GW&K Investment Management
Investors in U.S. seaports aren’t worried — yet — about fallout from tariffs threatened by President-elect Donald Trump although shifts in trade policy combined with a potential labor strike could bring headwinds to the sector in the future.
“At this juncture I don’t foresee any material credit deterioration,” said Jeff Devine, municipal research analyst at GW&K Investment Management. “Generally speaking, ports have pretty low leverage and strong debt service coverage and really strong cash on hand.”
Trump has proposed tariffs of 10% to 20% on all imports, 60% or more on goods from China and a 25% tariff on goods from Canada and Mexico. He has said he would impose the tariffs by executive order on Jan. 20, his first day in office. That’s five days after the expiration of a
There are two types of U.S. ports: “landlord” ports that lease their facilities to terminal operators and “operating” ports that directly employ workers and manages the land. Those include some of the largest ports, like the Port Authority of New York and New Jersey and the Port of Virginia.
“Operating ports, which generate revenue based on cargo volume, would be the most impacted by tariffs,” said Caroline Schmidt, municipal credit analyst at Appleton Partners, Inc., which owns both types of ports. “But the impact will really depend on the size and scale of these tariffs.”
The relatively small port sector — consisting of about 25 rated credits — enjoys strong financial metrics that will help it weather headwinds, the investors said.
“It’s a fairly small rated universe that’s important to overall economic growth in the country and generally is resilient with really strong financial resources,” Devine said. “We think our existing holdings are in a good position, whether landlord or operator, to withstand any kind of tariffs.”
Neither firm is shifting its investment strategy on ports yet based on Trump’s threatened tariffs.
“There’s typically a lot of negotiation that occurs,” Schmidt said. “We will wait until the tariffs are finalized to reassess the overall impact it has on operator ports.”
A recent acceleration in cargo shipments would help offset any post-tariff declines, Schmidt said.
Retailers are moving to get ahead of the potential tariffs and strike by accelerating their orders, and recent inbound cargo shipments are expected to set records, the National Retail Federation said Monday. November and December shipments are projected to be up a record 14.4% and 14.3% year-over-year, the group said, and the import surge is expected to continue through next spring.
Moody’s Investors Service, which maintains a stable outlook on the sector, projects continued growth despite risks, analyst Kurt Krummenacker said last week during a Moody’s transportation infrastructure webinar. The ratings agency projects that growth in container traffic growth next year will decline 2% to 9% from the 11% growth year-to-date in 2024.
“The sector is, however, exposed to many downside risks, the first of which being the tariff has been proposed by the new president,” Krummenacker said.
Moody’s analyst John Medina noted the recent surge in port volume in anticipation of potential tariffs and that Mexico and Canada are already looking to negotiate to avoid Trump’s threatened tariffs.
“Whether and how those [tariffs] go through is uncertain, but because of the threat of that, you’ve already seen the change,” Medina said.
The port industry is hopeful that the Trump administration ultimately avoids the imposition of fresh tariffs.
“Regardless of the financial outlook of individual ports with revenue bonds outstanding, tariffs are taxes that will hurt ports and everyone down our nation’s supply chain,” Cary S. Davis, president and CEO of the Association of American Port Authorities said in an email to The Bond Buyer.
“We are hopeful that our federal government partners will recognize the severe negative impact of raising import tariffs. Though the importer pays the tariff, the sticker price for everyday goods that middle class Americans pay will increase, as added costs are passed on to consumers.”