Supply Chain Issues and the Baltimore Ship/Bridge Disaster

A problem with a disaster, like the ship hitting the bridge in Baltimore, is that it upsets supply chains.

Supply chains are the links from sources of resources, through manufacturers, warehouses, and retailers, through to final consumers. These are like trees with many branches: literally thousands of branches for most of the products you buy.

A disruption at any point in that supply chain can have effects both downstream (all the way to consumers) and upstream (all the way to resource extractors). 

Recall that during the early part of CoVid/lockdowns that the store shelves were empty? Recall that about 18 months after that (in late 2021) we had additional problems with getting stuff on shelves. Those are the visible effects of supply chain disruptions.

The closing of the port of Baltimore won't create huge disruptions, since it's not a really major port. But it will create some.

Interestingly, the biggest disruption is probably going to be to cars imported from Europe for sale in the northeast. Almost all of those come through Baltimore. Why is that? Because what's called a roll-on-roll-off ship carries about 5,000 cars (for perspective, the SUU campus has about 4,000 parking spots, but they're never all full at the same time). They all arrive at the same time, and the port that they all go to is the one that already has big parking lots built, for the cars to be unloaded into. Then they all get trucked out, to create room for the next ship's cargo. There's really just one of those on the east coast: Baltimore.

The other thing that will be affected is coal mines in Pennsylvania, Maryland, and West Virginia. Students tend not to know this, but most coal burned in the U.S. is hard, and relatively clean, and comes from strip mines in Wyoming. The softer, dirtier coal, from tunnel mines that we all have in our imagination isn't used much anymore. It's mostly found in the Appalachian mountains, and exported to places like India. And most of it goes through ... Baltimore.

What the Baltimore Ship/Bridge Disaster Will Do to the Budget Deficit

On Monday we discussed how the announced deficit is not as accurate as it sounds. This is because the government doesn't actually know how much it will spend or receive in advance. For example, natural disasters can make the deficit worse because extra money is spent in disaster relief.

Then on Tuesday a cargo ship hit and collapsed a bridge, effectively blocking the harbor of Baltimore.

At this time it isn't clear who own the bridge, or to what extent it was insured. But, the state of Maryland almost immediately announced they don't have the money to rebuild it. This is not surprising: most big transportation infrastructure projects are funded by the federal government, with the work managed at the sate level. So, it should not be surprising that within a day the federal Department of Transportation announced they would be getting the bridge rebuilt as quickly as possible.

I am not sure how much a bridge that's both long, and high, over water, will cost. My guess is $5B. If I'm right, while this will increase the deficit, it won't increase it by much: the deficit is roughly $1.7T/year or $1,700B/year. That works out to be less than 1%.

The people in the federal government are not as dumb as most people think. There is money set aside for this sort of thing. But, just like households that save for a rainy day, that amount will help, but may not cover the whole cost. That money has already been allocated by Congress, so it's considered "spent" already, and would not add to the deficit. Anything extra on top of that would add to the deficit.

Problems with Canals

Excellent piece in the Wall Street Journal entitled "Two Canals, Two Big Problems —One Global Shipping Mess".

Of course, we've covered the problems with the Houthis and the Suez Canal.

 

This map was included in the article, and shows routes on which ship traffic has increased from 12/23 to 12/24. Note that the route through the Red Sea is barely shaded, while the routes around Africa are bright red. 

I believe the red routes from our Gulf coast to southern Europe are largely our exports of liquefied natural gas (replacing shipments that are no longer being made from Russia).

Also note the traffic around the southern tip of South America. Even in the 21st century, this is a stormy route that ships try to avoid. But if they can't get through the Panama Canal, that's the only way to go.

The problem with the Panama Canal is drought: there isn't enough water sometimes to move the ships.The article contains an animated infographic explaining the problem.

Has the State Failed in Haiti?

Haiti is the poorest country in the Americas. It has not had much of a viable state for the last 2 generations.

But, it really seems to have come apart over the last month, with armed gangs apparently taking over the country.

The Prime Minister is currently in Puerto Rico. It's unclear if any part of the state is actually functioning. The Dominican Republic, which has done quite well economically over the last 30 years, refused to let the Haitian Prime Minister land there and drive across the border.

The U.S. has evacuated nationals, and added troops to the embassy.

Here's the Google search page for Haitian news.

In the language of Chapter VI in the Handbook, the country still exists, the nation of Haitians still exists, but the state is barely holding on.

Macroeconomically ... expect a humanitarian crisis in Haiti over the next several months.

Update 1: the Prime Minister of Haiti did promise to resign the day after I posted this. He has yet to return to Haiti or even to the island of Hispaniola (that Haiti shares with the Dominican Republic). And he set conditions on his resignation having to do with the transfer of the Haitian state to its next leader.

Update 2: Haiti has not even had what one could call a coup (where the leader of a state is forcefully replaced with a new leader). Instead, gangs are just running rampant. The apparently strongest gang leader goes by the name "Barbecue". I am not confident of the willingness of someone who goes by Barbecue to observe the polite and formal transfer of power proposed by a former Prime Minister with little or no power base in the country.

Bab-al-Mandeb Sinking / Possible Environmental Disaster

So the Houthis have been firing missiles and drones at cargo ships for a few months now. But cargo ships are big, and the Houthis are a bare-bones outfit with limited weapons.

But, they did repeatedly hit, and sink a British owned freighter (under a flag from Belize, with a mostly Asian crew) last week. This is the first cargo ship sunk as an act of war since the 1980s. 

Allegedly traffic through the strait was down before this, but I haven't seen a measure of this. No doubt it will decline further.

***

No sinking is a good thing for the ocean. But this one may be particularly nasty.

First off, the Red Sea is not a particularly healthy body of water to begin with: long, narrow, closed at one end, with limited circulation through the other end ... and, at least historically, lots of traffic.

Secondly, the ship that sank was carrying fertilizer. Twenty-one thousand tons of it. Yeah, work out the math ... about a million of those bags they sell at stores.

Third, in the U.S. we have a problem with waterways with agricultural runoff. Basically, fertilizer washes off the ground into waterways ... and causes excessive plant growth in the waterways rather than in the fields. If you've seen a lake filled with algae, you know what I mean. Keep in mind that this problem is just from runoff. What's going to happen to the Red Sea when a million bags of fertilizer are dumped into it?