Compliance News / Supply Chain News / Risk & Compliance / Ports

Fitch: West Coast U.S. Port Labor Action Manageable in Short Run

While a potential strike or some form of work slowdown affecting west coast ports is likely to be short and manageable, longer term shipping diversion to other ports and broader economic repercussions could occur if the negotiation is prolonged, Fitch Ratings says. The contract between the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) could expire at midnight on June 30. These ports handle approximately 20 million 20-foot equivalent units (TEUs) of cargo per year. 

Fitch expects any potential strike to be relatively short, as other recent port strikes have ended when the U.S. President invoked the emergency provisions of the Taft-Hartley Act. During a 2002 impasse between the ILWU and PMA that resulted in a lockout affecting 29 West Coast ports, President Bush stepped in with an injunction after 10 days. While short-term shipments may suffer, a strike of that length is likely to have limited financial impact on ports as their volume-related volatility would be somewhat 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 minimum annual guarantees accounting for more than 70 percent of operating revenues.

However, if operational disruptions, real or perceived, were to continue from weeks into months, some shippers may continue to use alternative ports even after the strike is over. Even now, many shippers are likely speeding up their current shipments to build inventories and planning diversions to ports in Canada such as Prince Rupert and Vancouver. It is estimated that the ILWU shutdown in 2002 caused similar disruption, with cost estimates to the overall economy in the billions. If shippers conclude that diversion is preferable to interruption, long-term shifts in cargo could eventually result, the financial effects of which would be more difficult to mitigate. 

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

Peer Review of U.S. Ports (Attribute Assessments, Metrics, and Ratings): http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750407

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