SAN FRANCISCO - Moody's Investors Service today cut its outlook for the U.S. ports sector to negative from stable amid steep drops in consumer demand and global trade.
The outlook reflects the agency's view of the economic prospects of the U.S. port sector over the next year to 18 months, but it does not mean each individual port is at immediate risk of a downgrade.
Moody's rates 53 U.S. ports with about $6.5 billion of rated debt. The agency has this year placed negative outlooks on two of the ports - Port Everglades in South Florida and the Virginia Port Authority - and is reviewing a third - the Palm Beach Port District, Fla. - for a possible downgrade. The Port of New Orleans has had a negative outlook since Hurricane Katrina in 2005.
"Weak consumer confidence and economic downturn have deteriorated global cargo movement and port revenues," the agency said in a report to be published today. "This is a trend that we expect will continue into 2010."
Ports are facing uncertain economic prospects because consumers have scaled back spending and increased saving amid sharp job losses. While many economic forecasters expect the U.S. economy to begin to grow again in the second half of this year, many also expect consumer spending - which drives U.S. imports and port traffic - to remain subdued.
"Ports are operating under a more challenging environment than they were a year ago, and we expect that challenging environment to continue," said Baye Larsen, a port analyst at Moody's.
Personal consumption expenditure fell at about a 4% annualized rate in the second half of last year, leaving retailers with too much inventory. Retailers reacted by curtailing orders to suppliers.
The dollar value of U.S. goods imports and exports have fallen for the past nine months and were down 32% in April from a year earlier, according to the Commerce Department. Port container traffic fell 5% in 2008, according to Moody's.
"The decline in port traffic has accelerated in early 2009," Larsen said.
There have since been some signs of stabilization in final demand, and monthly declines in trade volumes have lessened since late last year. PCE rose 1.4% in the first quarter, and on Friday, the Commerce Department said they rose 0.3% in May, the first gain in three months.
"While some of the declines are showing some evidence of moderating in the last two months, we feel like overall cargo levels will continue to be down from prior growth rates into 2010, putting pressure on ports' overall financial position," Larsen said.
Ports, which generally came into the recession "well-positioned" after years of growth, have cut budgets and prices to retain traffic, spawning competition that may change the face of the industry.
"The severe contraction in consumer confidence and global consumption could potentially shift trade patterns," hurting some domestic ports and helping other, Larsen said.
The ports that are most at risk rely on "discretionary" cargo that is destined for inland regions like the Midwest, not for the port's immediate area, Moody's said. The agency said that the expansion of the Panama Canal, to be completed in 2014, will give shippers alternatives to West Coast ports for discretionary cargo.
Larsen cautioned that many ports have run out of easy ways to offset cargo declines.
"Since a lot of ports have already had to really trim down their budgets and tighten their belts, there is less flexibility to do so going forward over the next year or so, while we expect revenues to still be fairly low," Larsen said.
Moody's has put much of the U.S. municipal marketplace under negative outlooks this year. In April, it assigned a negative outlook to the entire tax-backed local government for the first time ever. The agency assigned a negative outlook to the state sector in February 2008. It also has negative outlooks on health care, higher education, housing, toll road, and airport debt.