Ports weather impacts of the coronavirus pandemic, federal aid still needed
Though ports have held up well so far during the pandemic, they say they will need federal government aid to weather the rising tide of added expenses and reduced revenue.
Overall, container cargo has declined by roughly 20% and cruise ship business is down as much as 80%, according to the American Association of Port Authorities.
“Generally, ports have been impacted in myriad ways and it really does vary from port to port, region to region,” said Evan Chapman, AAPA director of government relations.
AAPA is asking Congress for $1.5 billion in direct grants to public ports to ensure that ports are able to make bond and other debt payments.
“We want to make sure that any dollars granted to ports are as flexible as possible so those that are facing issues would be able to use this money flexibly,” Chapman said. “We don’t want to see anyone go out of business to make all the payments.”
Right now, there is no indication that ports would not be able to make their debt payments, Chapman said, but he added that the future was uncertain.
In an op-ed last month in the San Diego Union-Tribune, Randa Coniglio, CEO of the Port of San Diego, said the port was facing significant cargo and cruise passenger declines and added personal protective equipment expenses.
Cruise activity shut down in March and for the 2019-2020 cruise season which ended three months early, at least $1 million in revenue was lost, Coniglio wrote.
Earlier this month, the House Appropriations Committee released its draft Transportation-Housing and Urban Development bill for fiscal year 2021. It would add $1 billion next year for the U.S. Department of Transportation Maritime Administration’s Port Infrastructure Development Program. That is on top of the $300 million appropriations given to the program, Chapman said. Those grants are often paired with bonds and would be awarded in the fall.
Also in July, Reps. Peter DeFazio, D-Ore., and Sean Patrick Maloney, D- N.Y., introduced the Maritime Transportation System Emergency Relief Act which would give authority to the Maritime Administration to provide financial assistance to the U.S. Maritime Transportation System, including servicing debt payments and emergency response operations.
“The program is designed to be flexible to respond to the pandemic that we’re facing right now and our hope would be that Congress would allocate those dollars as quickly and efficiently as possible to ports that are in need and ailing as a result of the coronavirus pandemic,” Chapman said.
The program is designed to respond both to the pandemic as well as well as future natural disasters. The Senate does not yet have a companion bill.
Chapman expects the pandemic to impact ports’ projects going forward.
“I do know that the coronavirus pandemic is certainly having an impact on ports and is likely to have an impact on their investment decisions moving forward,” Chapman said. “At the end of the day, money that has to go to PPE and other unexpected costs oftentimes can come at the expense of project planning and other things that are put off for future years.”
Anecdotally, Chapman said some ports have expressed concern that they will not be able to move forward with capital investment projects and are stalling planning for future projects.
At the Port of Houston’s public terminals, container revenue year over year was down 1%, that is down 5% from expectations, said its Chief Financial Officer Tim Finley. Cash flows are also down by 1% versus its expectations through May.
Finley said the port plans to underspend on capital projects. However, port officials stressed they are continuing to plan for the future.
“There were a couple of yards that were on schedule to be awarded this year, and we’ve held off on pushing those out because of demand,” Finley said. “Some of it is just by nature of timing, we may well have pushed them regardless of the pandemic just as we watch demand try to meet customer expectations in terms of productivity.”
Yards are akin to parking lots to where containers are received and then shipped off.
This week, the port plans to go to market to price $238 million in unlimited tax refunding bonds and about $19.5 million in taxable unlimited tax refunding bonds. Those bonds will be used to refund bonds from 2010.
Ports were impacted on both the cargo and cruise sides. The first impacts for cargo hit when China began to shut down its economy in mid-February to contain the virus, said Moses Kopmar, a credit analyst at Moody’s Investors Service.
“China is a very big source of container cargo and when it closes down, there was supply-side disruption that really affected some very big declines especially at ports in Los Angeles and Long Beach, who have more trade with China than the average port or the rest of the country,” Kopmar said.
Demand-side was hit when economic and social activity started to shut down and importers started to cancel orders. Since March, U.S. ports experienced on average double-digit declines in container cargo, Kopmar said.
Cruises were suspended in mid-March and last week a sail order was extended through September 2020.
At the moment, there is not a lot of capital expenditure projects that are unfunded that would need new bond issuances, Kopmar said, though large cruise ports could pull back on capital expenditure projects.
Despite these challenges, the port sector continues to be highly rated, Kopmar said. In March, Moody’s downgraded its outlook on ports to negative from stable.
“That has more to do with the macro and business fundamentals that are the backdrop that these ports are operating against,” Kopmar said. “We’re aware of how much risk there is out there, but fortunately, many of the ports have positioned themselves well from a balance sheet financial structure perspective going into this.”
Ports adopted a business model that reduces risks through the landlord-tenant model. Authorities maintain the ports but lease them to private operators who make lease payments in order to use the ports’ facilities. Those private operators are required to make a minimum payment to the ports, irrespective of how volume performs.
Ports also had strong liquidity before entering the economic downturn.
“If this is a really unprecedented downturn, there is going to be pressure on their customers, there are going to be requests for rent relief,” Kopmar said. “There may be unexpected problems with customers and tenants. Due to the extent that ports have liquidity, that’s going to really enable them to manage pressures as they come up.”