A tragic bridge collapse... A take from Baltimore... The economic impact... What moves through town... Cars, coal, and more... A reminder about inflation shocks... We woke up to the shocking news just like everyone else...
At 1:30 a.m. on Tuesday morning, a freighter full of cargo crashed into a pillar of the Francis Scott Key Bridge in Baltimore.
Steel and asphalt crumbled into the water. The bridge had been there for nearly 50 years... and it was gone in less than 40 seconds.
Tragically, six construction workers who were on the bridge at the time of the accident are still unaccounted for and presumed dead. Two others survived.
Fortunately, the Maersk-chartered, Singapore-flagged container ship relayed a mayday call moments before the accident, and police officers managed to stop traffic from going over the bridge in both directions in about 90 seconds, avoiding more catastrophe. The bridge is frequently traveled as part of a busy interstate loop that circles Baltimore.
The accident hits close to home since Baltimore is where Stansberry Research is headquartered... and where many of us live.
Over the past 24 hours, I (Corey McLaughlin) have heard stories from people who had traveled across the bridge minutes before the collapse.
For example, a family we know was heading home from the nearby international airport and crossed the bridge after 1 a.m... and a teenager who lives on one side of the river drove across it three times in a short period around that time. Symbolism and practicality...
The bridge was named for the author of "The Star-Spangled Banner," Francis Scott Key, a lawyer who watched the British bombardment of nearby Fort McHenry from an American ship during the War of 1812. He was held on a ship just about where the bridge was built.
The bridge wasn't a beautiful structure... and I never thought of it as "one of the cathedrals of American infrastructure," as we heard one suddenly interested politician refer to it yesterday. But it certainly represents the industrial-heavy, gritty, southeastern part of the city that a lot of people around here identify with.
And for the past 47 years, it has served as a key route for commuters and commerce, including transporting freight to and from the Port of Baltimore, the ninth-largest port by annual volume in the U.S. That's now closed until further notice due to the ongoing rescue operation and hunks of debris in the channel where freighters routinely pass.
Folks who worked in the area, including about 15,000 workers in the port, don't know what's coming next. What was a routine part of life has changed... The economic impact...
The loss of life is tragic, and just like everyone else, we're curious how the 100,000-ton ship lost power minutes after leaving the port... and how it was able to collapse the main span of the bridge in a matter of seconds. There are lessons to be learned.
But, given our focus in the Digest, we want to touch on the potential short- and long-term economic ramifications of what has become an international story.
The Port of Baltimore is going to be closed for a while – some locals are expecting it to be closed for up to a year. After the search operation is over, debris and massive steel beams must be removed. The 50-foot-deep channel that massive freighters normally delicately travel through must be completely cleared before ships can even think of accessing the port again.
The state-owned, privately-operated Seagirt Marine Terminal, which employs more than 5,000 people, is also going to be closed as long as debris is in the water. There's another private marine terminal accessible without traversing the bridge's path, but anything that had been going under the Key Bridge must be diverted until further notice. In other words, that means delays and likely higher costs for shippers.
Plus, almost 5,000 trucks drove across the bridge each day, according to the American Trucking Association. Hazardous materials – which were required to move over the Patapsco River by bridge rather than through a pair of nearby tunnels – and anything else moved by truck will need to be driven through a completely different part of the city.
Putting it together, we're looking at increased freight costs regionally, and perhaps nationally and internationally. The scenario might not be significant enough to change the macroeconomic inflation picture, but it will affect certain industries. What moves through Baltimore...
While the days of Bethlehem Steel being the biggest manufacturing name and producer in Baltimore are long gone, there are still some notable goods that move through the city these days.
For the past 13 years, Baltimore has led the nation in importing and exporting cars, light trucks, and shipments from Toyota, General Motors, Volvo, Volkswagen, and other manufacturers. You can sometimes gauge activity in the auto industry by looking at how full or empty the parking lots near the Port of Baltimore are with new cars.
The port also exports the second-largest amount of coal per year in the U.S. – about one-fifth of the nation's total. It comes from northern and central Appalachia and usually heads to India and China. Imports of sugar, salt, fertilizer, aluminum, and wood products are also notable. A modest number of cruises depart from the port, too.
Amazon (AMZN) also has a large distribution presence in the area with around 30,000 full- and part-time employees. Jason Murphy, the owner of a Baltimore-based delivery and logistics company that employs about 65 people in two Amazon distribution centers, told the Baltimore Banner...
We are working on pivots, and I'm sure those pivots will pivot. We just have to be nimble.
That about sums things up right now.
Already, ships that were bound for Baltimore are going to other ports along the East Coast in New York, Virginia, and Georgia. All in all, American supply chains can probably adjust relatively quickly...
Baltimore handled 265,000 containers in the fourth quarter of 2023, while Norfolk, Virginia handled 850,000 and New York/New Jersey handled around 2 million in the same period. A port in Brunswick, Georgia, may take on the bulk of vehicle shipments, but that still means several hundred miles of extra travel (as well as additional fuel costs and labor) to get to and from the port.
Hopefully for the long-term local economy, the Port of Baltimore will reopen before companies get used to doing business elsewhere. Inflation shocks can come from anywhere...
This story also serves as a reminder just how quick and unexpected inflation shocks can be. It could be from major geopolitical events like wars... a sudden cut in global oil supply because OPEC wants it that way... or accidents like we're talking about today.
In this case, freight costs for moving goods that had been going through Baltimore are going to go up... and President Joe Biden has promised that the U.S. government will foot the bill for rebuilding the bridge, whatever it costs.
So we'll see higher prices in certain parts of the economy and probably more spending from Uncle Sam – this time because of a tragic accident that's left a bridge that we know in the water.
We weren't expecting that when we went to sleep Monday night, but it's reality now.
We woke up to the shocking news just like everyone else...
