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Revenues generally outperform volumes in weak economic years due to contractual revenue buffers, the presence of other stable revenues such as cruise fees and rate flexibility.”
Investors are anxiously awaiting the full impact of tariffs on U.S. seaports, which are being significantly rattled by a steep drop in cargo volume and ship arrivals. In early April, the U.S. effective tariff rate jumped to 23% from 2.3%, most notably with an initial 125% tariff on China, 25% tariff on Canada and Mexico, and a blanket 10% on all other trading partners. The average rate has decreased slightly on progress of trade agreements with China down to 30% and the UK (10% remains, agreement removed tariffs on steel, aluminum, and car exports to US).
A slowing economic environment due to policy uncertainty may further weaken U.S. trade volumes. Even if certain U.S. tariff levels are finalized after the 90-day pause, and some policy certainty is restored, the long lead times involved in retail and supply chains will likely prevent a rebound in trade volumes until end of year. Besides the direct effects of tariffs, trade volumes are pressured by lower demand during a global economic slowdown.
As investors in U.S. ports, we continue to monitor how negotiations will impact trade as cargo volumes are expected to decrease 7% to 12% in 2025, assuming a continued elevated tariff environment. Moody’s recently adjusted its outlook on the sector to negative on elevated geopolitical risk, and said a reversal back to stable would require supportive trade activity, sustained lower fuel costs, and both fiscal and monetary policy easing.
Tariffs will lead to a decline in US container volumes in 2025
Tariffs will lead to a decline in US container volumes in 2025
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Consumer sentiment has fallen amid tariff flux
Consumer sentiment has fallen amid tariff flux
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China tariffs and retaliatory actions from its government are a significant concern for the sector, because China accounts for 22% of all U.S. imports from 2021-2024. The Port of Los Angeles (LA) and the Port of Long Beach, California, have the highest volume with China among U.S. ports with exposure nearing 50% of imports. At the Port of LA, inbound shipments dropped 30%, and 17 sailings were canceled in early May due to the elevated costs and uncertainty associated with trade.
A portion of the current decline in trade at West Coast ports is due to front-loading activity where shippers imported larger volumes earlier in the year in anticipation of tariffs. Elevated inventories lead to temporary trade drop-offs until those inventories are sold down in the latter half of the year. While there’s been some momentum regarding trade negotiation, the ongoing uncertainty may further stall trade until there is long term clarity.
West Coast ports have weathered prior periods of uncertainty. The Port of LA’s container trade volumes with China fell by 29% between 2019-2024, while total volumes dipped by just 5% as trade shifted to Southeast Asia. Container revenues increased 19% over the same period, reflecting the port’s strong pricing power as rate hikes outpaced volume losses. Fitch ran a sensitivity scenario on the Port of LA, assuming a 25% decline in shipping-related revenue with no growth through 2033. Due to the port’s strong financial cushion, average debt-service coverage ratio (DSCR) remained robust at 8.5x over the projection period. The port could sustain up to a 43% decline in base case total revenue assumptions and still pay debt service through debt maturity.
Scheduled container volumes are plummeting at the Port of Los Angeles
Scheduled container volumes are plummeting at the Port of Los Angeles
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Scheduled container volumes are plummeting at the Port of Los Angeles
Scheduled container volumes are plummeting at the Port of Los Angeles
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Municipal owned U.S. ports are operated in a conservative manner, generally using less debt than their privately-owned counterparts. This risk-averse approach creates an appetite for volatility and volume declines. The median days cash on hand for municipal port debt is 1,050 and the median DSCR is 5.3x, providing ample liquidity and coverage buffer that offers substantial ratings headroom in a severe downside scenario. We don’t expect port ratings to be materially impacted by the elevated tariff environment as port credit quality has been relatively resilient in prior periods of volume declines. Revenues generally outperform volumes in weak economic years due to contractual revenue buffers, the presence of other stable revenues such as cruise fees, and rate flexibility.
Bottom Line: Ports are an essential part of the U.S. economy, providing jobs and income, along with economic vitality by supporting manufacturing, agriculture and other core industries. Over 95% of cargo entering the country arrives by ship, 40% of all U.S. goods pass through a port, and imports and exports out of the U.S. amounted to ~$5.1t of goods in 2023.1 Ports contribute $2.9 trillion to U.S. gross domestic product (GDP) and 21.8 million jobs are supported by the maritime industry. We believe ports will be pressured in the short term by weakened cargo volume due to the elevated tariff rates amid policy uncertainty and a weaker consumer. However, U.S. municipal ports have strong credit fundamentals, high essentiality and varying revenue levers that will allow them to weather the uncertain policy outlook.
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