WASHINGTON — U.S. ports were given a negative outlook by Moody's Investors Service on concern that growth of shipping fleets is outstripping demand.
"The negative outlook is driven by the imbalance between supply and demand in the shipping-line industry, which ports rely on for revenue," said Moody's analyst Myra Shankin, author of a new Moody's report on the business conditions facing American ports. "Fleets are growing in number and size, but demand isn't keeping pace. This imbalance will put pressure on shipping lines and the rates they pay US ports."
The negative outlook, which signals ratings may be lowered, is in place for 18 months and affects $4.9 billion of debt.
Container volume is on track to rise 2%-3% overall in 2014, in line with growth in the US economy, Moody's said. Capacity is expected to rise 8% in 2014, outpacing the 2%-3% projected increase in volumes. Shipping lines will "reconsider their ability and willingness to pay current fees to the ports," under these conditions, Moody's concluded.
Another factor in the outlook is the rating agency's expectation that ports will have to spend money on capital improvements to remain competitive as container ships grow larger.
An expansion of the Panama Canal is underway that will nearly triple the maximum capacity of the vessels that can travel through the locks. Currently, only four east coast ports: New York/New Jersey, Baltimore, Md. Norfolk, Va., and Miami, Fla., are deep enough to accommodate these ships. In California, Los Angeles and Long Beach are able to handle these vessels. These ports will be at a competitive advantage until other American ports catch up, Beyond increasing depth to allow the bigger ships, ports will also need to improve infrastructure such as cranes and storage facilities in order to stay competitive for shipping traffic, the agency added.
The cruise industry will benefit some ports, because the U.S. cruise industry is expected to expand capacity by 3% this year. Port revenues from cruise lines are linked to passenger volume rather than ticket pricing, and so ports with a healthy cruise line presence such as Miami could get a bump, Moody's said.
Though the outlook reflects Moody's current views on the port industry over the next 18 months, it could change to "stable" if the capacity-demand imbalance moves back into harmony, the agency said.
