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Thursday, February 13, 2020 /02:17
PM / By Fitch Ratings / Header Image Credit: The National
Global ports will see reduced trade volumes as a
result of the coronavirus, COVID-19, which would become more severe should
Chinese production take time to recover to pre-epidemic levels, says Fitch
Ratings. Decreased production in China because of the extended work holiday and
factory closures will affect import and export volumes in first-quarter 2020
but diversified revenue streams and long-term contracts help shield most US,
EMEA and LATAM port revenues from significant trade volatility. However, some rated
APAC ports will be affected if the slowdown in trade is prolonged.
China's trade volumes have grown significantly since
2000 in tandem with China's expanding role in the world economy. If more
companies suspend Chinese operations or withdraw from production in China,
shipping volume may take longer to recover. A sustained dip in volumes could
pressure ports with a large exposure to China cargo and would constrain
throughput growth compared with expectations prior to the outbreak.
Reduced trade due to the virus exacerbates the effects
of the 2018-2019 trade barriers on US West Coast port volumes in particular.
US-China trade levels were expected to pick up somewhat with Phase One of the
US-China trade deal set to go into effect on Feb. 15 but this rebound may take
longer to take hold because of the virus-related production slowdown.
Most European and Middle Eastern ports have
significant exposure to China through the global supply chain and port revenues
will be stressed if volumes remain depressed through March or beyond. Some EU
manufacturing sectors are dependent upon the Chinese market. Middle East export
volumes will be hurt by significant declines in Chinese demand for oil. Balance
sheet flexibility and the ability to defer capex should help ports manage
through short-term volume declines. Ports with additional congestion such as
shipping boxes piling up could potentially charge more for storage and
handling, which could be a partial offsetting factor for lost revenue.
In some cases, ports' long-term guaranteed contracts
or lease agreements with most tenants provide a revenue floor, which helps to
insulate port revenue from trade-related volume volatility. This is the case
for the more exposed US West Coast ports, where minimum annual guarantees cover
70% plus of operating revenue, and the Port of Melbourne in Australia, where
one-third of revenue is independent of shipping volumes.
Fitch-rated Australian coal export terminals will see
a volume impact from prolonged slowdown in industrial activity in China.
However, the revenues of these export terminals are largely independent of
throughput due to the use-or-pay nature of their contracts with the coal mines.
Indonesian coal terminals, however, will be hit as Indonesia exports about
one-quarter of its coal to China. Throughput at other Indonesian ports will
also be affected as China is the country's top trading partner. India, on the
other hand, has less trade exposure to China than Indonesia, and Indian port operators
are better placed to absorb a reduction in trade.
Ports have established screening procedures related to
virus containment, which may delay or discourage cruise ship traffic in
particular. Most of Fitch's rated ports are predominantly cargo-focused,
limiting the direct effects of cruise sector quarantines and related measures.
Restrictions in the cruise sector will have limited revenue effects at
cargo-dominated ports, although ports handling a higher share of cruise
business may see a dip in passenger revenue as negative traveller sentiment
limits cruise demand.
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