Fitch Says Potential Longshoremen’s Strike Won’t Hurt Ports’ Ratings

Fitch Ratings has published a new special report titled ‘East Coast Port Strike: Credit Implications’. The report provides an update on labor issues affecting East Coast ports as well as a brief analysis of the expected credit impact of a strike or work stoppage.

The International Longshoreman’s Association (ILA) coastwide master contract, which governs containerized cargo on the U.S. East Coast, was set to expire on Sept. 30, 2012. In response, the industry made preparations for the first possible East Coast work stoppage to occur since 1977. However, a 90-day extension of the contract was announced on Sept. 20, 2012 following two days of negotiations aided by mediators from the Federal Mediation and Conciliation Service (FMCS). Going forward, negotiations will continue to be under supervision of the FMCS.

While the potential remains for a work stoppage at the end of the 90-day extension period, Fitch expects port credits to remain resilient in the face of a strike. Contingency plans at potentially affected ports have envisaged 10-15% cargo diversion over a month or so of stoppage, which is well below throughput losses modeled in Fitch’s rating case scenarios for ports. This fact, combined with the levels of liquidity maintained by ports and the fixed rental payments generally seen as the main source of revenues for ports in the container business, serves to minimize the credit impact expected from any future work stoppage.

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