LOS ANGELES — The ongoing risk of a strike or work slowdown at U.S. West Coast ports may already be diverting cargo to other distribution methods and setting the stage for broader economic impacts that could result in the loss of billions of dollars to the U.S. economy, Fitch Ratings analysts said in a report released Aug. 11.
International Longshore and Warehouse Union (ILWU) workers are currently working without a contract and could strike at any time, Fitch analysts said.
"While a long-term strike is not likely, we believe some shippers may be diverting their cargo to avoid potential problems," according to the report.
Fitch added the caveat that negotiations between the ILWU and the Pacific Maritime Association have been amicable, and cargo has been moving through West Coast ports without incident since the expiration of the previous contract on June 30.
While there is no contract extension in place, both parties have pledged to keep cargo moving, according to a statement released by the ILWU, which represents nearly 20,000 workers at 29 West Coast ports.
The coast-wide labor contract is between employers who operate port terminals and shipping lines represented by the PMA and dockworkers represented by the ILWU. The parties have negotiated a West Coast collective bargaining agreement since the 1930s.
A short strike or labor slowdown would not affect the ports' credits, but one longer in duration could, according to Fitch. Short-term shipments may decline, but would likely be mitigated through the ports' 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.
What is raising concerns for Fitch in the near term are actions occurring at Canadian ports as a result of the strike.
On Friday, Fitch analysts said that 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. 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.
Analysts said they are concerned that 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," Fitch said.
