Primary Ports of Call Expected to Be Largely Insulated From the Red Sea Attacks

We expect the unfavourable winter weather conditions in the North of Europe and the current Red Sea crisis to have a temporary negative effect on the operations of container ports across Europe. We expect the Red Sea crisis to have a bigger impact on the East and South Mediterranean ports instead, with some temporary reduction in volumes, whereas the primary ports of call in the North of Europe are expected to experience limited impact and may even see phase pressure in yard capacity given the delays due to longer trips. As a mitigant to potential volume declines, ports in general have a proportion of their revenue under long-term contracts, which protects them from further revenue volatility. Overall, we expect these pressures to be resolved in the short run, with a more noticeable impact seen mid-February onwards once the re-routed vessels start arriving at their final destinations.

On the other hand, low water levels in the Panama Canal because of severe droughts are also causing extra disruptions to global trade. The total number of transits through the Panama Canal is about 40% lower than a year ago. This is expected to also have an impact on ports in the U.S., with the East Coast potentially being more affected than the West Coast.

Key Highlights
-- We expect the Red Sea crisis and current weather conditions in the North of Europe and Panama to have a short term and mild impact only on the affected individual ports.
-- Primary ports of call are expected to have a milder impact and quicker recovery given the more stable cash flows.
-- Delays on part of the vessels given the longer alternative route through the Cape of Good Hope will result in further temporary operational inefficiencies to affected ports while the situation is gradually resolved.
-- Despite challenges, we expect the credit profiles of rated issuers to remain supported by the fundamental factors.

“We do expect some temporary operational inefficiencies in the affected ports that will create congestion given delays of ships that are using the alternative route and are expected to arrive to the North of Europe around mid-February. This situation has been exacerbated by bad weather conditions in that area and closure of terminals due to past holiday season”, said Ana Relanzon, Vice President, European Corporate Finance at Morningstar DBRS.