The escalation and extension of the year-long trade war between China and the U.S. will choke the growth of China’s container shipping business over the next 12 to 18 months, according to a report by Moody’s Investors Service. The annual growth rate in container throughput may be knocked down to zero or a low single-digit percentage, from 4.7% in 2018, and 8.3% in 2017, Moody’s said. Port handling charges, measured by the average revenue per 20-foot equivalent unit (TEU), are also expected to decline, which will erode the total revenue and profit margins of China Merchants Port Holdings, Hutchison Port Holdings and Shanghai International Port, three port operators whose debt are rated by Moody’s.

“We expect U.S.-China relations to remain contentious and trade negotiations to continue for some time even if the two countries reach a trade agreement, resulting in a difficult operating environment for China’s port sector,” said Moody’s Analyst Ralph Ng. The decline in container throughput will further squeeze Chinese port operators that are already under pressure from overcapacity and consolidation, while possible economic stabilizing policies that requires cutting handling charges may further weight on their credit profiles, Ng said.

Six of the world’s 10 largest container ports last year were located along China’s coastline. Rotterdam, Europe’s biggest harbor, fell out of the top 10 in 2011 while Los Angeles dropped out in 2006. If the U.S. proceeds with its threat to impose tariffs on another USD300 billion-plus worth of Chinese exports, America’s demand for Chinese goods will weaken further and potentially accelerate the move of certain manufacturing bases and supply chains out of China, Moody’s said. Container throughput growth surged for Chinese port operators during the fourth quarter of 2018, but that was caused by “front-loading”, as U.S. importers brought forward their purchases to avoid the tariff on USD200 billion Chinese goods originally due to take effect on January 1, Moody’s said. “Container throughput also increased in the first quarter of 2019, possibly a carry-over of the front-loading. We do not expect front-loading to continue during the remainder of 2019,” Moody’s added, as reported by the South China Morning Post.