Source: Lloyd’s List
July 20th 2016
FITCH Ratings suggested that US ports business will experience modest growth for 2016, mirroring the country’s annual gross domestic product growth rate, which is forecast to be less than 2% for the year.
The US transportation industry will remain stable for the rest of 2016 but with some uncertainties tied to the broader economy, the rating agency said.
Ongoing port capacity enhancements, including channel deepening and inland infrastructure improvement, are aimed at addressing congestion as shifting container alliances see shippers sending fewer, larger ships to focus gateways, Fitch said in the report.
Hapag-Lloyd and United Arab Shipping Co hope to complete their merger by the end of the year, creating the fifth-largest container shipping company with around 7% of global capacity. “It’s hard to say how this specific merger will affect freight rates,” Emma Griffith, an analyst at Fitch Ratings and the author of the report, told Lloyd’s List.
However, together with the mergers of Cosco and CSL and CMA/NOL and the subsequent reshuffling of existing alliances between carriers, the series of movements “seek to consolidate capacity and stop the downward trends seen in freight rates due to overcapacity. It remains to be seen how rates will evolve as the newly merged carriers integrate their operations and adjust their schedules,” Ms Griffith said.
Fitch continued to monitor the impact from the expanded Panama Canal. In a previous report, the rating agency forecast a 6% growth rate in Panama’s per capita GDP in the coming years and expected the canal's fiscal transfers to rise to $1.8bn in 2018 and $2.9bn by 2025, from $1.1bn in 2015.
“We expect to see an impact in volume numbers over the next year,” Ms Griffith said. “While the largest ships will still not fit through the expanded canal and could already use the Suez route for all-water access from Asia-east coast US, we would expect some up-gauging of ships that were already using the canal to service Gulf and east coast ports.”
Rail partners may also drop their rates, “keeping the west coast and intermodal route to the Midwest competitive in terms of transit time and overall transport costs,” she said.
According to Ms Griffith, consolidation of liners as well as the shifts in alliances and what they mean for service levels at various ports are major considerations in tracking US ports performance. She said some alliances or lines may choose to terminate existing agreements with ports in order to better fit their changing business strategies on different ports of entry.
“As we head into peak shipping season, we are watching to see whether volumes pick up, or if they continue to be constrained by higher inventory levels. We are also watching how shippers, logistics players and ports are affected with the Panama Canal’s expansion now open for business. Overall we expect volumes will track with US GDP,” she said.
On the finance side, Fitch pointed out that more states are adopting the public-private partnership financing model with a robust pipeline expected over the medium term. The agency noted that continued low interest rates serve as incentives for borrowings across transportation sectors, especially for refinancing.