Carmakers and insurers brace for Baltimore bridge collapse fallout

Car manufacturers are getting ready for an extended time period of decreased sales since they are changing the direction of shipment away from Baltimore following the Francis Scott Key Bridge's collapse. At the same time, insurance companies are cautioning about gigantic claims that may arise due to the calamity.

Producers are currently redirecting the transportation and shipment of their products to alternate locations following the shutdown of the most significant car-processing port in the USA, situated in Baltimore. This terminal is commonly utilized by nearly all significant manufacturers in the country.

However, they anticipate that additional traffic and a possible scarcity of dockside vehicle handlers will lead to delays at ports such as Charleston, New Jersey, and New York, contributing to other bottlenecks.

A director from a car manufacturer in Europe remarked that there definitely will be limitations when people switch to different routes.

The alerts about traffic jams are being issued while the United States officials examine the magnitude of the tragedy that occurred on Tuesday morning. In the incident, the motorway bridge collapsed due to a collision with a container vessel named Dali. It is believed that six individuals lost their lives in this mishap.

On Wednesday AM, a pair of cargo ships were observed positioned downstream of the ruined bridge, awaiting access to the port of Baltimore or the possibility of being directed to different harbors along the eastern coast.

On Tuesday evening, authorities gave the go-ahead for federal investigators to board the Dali ship to retrieve important information from the voyage recorder. This data can assist authorities in understanding what happened during the tragic collision.

The city of Baltimore in the United States is known for being the biggest port for car imports. In fact, around 15 percent of all cars that are brought to the US come through this port in 2023. Car manufacturers prefer Baltimore because it's located far inland, which means that they save on logistics costs. Additionally, there are two direct rail links that they can use, which makes transportation even more efficient. Interestingly, Stephen Gordon, who is the managing director of Clarksons Research, has revealed that about 80 percent of the cars that go through Baltimore are shipped upstream of the bridge that collapsed.

According to him, the amount of storage available at other ports located on the eastern part of the United States would be a hindrance for those who wish to import goods. The following seaports were identified as the next busiest among carports situated in the east coast: Brunswick, Georgia; Newark, New Jersey; Jacksonville, Florida; and Philadelphia.

According to Gordon, all of these areas are smaller than Baltimore and a number of them have already experienced historically high levels of automobile imports in recent quarters.

Atlantic Container Line is a company that runs roll-on-roll-off vessels that transport assembled automobiles. They anticipate that major automobile importers will encounter “significant challenges” when attempting to locate available parking spots at nearby ports. As a result, “backup ports” will become occupied promptly before the “full capacity” notice goes up, according to the company.

The Mediterranean Shipping Company, which runs the most significant fleet of container ships, has notified its clients that normal operations at the port would take "many months" to resume. The company also stated that it would be excluding the terminal from its services "for the foreseeable future."

A car company that sends cars to the United States through Baltimore said that the destruction of the bridge could have an impact on its sales in the next few months. However, they said that it was too early to say how bad the traffic would be in other areas. Another big European car exporter has informed dealers to prepare for "delays" when delivering cars.

Dominic Tribe, an expert in the automotive industry at Vendigital, explained that the biggest problem when it comes to redirecting traffic to different ports is the insufficient highly skilled workforce and specialized equipment that is required to efficiently handle the vehicles. He pointed out that in Baltimore, there are a couple of companies that provide car processing services on site. These services include adding extra features and taking care of minor repairs.

According to Jefferies analyst Philippe Houchois, car manufacturers are anticipating a decrease in deliveries instead of a complete stop.

Many car manufacturers from Europe like Volkswagen and BMW are not affected, as the Sparrows Point terminal in Baltimore is still operational and is situated downstream of the bridge. This terminal is located on the premises of an abandoned steel factory.

Volkswagen, a car manufacturer that sent around 100,000 cars through Baltimore in the previous year, stated that they do not expect any problems with their shipping by boat, but there may be delays for trucks since traffic in the region will be redirected.

According to the operators of the port, the Wolfsburg, which takes its name from Volkswagen's HQ in Germany, was the initial vessel to arrive at the Sparrows Point terminal after its reopening on Wednesday.

According to Mercedes, they utilize the Baltimore port along with Brunswick, New York, and Charleston, South Carolina as a part of their adaptable supply chain system.

According to BMW, their car hub in Baltimore is still open for imports. They will continue to transport their X5 sport utility vehicle, which is produced in South Carolina, via Charleston port in the same state.

JLR has reported that their vehicles have been impacted due to the Baltimore terminal being used as the main port. They're currently evaluating their options and considering taking other transportation routes into the country. The company already utilizes Brunswick port and Hueneme in California for their operations.

The insurance industry is preparing itself for huge financial losses due to the incident. Reinsurers will most likely be responsible for covering the costs. This is expected to result in a lengthy legal process that lasts for several years.

In a note published on Wednesday, experts at Barclays stated that the insurance payout for the accident may possibly extend from $1 billion to $3 billion. Additionally, AM Best, a company that specializes in evaluating insurers, has predicted that the cost will undoubtedly amount to billions of dollars.

A significant amount of the money is predicted to be distributed among the reinsurers for the ship, who are a vast group, including Axa XL, a subdivision of the French insurance company. Axa assured that any effects would not have a significant impact on the overall group.

According to AM Best's senior director, Mathilde Jakobsen, claims may involve damages to property, cargo, third-party liabilities, and business interruption. This will make it even more difficult to find reinsurance coverage. In the past few years, reinsurance companies have been less active, putting more stress on primary insurers and their customers.

Insurance companies are racing to comprehend the extent and diversity of the probable demands. President Joe Biden has announced that the government will finance the rebuilding of the bridge and made clear that it does not intend to wait for reimbursement from private industry.

According to Julien Horn, who works as a partner at an insurance brokerage firm called McGill & Partners, the possible responsibilities are not limited to reconstructing the bridge. They will also have to manage the wreckage of the bridge from both the river and the vessel. Additionally, he mentioned that understanding the entire effect on the community's economy would take numerous years.