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What a Headache!

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The economic wreckage from the destruction of the Francis Scott Key Bridge is staggering. Consider the following mushroom cloud of losses:

  • The entire Port of Baltimore is closed until the channel can be cleared, halting about $15-million in daily activity in the Baltimore region.

  • A critical highway has been severed for much longer than the channel will be closed with a cost in lost business, slowed business, and higher expenses that is incalculable and widespread.

  • The combination of the two closures will impact railways, trucking, regional distribution centers, to name some of the most obvious transportation industries impacted. It is estimated the losses to those industries will add tens of millions daily to the $15-million mentioned above.

  • The port alone is responsible for 140,000 jobs that will be impacted until the channel is cleared with the downstream affect from any unemployment diminishing revenue to other industries as people tighten their belts.

  • With forty ships that were already in route to Baltimore that have to be diverted plus those that would be coming in the weeks ahead, the delay of products into other parts of the country will cause spot shortages around the nation and will increase the cost of shipping wherever those products that are rerouted are slated to go. The port handles “over a million TEUs," said one logistics CEO, referring to the number of containers Baltimore handles in a year. "It's not marginal." He alone had 800 containers already in route that are already being rerouted.

  • East Coast ports may not even have enough residual capacity to handle the extra shipping traffic, forcing reroutes to go through the choked Panama Canal or, at least, to the gulf or through Canada to find entry into the country. Some businesses with shipping facilities that span the nation are already rerouting some shipments to the West Coast that are not ultimately destined for West Coast business. Those will backtrack to the Midwest.

  • Vehicles hauling hazardous materials that are not allowed to go through Baltimore or through tunnels will now have a longer, slower route to make to get around Baltimore.

  • Baltimore was in rough shape economically to begin with. Now it will sink to the bottom of its own channel without a huge amount of national support.

  • The costs of all the rerouting and delays will be mostly borne by the businesses receiving the goods that are being rerouted, as some shipping companies are already declaring force majeure, “telling shippers including U.S. retailers, that once cargo is dropped at alternate ports, it’s no longer their responsibility.” So, the ocean-freight companies will get the cargo to another port, but the costs of finding warehousing that will suddenly be in short supply at those ports and transport out of those ports will be up to the retailers, shipping companies and other businesses downstream from the ocean freight companies. This could include intentionally expensive port penalties (detention and demurrage) for shipments that get stored on the port site because an alternative shipper and warehousing are not found right away. Said one shipper: “Those (containers) on the water will be discharged at an alternate port where they will be made available for pick-up, and CMA CGM’s bill of lading will terminate.” COSCO and Evergreen this morning also announced their services would “be concluded” once the diverted container arrives at the alternate port. They’ll get you that far, but then you’re on your own.

In the process of all that, there will be a lot of confusion about what went where, things getting lost sitting in some back corner of some port facility where they got stashed in the overflow and the rush and not well recorded, and a lot of competition for the alternate shipping suddenly needed.

“The biggest thing we are seeing from our data integrations with the ocean carriers is we are not seeing the port of discharge updated yet,” Brashier said, citing the ITS Logistics’ ContainerAI platform. “So what we are doing now is we will have to manage logistics of containers through the data given to us by the terminals. But that means we are alerted when the container has already arrived, versus planning while the container is still en route to the port.”

Once a container arrives at a terminal, the clock begins ticking on the free time allocated to a container. Once that free time expires, the detention and demurrage fees start.

(U.S Department of Transportation does have the two-year-old FLOW (Freight Logistics Optimizations Works) system that will help those who participate in that system figure out some of the bottlenecks. It was designed for crises like this, but many major companies are not in the system, and we’ve yet to see how it handles a load this size.)

And then there will be all the law suits for a few years over who really owes whom for what.

Of course, it is not just retailers downstream that will be impacted. Housing construction, for example, may be impacted as contractors are short of critical materials/components needed to finish jobs that were en route to Baltimore.

And that is generally all from the import side into the national picture. Consider all the shipments from places like Chicago that are already on trains headed for Baltimore that must now be separated out and sent on other trains heading another direction. That will create pileups in Baltimore of containers that don’t get rerouted that, then, have to find their way to a different home. The delays or added costs for outbound shipments will raise the costs of some exports, and that may simply result in cancelled orders. FLOW doesn’t even work with export cargo yet.

As one man’s crash is another man’s treasure, the ports of Savannah, Brunswick, Virginia, Charleston, and New York/New Jersey, etc. are expected to pick up a lot of extra business. On the other hand, expect lots of inbound and outbound jams at those overused ports, meaning there will be plenty to go around to further ports along the St. Lawrence, Mississippi, etc.

What a headache to sort it all out with everyone instantly pressed to compete for space, rail, road, and alternate sea and air routes at the same time.

You might ask if the following is the offer of one friendly port to another or the words of a vulture:

The Port of Virginia has a significant amount of experience in handling surges of import and export cargo and is ready to provide whatever assistance we can to the team at the Port of Baltimore.

So said Stephen Edwards, CEO of the Port of Virginia. Of course, the two ports have been competitors for years. I’m sure the Port of Virginia will be glad to see if they can turn this into a permanent gain of market share.

(Also of interest below are articles about the five regional banks that just had their credit downgraded due to commercial real-estate (CRE) troubles. These must have been the “some banks will fail” that Jerome Powell brought up in his testimony to congress. Meanwhile the earnings-to-debt ratio of junk-rated companies with leverage loans has deteriorated in the last half year from 5:1 down to 3.5:1 because they have less income to survive higher interest. That’s the average, but it means the number of companies hitting the 2:1 level that is associated with defaults is rising. So, the longer the Fed has to hold interest elevated due to rising inflation pressures from things like Baltimore, the Suez Canal and the Panama Canal in addition to the sticky parts of of inflation that started eeking upward on their own, the more of these companies will sink to 2:1 and implode, and the more banks there will be that join the latest five downgrades.)

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