increasing competition from East Coast and Gulf ports, growing environmental/community-based expenses, and capital needs."
Seattle earns AA/A+/A and is regarded as stable. "Strong competitive position of both airport and seaport; diverse revenue streams from airport, seaport, and real estate, plus a tax levy..." San Francisco gets an A and is stable, with particular strength in its real estate, manageable debt and minimum annual guarantees. Concerns are seen as ageing infrastructure, unpredictable tourism and the uncertain nature of the real estate market.
For all ports, ratings are in the lower A category and carry an investment grade, while the medium term outlook is stable.
The agency acknowledges the trade effect of the widened Panama Canal in 2014, balanced against the need for expansion on the East Coast to handle 8,000 teu vessels and the bunker fuel price.
And Fitch agrees with analysts who say that growth in traffic will be gradual over the next few years – and possibly will never return to the breakneck increases to 2007.
For the maritime industry, it's all very well for ports to be given a financial scrutiny, but many people find it irritating for ports to be treated as blandly as, say, a bank when so many other factors are involved – machinery and human beings.
A port is a fixed asset and is essential for the community and the country. A bank is there to make money.
The upshot is that while a ratings agency's views need to be heeded, they are outweighed by other considerations. Which is why Oakland should not be seen as less desirable than other ports – although the lower rating makes its bond issues that much more difficult.