No Port in Sight: West Coast Port Strikes Meaningfully Disrupting Certain Diversified Industries
DBRS Morningstar believes that the ongoing west coast port strikes are seriously disrupting supply chains in the near term as trade comes to a halt. This is causing significant operational disruptions to multiple sectors including the automobile, industrial, railway, fertilizer, and retail sectors. It will also take increasingly longer for supply chains to stabilize relative to the length of the strikes.Despite the significantly disruptive nature of the strikes, we expect that the crisis will be resolved soon and that the credit profiles across these sectors should remain relatively intact. We expect most companies to be able to successfully navigate the crisis within the context of their current rating categories in the near term by optimizing operations, including production schedules, raw material usage, inventory drawdowns, and/or rerouting shipments where possible. However, we caution that a deep protracted strike would add significant costs and weigh on profits, profit margins, and cash flow generation, leading to weaker credit metrics and potential rating implications.
“Port strikes are significantly disrupting supply chains and the longer they go on, the worse the credit impact will be across various sectors. It will also take longer to recover from these disruptions. However, we expect the strikes to be resolved soon and any financial impact to be in the near term and transitory,” said Vineet Khattar, Vice President—Diversified Industries, DBRS Morningstar.
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