The Economic Impact Of The Baltimore Bridge Collapse Will Linger, Contributing To Inflation

The collapse of the Francis Scott Key Bridge in Baltimore, after being struck by container ship DALI, is currently an active search and rescue incident and is a human tragedy first. It will also have significant economic implications potentially for years to come given the infrastructure impact on one of the country’s busiest ports.

This bridge serves as a crucial highway artery and a key hub for shipping along the East Coast. The incident not only triggered a massive search-and-rescue operation but also halted traffic on this vital transportation route and resulted in a partial port closure (trucks are still being processed). Considering the bridge's role in facilitating interstate commerce and its position as part of the I-695 corridor, a major link in the Interstate 95 network, the disruption will snarl freight movements and create logistical challenges, leading to delays heading into Easter weekend and in the longer term, increased costs for shipping and transportation industries, which will likely be passed on to consumers still feeling the lingering impacts of inflation.

The Port of Baltimore is a significant economic asset for both the state of Maryland and the United States. Positioned near the Chesapeake Bay, the Port of Baltimore is strategically located near inland markets and serves as an important access point to an extensive network of highways and railways. The port is a critical contributor to the state's economy, supporting thousands of jobs directly related to port operations and many more in related sectors, including logistics, manufacturing, and retail.

The port’s location facilitates the efficient distribution of goods to the economically vital Mid-Atlantic region and beyond. Importantly, the Panama Canal was expanded in 2016, thus allowing larger ships from Asia to move through and ultimately dock at Baltimore’s deep 50-foot shipping channel and port. This stretch of roadway, I-695, was an alternate route for oversized vehicles as well as hazardous material that are not allowed to transit through the Baltimore Harbor Tunnel for safety reasons.

The Port of Baltimore is known for its ability to handle a wide range of cargo types, including general cargo, bulk commodities like sugar and coal, and container shipments. This versatility supports a broad range of industries and economic activities. Importantly, it is one of the leading ports in the United States for roll-on/roll-off (Ro/Ro) cargo, which includes cars, trucks, and heavy machinery. The port's efficiency in handling such cargo supports the automotive and construction industries significantly and this will have an impact for the foreseeable future.

The cargo ship DALI was Singapore-flagged and managed by Synergy Marine, but was chartered by Maersk and was carrying Maersk cargo en route to Sri Lanka, meaning that multiple countries, companies and jurisdictions will be involved in an investigation to establish legal liability that will likely result in a significant loss and damage in the hundreds of millions or even more. Given that they will likely face some penalty although it will be some time before liability is established and certainly feel an impact from this incident, Maersk’s share price fell by almost seven percent this morning before stabilizing at 3.8% as markets evaluate their position.

DALI was carrying around 4,900 containers when it collided with the bridge around 1:30 a.m. while under pilotage by local port workers, disrupting not just its own delivery to Sri Lanka but also the port operations and the traffic flow on surrounding roadways, which is bad on the best of days. The scale of the damages is likely to be high given its impact on critical infrastructure and will spill over into the global reinsurance market, which provides insurance to insurance companies for large-scale incidents, which could further raise insurance rates for shipping. Given the recent attacks by Houthi rebels on container ships in the Red Sea , additional price pressure is expected on an industry that will have no choice but to pass these on to their customers who will pass them on to end consumers.

Prices are already high and these industries are under pressure from inflation and changing business models leaving them with less resilience to handle a shock event like this. They will need to deploy a variety of response measures. For box shipping, this will mean the diversion of Baltimore’s 1.1 million annual twenty-foot equivalent units (teus) or shipping containers through to other eastern seaboard terminals, but they have limited capacity. In the medium to long-term, this new bottleneck will lead to some could accelerate a shift of goods through West Coast ports, which will then have to be trucked or transited via freight rail to consumers on the East Coast. This could keep prices high through 2024, with particular impact possible for the automotive sector.

What we do know is that rebuilding this bridge section will take time and capital investment so we will likely feel the impact if this incident on supply chains and prices for years to come.

By Chloe Demrovsky, Senior Contributor