It’s been a tough week for the shipping industry. This week, a large container ship, the Dali, struck one of the supports of the Scott Key Bridge in Baltimore, causing it to collapse into the Patapsco river, halting all cargo ship traffic into and out of a crucial port in the northeastern US. The fallout from the collapse is expected to have a widespread impact on supply chains both in the U.S. and around the world.

In addition to the disruption caused by the bridge collapse, this week's talks in London proceeded toward an agreement to levy mandatory greenhouse gas emission charges on global shippers in a first-of-its-kind effort to get a handle on the more than a billion tons of carbon dioxide that the industry pumps into the atmosphere each year.

There is also an ongoing drought in the area around the Panama Canal, which has largely throttled shipping through the key thoroughfare and caused long waits for goods to make their way around the world. Add in the continued Houthis attacks on ships in the Red Sea and the rise of Somali pirates once again, and the global shipping business is headed for a tough period.

Francis Scott Key Bridge Collapse

Early in the morning of March 26, 2024, the Francis Scott Key Bridge in Baltimore catastrophically collapsed when the Singapore-registered container ship Dali, experienced a complete blackout and loss of control, and collided with one of the bridge's support columns. The incident is expected to significantly impact the Port of Baltimore's operations. The National Transportation Safety Board and other international bodies have since opened investigations into the cause, but many experts say that the bridge collapsed because it lacked protections, called fenders, around its base, which would have prevented the Dali from taking out the supporting pier.

The impact on global shipping and supply routes is largely centered on the automotive industry, and coal industry. According to the New York Times, Baltimore ranks first for the number of automobiles and light trucks that move in and out through the Port. Farm and construction vehicles also come in and out of the Port of Baltimore. Many automakers including GM, Ford, and Mercedes, have all either started working on plans to reroute cargo, or felt the effects of the bridge collapse already, as shipments get delayed for rerouting.

The coal industry in the U.S. relies heavily on the Baltimore Port for exports, according to Scientific American, with approximately one-fifth of all coal exports passing through the port on the way to places like India, where demand for the fuel has not waned as it has here in the U.S. According to the EIA, the U.S. exported nearly 74 million tons of coal in the first three quarters of 2023, the most recent numbers available.

Baltimore is not a leading port for container ships, but it does stand out as what’s known as a “roll-on, roll-off” port. That means that the equipment, crew, staff, and other maritime workers are skilled at handling vehicles coming on and off large ships. According to the New York Times story above, other ports can likely absorb the traffic that was headed to Baltimore. “Ro-ro” ships are likely to be rerouted to the Port of Brunswick in Georgia, Charleston, South Carolina, and Newark, New Jersey, since those ports already deal with automotive cargo. Baltimore can still handle some of the automotive cargo as the area east of the bridge is unaffected by the collapse. Volkswagen and BMW have both said they will still receive shipments there, according to AP News.

Rerouting will take time, burn more fossil fuels, and put more greenhouse gases into the atmosphere. Not to mention that some are speculating that rebuilding the bridge could take up to fifteen years. The Biden administration has already pledged federal dollars to get the bridge rebuilt, though Congress has been unable to do much of anything this year and has barely been able to pass budgets to keep the government open.

Levies on Greenhouse Gases Loom for Shipping Sector

The shipping sector puts out more than a whopping billion tons of carbon dioxide every year. It also carries 80% of the world’s trade.

This week at a meeting in London, the International Maritime Organization (IMO), a United Nations agency, made steps towards finalizing a mandatory, global, greenhouse gas emissions charge. The measure is supposed to be finalized next year and rolled out in 2027. Various member countries, including the Marshall Islands, Canada, EU and China, have all submitted pricing suggestions. As this Bloomberg story notes, the Marshall Islands have suggested an additional charge of $150 per ton of CO2-equivalent. That price would add huge fees for shippers.

Alongside this levy, leaders are also working on regulating a phased reduction of greenhouse gases. There are also a number of large shipping companies working on making shipping less carbon-intensive in order to hit the IMO targets that aim at becoming net-zero by (or “around”) 2050. The new rules could significantly impact shipping and the climate effects of transporting goods around the world.

Drought at the Panama Canal Continues

As a result of climate change and El Niño, the Panama Canal is in dire straits. Six percent of all global trade passes through the canal that’s just 50 miles long. The U.S. uses the trade route the most, but around 14,000 ships pass through the locks every year. According to this story over at Marketplace, the reservoir that sits in the middle of the canal, called Gatún Lake, is five feet lower than it should be at this time of year.

When the water is low, it reduces the number of ships that can pass through the canal. Currently, that number has gone from 36 ships per day to 24. The drought is expected to last through May, and the Canal Authority is considering a variety of options for saving, recycling and even cloud seeding for more water. Last year, the drought in the area caused shipping companies to pay millions just to jump the line and get through the main shipping channel. It’s safe to expect a lot more shipping delays (and idling ships burning more fuel), as the drought stretches on.

It’s also safe to expect that shipping companies will reroute ships away from dangerous (more on that below) and drought-stricken areas and spend as many as 15 additional days at sea on routes between Europe and Asia, burning more fossil fuels, to circumvent these shipping pain points.

Pirates and Attacks on the High Seas

On top of all this, there is growing unease in the shipping industry as Houthi rebels continue to attack ships in the Red Sea, and as new reports of Somali pirates surface off the coast of Africa. According to Reuters, Somali pirate activity had been dormant for a decade, with the 2008 through 2014 attacks costing the global economy billions. The Houthi attacks have opened a window for increased Somali attacks. An estimated 20,000 vessels pass through some of the busiest shipping lanes in the Gulf of Aden, carrying apparel, fuel, furniture, grains, and more. The lanes run to and from the Red Sea and Suez Canal, which is the shortest maritime route between Europe and Asia.

The rise of piracy is closely related to climate change, too.  A 2023 paper draws the parallel between warmer ocean temperatures and a rise in pirate attacks. As ocean temperatures rise, fishing yields less, especially off the coast of Africa. Young men turn to piracy as a way to supplement their income when fishing is down.

When taken together, the collapse of the bridge in Maryland, potential greenhouse gas levies, drought in the Panama Canal, and the rising attacks on the open ocean, point to an increasingly difficult landscape for shipping companies. That, combined with and exacerbated by the continued climate crisis, means that the world could be in for further global supply shortage and supply chain disruption.

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