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Container Terminal Operators: Resilient Performance During the Coronavirus Pandemic

The performance of container terminal operators during the Coronavirus Disease (COVID-19) pandemic has been resilient and stronger than DBRS Morningstar‘s expectations noted in the commentary “The COVID-19 Pandemic's Impact on Container Terminal Operators” published on May 15, 2020. Unlike in other sectors such as airports and toll roads, which faced traffic shocks from the pandemic and associated lockdown measures, container terminal volumes quickly recovered and remained largely stable on a full-year basis in 2020 at a global level. The volumes have been showing strong demand-driven growth in 2021 so far. DBRS Morningstar rates several container terminal operators with a presence in North America, Latin America, Europe, and Asia, all on a private basis.

Summary
1) Although container terminal volumes have been correlated with GDP, container terminal volumes remained largely stable in 2020 at a global level, declining only 1.2% despite a global GDP decline of 3.1%. The service sector contributed significantly to the GDP decline, which did not affect container terminal volumes as much.

2) The decrease in volumes due to supply chain disruptions in H1 2020 were recovered later in the year. The responsive policies from governments also contributed to the quick recovery, as compared with the Great Recession in 2008–09, when volumes recovered the following year.

3) Demand for containerized cargo continues to be strong in 2021. Freight transportation rates are at elevated levels, reflecting increased demand and capacity management by the shipping lines.

4) Regional and intra-regional differences exist in the volume growth. The Far East to North America route has experienced strong growth in volumes, while some other routes have not shown the same level of growth. Terminals have faced congestion and some ports have been skipped altogether. The demand in the service areas covered by the port, and alternate routes to deliver the cargo still play a key role in the volume stability.

5) Demand for goods could taper as economies reopen after extended lockdowns and restrictions, consumers demand more services and travel, and forms of government stimuli ease. However, with the increase in global wealth, part of the increased demand could continue.

6) Ratings are assessed on a case-by-case basis and include other terminal-specific factors. In the rating of container terminal operators, the business risk assessment has a greater weighting, and both short-term challenges (without liquidity constraints) and strong near-term forecasts do not have material impacts on the ratings. However, additional leverage on anticipation of aggressive future volumes, where applicable, and subject to the debt structure covenants, could add negative rating pressure.