The March 26 collapse of Baltimore's Francis Scott Key Bridge after a massive container ship struck one of its piers is the latest example of supply chain vulnerabilities that could create logistical bottlenecks and increase costs. This accident is amplifying recent supply chain challenges, including attacks on shipping in the Red Sea and a historic drought curbing passage through Panama Canal.

According to S&P Global Market Intelligence, the Port of Baltimore handled around 3% of all U.S. east and gulf coast imports and 10% of U.S. northeast imports of containerized freight in the 12 months to January 31. It is particularly important for the wood (39% of northeast ports' imports), construction machinery (31%), and steel/aluminum (20%) sectors. The port is also one of the largest handlers of specialty wheeled transport shipments (cars and trucks) in the U.S., though one of the major terminals is located oceanside from the bridge and so may face less disruption.

The U.S. Army Corps of Engineers (USACE) has stated that the Port of Baltimore could be fully reopened by the end of May. Based on historical data and information we have collected so far, it is our understanding that East Coast ports such as New York-New Jersey, Virginia, and Georgia should have capacity and operational flexibility to handle the cargo diverted from the Port of Baltimore.

Nonetheless, any prolonged disruption to port operations could impede supply chains for the goods and commodities affected, adding to the cost pressures faced by North American borrowers (see "Credit Conditions North America Q2 2024: Soft Landing, Lurking Risks", published March 27).

U.S. Macro

Macroeconomic impacts will be minimal; goods price disinflation could slow

The Francis Scott Key Bridge collapse comes at a time when improvement in supply chains (see chart 1) have led to substantial disinflation in aggregate consumer price inflation. While service price inflation remains relatively elevated, core goods—which are affected the most by supply chains directly—have dipped into deflation on a year over year basis (see chart 2). Deflation in core goods has been a key reason why inflation is approaching the Fed's target of 2%.

Chart 1

Chart 2

At the margin, the bridge accident has scope to limit the disinflationary impulse from goods prices to the extent the temporary costs associated with redirecting cargo and trucking flows are passed on from manufacturers and wholesalers to their customers. The Port of Baltimore's imports lean toward industrial inputs and capital goods (see chart 3). Businesses may be inclined to raise prices to compensate for extra shipping/transportation cost at least partially, especially given the perception of resilient demand. We expect this would have a relatively minor economic impact.

In 2023, the Port of Baltimore accounted for only 2% of imports and 1% of exports of the U.S. in value terms. Still, the auto sector stands out as one that appears likely to be most affected through both imports and exports, given its relative share of exposure (see chart 4).

Chart 3

Chart 4

And while the overall U.S. economy will not feel much of an impact given its size and scope, the disruption will be felt more locally as passenger and freight traffic gets disrupted, adding to travel time and potentially rerouting expenses. An extended or partial port closure could weigh on the local economy via layoffs. Estimates suggest the marine cargo and cargo vessel activities at the Port of Baltimore supported 50,923 jobs, directly and indirectly, in 2023, representing about 3.5% of the Baltimore-Columbia-Towson metropolitan area's employment base.

To provide immediate temporary economic relief to businesses and workers affected by the bridge collapse, the governor of Maryland signed an executive order on April 4, 2024, making $60 million available to provide grants up to $100,000 to business directly affected. These grants are designed to prevent the need to lay off employees, provide temporary financial support to workers who work regularly at the port but are ineligible for unemployment insurance benefits, and furnish grants and low interest loans to eligible businesses that have experienced bridge collapse-related loss of revenue or cost increases.

Public Finance

No ratings impact on relevant public finance entities and nearby ports have capacity to handle diverted cargo

The disruption and damage from the accident won't have immediate credit implications for our ratings on the Maryland Transportation Authority (AA-/Stable/--), which operates the bridge, the ratings on the City of Baltimore general obligation debt (AA/Stable/--), or the State of Maryland debt (AAA/Stable/--). We expect receipt of federal, state, and local assistance, in addition to insurance reimbursements, will provide credit stability in the near term (see "Maryland Transportation Authority’s Credit Quality Not Affected By Francis Scott Key Bridge Collapse", published March 26).

The Port Authority of New York and New Jersey marine terminals and the Port of Virginia—the top two ports operators by total tonnage on the East Coast—are assisting with cargo originally destined for Baltimore. Currently handling less cargo compared with the height of the pandemic, these ports will be able to accommodate the diverted shipments by increasing marine terminal service hours and working with shipping companies, railroads, and the trucking community to ensure a smooth flow of traffic and efficient cargo pick-up and delivery.

Georgia Ports Authority (GPA) is expecting immediate roll-on/roll-off (RO/RO) import diversions of vehicles and heavy equipment to arrive at the Port of Brunswick, the second busiest RO/RO port in the U.S. GPA does not expect a notable increase in RO/RO vessel calls related to the diversions but does expect more cargo volume on the vessels that do call. GPA also has space in Savannah to accommodate diverted cargo.

Based on port activity data, the recent daily volumes of export and import cargo handled by the East Coast ports are a fraction of their historical peak levels (see chart 5). Therefore, they should have capacity to cargo originally destined for Baltimore, which averaged 48,230 tons and 17,943 tons, respectively, in March.

Chart 5

Nonfinancial Corporates

Autos, coal, oil and gas, and agribusiness may face higher supply chain costs

We expect the most pronounced supply chain disruptions following the accident will be in the autos, coal, oil and gas, as well as the agribusiness industries. Although the affected port is among the most used by the automotive industry, indications so far remain that automotive original equipment manufacturers (OEMs) can reroute vehicles to other ports like Port of Brunswick in Georgia or Charleston. Furthermore, some of the OEMs' receiving facilities in the Port of Baltimore are on the eastern side of the bridge, which is still accessible to ships. The Port of Baltimore also has significant RO/RO capacity for agricultural and construction machinery, much of which will be diverted to other ports in the U.S. Northeast.

Overall, affected companies continue to characterize the impact as minimal and the diverted capacity as manageable. Nevertheless, we expect these alternative arrangements and resulting increases in utilization rates at other facilities to increase supply chain costs. We will look to first-quarter disclosures and second-quarter results to fully assess the magnitude of these increased costs.

Insurance

A major marine loss, but manageable

S&P Global Ratings expects related losses will only dent insurers' earnings, even as insured losses could be the largest in marine history. We assume losses will include costs to rebuild the bridge, damages to the vessel and cargo, and business interruption and other liability losses—and could exceed $3 billion. Nearly all marine insurance globally is provided by the International Group of protection and indemnity (P&I) Clubs. Most of the losses are reinsured, and the bulk of the net amount retained by each of the 12 members of the club will be shared (see "Baltimore Bridge Accident Could Cost More Than $3 Billion And Still Only Dent Insurers' Earnings", published March 28).

S&P Global Ratings Research

• Baltimore Bridge Accident Could Cost More Than $3 Billion And Still Only Dent Insurers' Earnings, March 28, 2024
• Credit Conditions North America Q2 2024: Soft Landing, Lurking Risks, March 27, 2024
• Maryland Transportation Authority’s Credit Quality Not Affected By Francis Scott Key Bridge Collapse, March 26, 2024

Other Research

• S&P Global Market Intelligence. March 26, 2024. "Baltimore Bridge Collapse Disrupts Local Traffic, Global Shipping."
• Martin Associates. March 13, 2024. "The 2023 Economic Impact of the Port of Baltimore in Maryland."
• U.S. Bureau of Transportation Statistics. January 2024. "2024 Port Performance Freight Statistics Program: Annual Report to Congress."