On the Key Bridge Collapse’s Economic Impacts

Whenever tragedy strikes, it feels cold and wrong to jump to assessing the economic impact, especially as we are all learning about the human toll. But we guess it was inevitable that, given Baltimore’s busy port and role in the supply chain, headlines were eventually going to pivot to the potential disruptions and economic cost. Especially since supply chain issues are so ingrained in our post-lockdown minds. So while first and foremost our hearts go out to the family and friends of those killed when a cargo ship apparently suffering systems failure crashed into the Francis Scott Key Bridge early Tuesday morning, we do think it is important to look briefly at the talk of supply chain disruptions and put it all in context for investors.

The Port of Baltimore does play a key role in US trade, with a big export role in autos, light trucks and coal as well as imports of salt, sugar and gypsum (key to fertilizers). The Key Bridge spanned the main entry to the port, hence the talk of the potential supply chain havoc—with a lot of focus on the companies with big distribution centers nearby, as well as the potentially affected products.

There probably will be a localized economic impact—perhaps even a big one. But on a national or even East Coast basis, we don’t think it is likely to prove very material. Supply chains have a long history of adapting to obstacles, and we doubt this goes differently. While traffic in and out of the port will be impacted, cargo can reroute pretty easily. If necessary, shipments destined to Baltimore can reroute either north to New York and New Jersey or south to Virginia and Georgia. Heck, the West Coast could probably help absorb shipments as well, as the strategies the industry used to alleviate container bottlenecks during COVID remain in play. Supply chains have already proven they can adapt to much larger disruptions.

A useful parallel here is probably the partial work stoppage at West Coast ports in 2015, which cut the volume of containers processed at over two dozen ports between San Diego and Seattle for several months. That caused delays and backlogs for several major retailers as ships idled off the coast of Los Angeles and Long Beach for weeks on end, and the disruptions took several months to even out once normal operations resumed. There were headaches for a lot of businesses. But we didn’t get a big inflation spike from shipping costs. Nor did we get acute shortages or a visible impact in trade or consumer spending figures. Goods imports grew in three of four quarters that year. Exports wobbled, but that was consistent with the global pullback in manufacturing, trade and energy production during that year’s “manufacturing recession,” itself heavily influenced by fast-falling energy prices. Consumer spending grew all year.

If the shipping industry could adapt to such a widespread disruption nearly a decade ago without a visible economic impact, we think it is fair to presume it can navigate a problem isolated to a single port—especially once you factor in all the innovations and efficiencies gained in the interim. Again, the bridge collapse is a terrible human tragedy, and it will surely make life difficult for people working and commuting in the area until reconstruction is complete. And there could be regional economic effects on the Baltimore area. But as broad economic risks go, we don’t see a there there.

Hat Tip: Fisher Investments Research Analyst Amanda Gregg