It’s been about a month since cargo ship Dali collided with the Francis Scott Key Bridge in the waters of the Chesapeake Bay. We wrote about the collapse when it occurred and wanted to revisit the topic. The bridge collapse represents another event in a string of global impacts on the supply chain and is another reminder about how unpredictable events can have a wide reach.
The Port of Baltimore
The Port of Baltimore is a top 20 port by volume in the United States and is the 5th largest port for foreign trade on the East Coast. The Baltimore “Port” is comprised of five public ports and 12 private ports, allowing cargo to enter Baltimore and the greater U.S. through several different road and rail routes.
The Washington Post estimates that the port handled over 50 million tons of foreign cargo with value in excess of $80 billion during 2023. The port is the 2nd largest exporter of coal from the U.S. (though still a relatively small player on a global scale) and is the largest port for imports of automobiles, sugar, and gypsum. Baltimore is also equipped to handle Neopanamax ships passing through the Panama Canal, allowing it to process some of the largest marine ships in play.
Sharing the fortunes of several other East Coast ports of the last several years, the Port of Baltimore posted several records in 2023, including for the largest number of TEUs handled (1.1 million) and general cargo tons (11.7 million). Baltimore posted these growth records despite the overall decline in imports to the U.S. during 2023.
Potential Short-Term and Long-Term Impact
As of the publication of this newsletter, the main channel into Chesapeake Bay remains closed. Four temporary channels have been dredged, permitting emergency vessels to enter the Bay and allowing most of the stranded ships to exit. The goal is to have the main channel reopened by end of May 2024. The Dali remains stuck in the channel, trapped by bridge debris and cargo containers. According to the U.S. Army Corp of Engineers, maritime traffic in mid-April was about 15% of the traffic prior to the collapse.
The first impact to discuss is to the Baltimore area. It is estimated that over 15,000 jobs are directly impacted by the closing of the Bay, and nearly 140,000 people are impacted throughout the area. The federal government has allocated funds for infrastructure development at the single unobstructed port in the Bay. The state of Maryland is accessing its rainy day fund to cover lost wages for port workers.
Short-term impacts will include delays of cargo already in transit for East Coast ports, whether originally bound for Baltimore or not. Just as we saw chokepoints on the West Coast lead to a redistribution of cargo among ports, the loss of the Baltimore port for the foreseeable future will cause ripple effects throughout the industry. We anticipated cargo being diverted to other East Coast ports.
So far, Brunswick, Georgia has proved to be a popular port for auto and tractor exports. In April, Brunswick was expected to handle over 87,000 vehicles, a 24% increase relative to the 70,000 monthly vehicles prior to the bridge collapse. The Port of New York and New Jersey is handling approximately 2/3 of Baltimore’s container shipments and 1/3 of Baltimore’s auto shipments. Norfolk, Virginia has absorbed much of the coal cargo export business from Baltimore, increasing its own export business by over 30%. This rerouting is not without expenses. Cargo that would have previously been transported on rail directly to Baltimore ports may now require a leg of truck transit, taking more time and raising costs.
Demand for road capacity skyrocketed following the bridge collapse. Auto carriers have struggled with rerouting demand surges. Many auto carriers were hit hard during the pandemic and the semiconductor shortages kept demand for auto carrier capacity low, even though capacity demand for other classes of trucking reached unprecedented levels. This limited the ability of auto carriers to increase capacity levels at the same rate as their dry van or reefer cousins. Additionally, the change in routes is impacting the trucking industry. Prior trucks routes would run from Baltimore to inland cities, routes of less than 100 miles that could be repeated multiple times per day.
Cargo is still being routed to the inland cities, but is instead originating from ports further away, such as Norfolk. This reduces the number of trips (and thus the amount of cargo) that a single truck can move in a day. Costs have climbed for carriers and customers. A remaining concern is the International Longshoreman’s Association contract, which covers port workers from Texas through the Northeast. The contract is set to expire in September 2024. Talks stalled in early 2023 before resuming again in early 2024. The leaders of ILA have ruled out the possibility of extending the current contract during negotiations and have threatened to strike if a new contract is not reached by the fall. The West Coast freight bottleneck that dominated transportation headlines in 2022 was brought on by labor disputes combined with a drastic increase in demand for shipping services due to COVID-fueled shopping. While there is the potential for a similar showdown on the East Coast, the national freight market has largely normalized to pre-pandemic levels and is not expected to experience such rapid growth in the near future.
Conclusion
The collapse of the Francis Scott Key bridge continues to have a major impact on the Baltimore area and surrounding ports. While expenses and shipping times have increased rapidly on the East Coast, the greater national impact remains muted. We will continue to watch Baltimore and keep tabs on port developments. Mercer Capital’s Transportation & Logistics team watches the transportation industry and global events and economic factors that can impact the overall industry, the supply chain, or various aspects of transportation. Mercer Capital provides business valuation and transaction advisory services, and our transportation and logistics team helps trucking companies, brokerages, freight forwarders, and other supply chain operators understand the value of their business within the current market. Contact a member of the Mercer Capital transportation and logistics team to discuss any valuation and/or transaction-related questions that you may have.
Originally published in Mercer Capital's Transportation & Logistics Newsletter: First Quarter 2024