Related Links

• The Impact of the Francis Scott Key Bridge Collapse on Fifth District Firms
• The Port of Baltimore Will Bounce Back

Transcript

Tim Sablik: My guests are Jason Kosakow and Adam Scavette. Jason is the Richmond Fed's survey director and Adam is a regional economist at the Baltimore branch of the Richmond Fed. Thank you both for joining me.

Jason Kosakow: Happy to be here.

Adam Scavette: Always happy to join the show.

Sablik: Today, we're talking about the local, regional, and national impacts of the Francis Scott Key Bridge collapse in Baltimore, which happened on March 26. Since this is a developing story, I should note that we're recording this episode on May 30.

In addition to disrupting traffic patterns around the City of Baltimore, the bridge collapse closed access to the Port of Baltimore. Since the accident occurred, many people have been trying to forecast the potential economic impacts of these disruptions. You've both been researching and writing about this topic, and we'll include some links to your recent pieces in the show notes [see posts in Regional Matters and Macro Minute blogs].

Adam, could you tell us what the typical volume and type of cargo that came in through the Port of Baltimore was prior to the bridge collapse?

Scavette: Sure. The Port of Baltimore's typical cargo includes roll-on/roll-off, farm and construction equipment, and automobiles. It's also a major handler for several commodities such as sugar, gypsum, coal, and coffee. In 2023, the Port of Baltimore handled about 52 million tons of international cargo valued at $81 billion. Nationally, Baltimore ranks ninth for both total dollar value and tonnage of international cargo.

Sablik: How has the port closure impacted trade on a national level?

Scavette: Supply chains have definitely had to adapt to the shock of Baltimore's sudden closure. However, many East Coast ports have picked up Baltimore's slack. Carnival and Royal Caribbean cruise lines had to reroute passengers from Baltimore to Norfolk. The Port of New York and New Jersey is handling about two thirds of Baltimore's container business and a third of its auto cargo, according to port director Beth Rooney. One recent New York Times story explained how John Deere tractors that would normally be shipped from a factory in Iowa to Baltimore by train had to be instead trucked to Brunswick, Georgia, which added time and costs.

All of this rerouting has resulted in delays and higher shipping costs, which are impacting firms across the Fifth District, although most seem to think that supply chains are not under as much pressure as they were two to three years ago during the worst of the pandemic shock to logistics.

The shock from COVID was a big stress test for global supply chains. There have been ongoing problems with global trade — for example, the Suez Canal issues and the Panama Canal drought. When you look at those issues, the Port of Baltimore disruption is relatively minor. Businesses have been able to adjust well. The resilience is there.

Sablik: Jason, you regularly survey manufacturing and service sector businesses in the Richmond Fed's Fifth District, which includes Maryland. What did firms have to say about the impact of the Key Bridge collapse?

Kosakow: The Francis Scott Key Bridge collapsed on March 26 and our monthly surveys opened two days later on March 28. So, we were in a really good position to get real-time, quick feedback from businesses on the potential impact that the collapse could have on their business.

We asked a simple question: Do you believe that there will be an impact to your business as a result of the bridge collapsing? Then we asked a follow-up question, just an open-ended one on how it will. What businesses told us is about over half expected no impact as a result of the bridge collapsing. There was another about 18 to 20 percent that weren't sure at this time. But among those firms that did expect there to be some sort of impact, they expected it'd be pretty small on their business.

It's not surprising Maryland firms were more likely to expect some sort of negative impact due to the bridge collapsing. For example, in our analysis, 55 percent of non-Maryland firms expect no impact to their business, compared to only 22 percent of Maryland firms. Additionally, 13 percent of Maryland firms expect a significant impact to their business, compared to nearly 0 percent of non-Maryland firms.

Sablik: Did you look at which type of firms expected there to be more of an impact from this disruption?

Kosakow: There are two types of firms that were likely to be impacted. The first is kind of obvious — if you're close to the bridge, you're going to have some sort of adverse effect due to the bridge collapsing. For example, we talked to a bank and their bank is located close to the Francis Scott Key Bridge. What ended up happening is a lot of their customers, they were not able to find parking around the bank branch, which caused a disruption for the customers and angry customers and just more headaches. Another example is a charter bus company based in Baltimore. They operate right around the Francis Scott Key Bridge, and they pick up and drop off customers there. So, they have to take alternative routes, resulting in longer drive times for their customers.

The other types of firms that will be impacted — and Adam alluded to it before — was firms that have relied on the Port of Baltimore. These can be firms within Maryland, but also throughout our entire District. For example, a North Carolina farm that exports poultry through the Port of Baltimore had to redirect their poultry through Norfolk, leading to increased freight costs. A Virginia furniture store commented that they had to reroute their container ships to Norfolk, which causes delays from port congestion for both them and some of their suppliers. So, they're expecting just longer lead times and just longer time for their cargo to arrive in Baltimore and Norfolk.

Sablik: You mentioned some of the local impacts to traffic. What are some other likely local impacts?

Scavette: In terms of a regional economic impact, recent estimates suggest that the port's temporary closure can directly impact the labor income of more than 15,000 workers at the port, along with 140,000 others associated with the port's operations. IMPLAN estimates that a one-month closure of the port may cost Maryland $28 million in lost tax revenue. The Maryland legislature fast tracked the PORT Act — which stands for Protecting Opportunities and Regional Trade — to provide emergency relief to port workers and small business owners.

Kosakow: To add on to what Adam was talking about potential impacts, the Census Bureau did a really interesting report on expected changes in commuting behaviors as a result of the Francis Scott Key Bridge collapsing.

Overall, commuters who likely drove across the bridge had relatively long commutes before the bridge collapsed. Approximately 18 percent reported that their commute was 25 to 29 minutes long. Another 27 percent reported 30 to 35 minutes, which is a higher share than non-bridge commuters.

These people that were commuting across the bridge already had a long commute. These people tend to also have lower educational attainment, most likely have a high school diploma, they are likely to have lower income than those who did not commute across the bridge, and tended to work more in construction and maintenance occupations and also in production [and] transportation, so the truck drivers.

The Census created a hypothetical commute route. Prior to the Key Bridge collapse, they anticipate about a 16.1-mile commute to work. Now, the alternative route that is available is 20.1 miles. If you think about the existing traffic that's already in Baltimore, that four miles could add 15 to 20 minutes to your drive time.

Sablik: Adam, you mentioned at the beginning of the conversation that shippers had to shift to other ports. But, overall, they were saying that it wasn't as big of a disruption as some of the pandemic supply shocks a few years ago. We've also had reports recently that they've opened some channel to the Port of Baltimore and are projecting that it'll be fully open sometime in the month of June.

From your research and what you're hearing from your contacts, what do you both think will be the long-term consequences of the bridge collapse?

Scavette: There was a disruption from the shock of the bridge collapse and the port closure. Immediately, people thought the worst was going to happen in terms of the port's long-term activity and the regional economy in Baltimore.

I don't think there will be major long-term consequences. The port is relatively well positioned to recover its traffic when it fully reopens. The other ports on the East Coast that picked up some of Baltimore's diverted cargo did not possess the same infrastructure that makes Baltimore a leader in handling, for example, roll-on/roll-off, farm equipment, and automobiles.

Additionally, there are several investment projects set to expand the Port of Baltimore's container operations in the next five years. One is the planned expansion of the city's Howard Street Tunnel, which will bring double-stack rail to Seagirt Marine Terminal by 2025. Another is Tradepoint Atlantic's expansion of operations for containers in the next five years. So, it seems like the Port of Baltimore will recover and hopefully even expand more of its container operations going forward.

Kosakow: To add on to what Adam was saying, in talking with businesses, it seems that there was an immediate nervousness that happened after the bridge collapse. But we're really coming out of the pandemic right now and businesses have learned to become very agile and adapt to really adverse situations.

It seems within a week, at most, a lot of these firms already had backup plans in place. Since they can't use the Port of Baltimore, are they going to use different ports across the East Coast? Or, are they going to try to import to the West Coast? One manufacturer in Virginia did and just transported across the U.S. It does add lead times, it does add costs. But a lot of these firms are pretty nimble and they're able to adapt pretty quickly.

When it comes to long-term consequences, I don't know yet. A lot of firms don't expect there to be long-term consequences, but that just might be because they already had some good backup plans in place.