Marketplace - Baltimore bridge collapse a jolt to commerce

Episode Date: March 26, 2024

The Port of Baltimore is an important link in the U.S. supply chain. For one, it’s the nation’s busiest port for car shipments. But after the Francis Scott Key Bridge collapsed early Tuesday morning, the disruption could be prolonged. Plus, is 67 too young? Why some think the U.S. should raise its retirement age. Plus, how new construction impacts Houston’s housing market and what CHIPS Act funding means for a 1950s-era manufacturing plant in Vermont. 

On the program today, it's about more than just a single bridge. From American Public Media, this is Marketplace. In Los Angeles, I'm Kai Rizdahl. It is Tuesday, today the 26th of March. Good as always to have you along, everybody. The events of the early morning hours near the port of Baltimore are still playing out. At last word, six people who'd been repairing potholes on the Francis Scott Key Bridge are still missing. National Transportation Safety Board investigators have said they will hold off while the search goes on. And in the meanwhile, at a press conference this afternoon, Transportation Secretary Pete Buttigieg said there would be, and this is a, quote, major and protracted impacts on the national supply chain. Marketplace's Justin Ho has that part of this story.

The port of Baltimore isn't huge. It's the ninth largest in the U.S. in terms of the value of imports it handles, according to the state of Maryland. But Tinglong Dai, a professor at Johns Hopkins University in Baltimore, says the port is pretty specialized. It's the largest auto port in the United States. Dai says autos come into the port from Europe and Latin America. Baltimore also takes in a lot of farm machinery and construction equipment. in America. Baltimore also takes in a lot of farm machinery and construction equipment. Moving all of that stuff off container ships and around the country requires a lot of unique shipping infrastructure that Baltimore has. That just requires different kind of expertise,

different size of vehicles. Other East Coast ports, including Charleston, Norfolk, and Savannah, are going to have to figure out how to take in vehicle shipments that can't unload in Baltimore, says Jason Miller, a professor of supply chain management at Michigan State University. Anytime you have that important of a cog of the import supply chain essentially get jammed up, it's going to be much harder to reroute that many vehicles through other ports, you know, like Savannah in the United States. through other ports, you know, like Savannah in the United States. But Miller says those ports do have capacity for other types of imports, like consumer goods.

That's because import volumes have come down a lot from early in the pandemic, when ports around the country were jammed up. They would still have been handling more imports back in 2022 than they would today absorbing those volumes. In the meantime, a lot of importers are scrambling to adjust their supply chains. We're all preparing for some sort of backup plan. That's Weston Labar with the freight broker Cargomatic. He says the pandemic taught a lot of importers how to be flexible. But adjusting supply chains will still be a challenge for industries in the greater Baltimore area that can't just pick up and move. And the longer it goes on without resolution, the more stress it will put on the local community.

Think the truckers, the warehousers, etc., who depend on freight obviously coming in and out of the Port of Baltimore to be able to pay their bills. The Port of Baltimore says it doesn't know how long vessel traffic will be suspended. I'm Justin Ho for Marketplace. The container ship that hit the bridge, Dali, registered in Singapore, had been chartered by the Danish shipping conglomerate Maersk. Maersk shares in New York today down almost two and a half percent. The major indices off as well, not near as much, though we'll have the details when we do the numbers. This will mean more to those of you who are of, shall we say, a certain age than others. But here is a very significant macro and micro economic number for you. 67. That is the official Social Security retirement age, or more accurately, the age at which you can get full benefits.

There are some, though, who think that age needs to increase. Most recently, Larry Fink, the head of BlackRock, the biggest money manager in the world. Fink made that suggestion in an investor letter today, arguing that because of longer life expectancies, we should maybe think about pushing the retirement age higher. The official retirement age, for what it's worth, hasn't really been touched since the early 1980s. And as we all know, the economy has changed a whole lot since then. Marketplace's Matt Levin is on this one. The first official government retirement age dates back to the late 19th century, when Germany introduced the first version of Social Security to the Western world. Before penicillin or the polio vaccine,

German seniors had to wait until age 70 to stop working and get benefits. So should we at least match that retirement age? There is definitely a segment of society for whom having 70 as the required age would be appropriate. Alicia Minnell heads the Center for Retirement Research at Boston College. But if you're working in construction, clearly your body begins to fail in your 50s. Minnell says raising the retirement age would disproportionately hurt people of color and individuals without a college education who fill blue-collar jobs. And while technology has made white-collar work physically easier, it could make keeping your job harder.

Teresa Ghilarducci is an economist at The New School. Some people say that computer and economic progress have made jobs easier in your 60s, but they've also made skill obsolescence faster. Still, something does need to be done about Social Security. It'll start running into serious money problems in a decade if neither benefits nor revenues change. Economist Jonathan Gruber at MIT says he'd prefer to see a system where retirement age varies by income. People who are sufficiently are high income should be expected to work longer and get less from the system. People are more physically demanding jobs and lower income should be able to retire earlier.

That could be a tough political sell, though. I'm Matt Levin for Marketplace. Home sales in this economy come in two basic flavors. Existing homes, used homes is another way to think of that, and new homes, sales of which the Commerce Department tells us were up 6% last month from a year ago. Increasingly, those new homes are making up a bigger share of overall sales, especially in one very big state where new home construction dominates. Marketplace's Elizabeth Troval takes us to the suburbs west of Houston.

On a suburban street wedged between grassy fields and half-built subdivisions, I meet Lauren Flathouse. We're in what's called a model home park. You can actually see model homes built by several different builders. So right now we're standing in front of the Westin Homes. This model is a two-story gray brick home on the corner of Apple Glen Court and Birchview Lane. You've got Perry Homes, you've got Highland Homes, you've just got kind of a mix of everything so you can dictate based on features and your budget. Flat House is a local realtor who also moved into a new home near here, about 35 miles from downtown Houston. We are in Jordan Ranch. You've got beautiful amenities, amazing schools, and you're in the west side of Houston. We've got a ton of growth happening in this area. Construction began on more than 35,000 new homes in the Houston area in 2023, according to real estate data firm Zonda. Roughly 10,000 were in the west part of town. The number of new home starts here in this area

is the same as all of Las Vegas last year. A lot of it's tied to, particularly what we've seen the last few years in migration coming into Texas. Brian Glasshagle is with Zonda. A lot of households moving both domestically from other states, California, and then a lot of international migration that comes to Texas as well. Though Houston's real estate market has not been immune to the cooling effects of interest rate hikes, Glasshagel expects an increase in new home starts in 2024. And he says long term, it's probably still not enough. With the population growth, the household growth, the job growth that's expected for Houston, I think you're going to look at this market as being a little bit supply-constrained as we move

it forward. Not significantly, but not quite in balance either. And the people buying new homes aren't just first-time homebuyers looking for starter homes, says Daniela Sumbera, a Houston-area realtor. She says new homes are 60 to 70 percent of her firm's buyers. We have some right now that are coming from Portland. People who may have sold their 1,400-square-foot house for a million dollars. So in Houston, you can easily find a 4,000 square foot house on, you know, a quarter of an acre with all the bells and whistles. They are completely baffled by how much home you can get for a lot less. And for those not paying cash, builders are buying down interest rates to make the mortgage payment more affordable. In Jordan Ranch, homes start at about $300,000.

And while it may be far from the city, these new builds are accounting for a new way of life and work. Richard Matlock is a local builder. We offer a choice of a study or a bedroom. But a lot of people are using that choice as a study. So it's a custom option that you can get in your home. But if we're building an inventory home, it's going to have a study in it. When he started building homes 25 years ago, they were a luxury item.

But now it's just almost in every home. The price of that spacious home? A long commute. People here joke that Houston is an hour from Houston. But with a work-from-home study, bike paths, golf courses, and in some cases, a neighborhood lazy river, developers are doing all they can to sell the suburbs. In Houston, I'm Elizabeth Troval for Marketplace. President Biden was in Phoenix last week, same time we were there actually doing some reporting. The president announced eight and a half billion dollars in grants, another 11 billion in loans to Intel to build and expand chip making factories in Arizona and three other states.

The Taiwanese semiconductor giant TSMC is in all likelihood in line for $5 billion for two facilities being built north of Phoenix. And a 65-year-old chip factory near Burlington, Vermont, is in line for some money, too. The plant, owned by Global Foundries, is far from its heyday. But the Biden administration is betting a billion and a half dollars it can be rebuilt to make a new kind of chip, as Marketplace's Henry Epp explains. Beneath wood-paneled walls and a is-it-wine-a-clock-yet sign in Earl Mungin's basement in Westford, Vermont, he's laid out stacks of papers across his pool table. Records and memorabilia from his 39 years working as an engineer and labor organizer at the semiconductor plant in Essex Junction. Flyers, meeting handouts. Newspaper clips on, you know, IBM when they were expanding their workforce actually by 500 people in Essex. And then, of course, this was in 1999. IBM opened

the plant in the mid-50s. For decades, it's been the small state's largest private sector employer. In the late 90s, it peaked out at about 8,500 employees. It was like its own little city because there were so many employees and, you know, there's so many different personalities. But that feeling didn't last. Starting in the early 2000s, Mungin says IBM cut back its investments in the facility. Our quality kind of suffered a little bit, and we had some slowdowns. And the company started laying people off as it moved away from manufacturing and towards services.

It doesn't employ as many people as it did in the 90s, but it's employed generations of Vermonters. Christine Dunbar was one of them. She worked at the Essex plant for over 25 years. IBM operated it until 2015, when the company actually paid Global Foundries to take the nondescript compound in an industrial park off its hands. By that time, its peak workforce had been cut by more than half. Now it's down to about 1,800 people. It also doesn't make the most cutting-edge chips.

And yet, the plant has kept running. You know, time and time again, that team there at IBM and now Global Foundries has transformed themselves and the products and has given that factory new life. And if the plant clears a final hurdle, a due diligence check, and the $125 million federal grant comes through, they're poised to do it again. This time by making chips with a material called gallium nitride. Most chips are made on silicon. But Willie Shee, a professor of management practice at Harvard Business School, says gallium nitride is getting more popular because it can handle more power.

The electrons actually move faster in a gallium nitride semiconductor device than they do in silicon. That makes it an ideal material for charging things, says Christine Dunbar. She now works for the British semiconductor firm IQE, which makes gallium nitride components. As we spoke, she was holding a charger that uses the material.

It plugs into the wall that charges my smartphone devices. It's cool to the touch. It charges very fast, and it's using a lot less energy. All of those attributes make these chips a good fit for electric vehicles, too. They can also amplify high frequencies in smartphones to access cell data. These specialty chips need to be a certain size, a size many plants can't make right now. Lucky for the Vermont plant, its older manufacturing lines can. And because new semiconductor plants are really expensive to build from scratch,

Willie Shee at Harvard says older facilities like this one have value. You already have clean room processes, you already have materials handling processes, and you have, you know, some of that general semiconductor expertise. But Scott Johnson, the plant's senior director of technology development, says the place could use some better tools. To stay competitive, you've got to continuously improve your plant, and this one needs some tender loving care. improve your plant. And this one needs some tender loving care. It'll get it with the planned federal funds. And owner Global Foundries says it's putting some money in too, though it wouldn't say exactly how much. It also won't say exactly how many more people it will hire beyond an expected 400 construction jobs. So while the plant may have a more certain future, that city-like workforce of the late 90s is not likely coming back. In Burlington, Vermont, I'm Henry Abb for Marketplace.

Coming up... You have to kiss a lot of frogs. You have to meet a lot of people. That's one way to do business, I guess. First, though, let's do the numbers. Dow Industrials off 31 points today, less than a tenth percent, 39,282. The Nasdaq shed 68 points, four-tenths percent, 16,350. And the S&P 500 down 14 points, three-tenths percent, 52.3 there. We heard from Elizabeth Troval about new home construction in Houston just now.

So let's look at some builder stocks. Shall we? Pulte Group, which has a focus on entry-level homes, added a quarter of 1%. Toll Brothers specializes in higher-end construction, gained two-tenths percent. KB Home, which does both attached and detached single-family homes, fell one-third of 1% today. Bond prices went up when that happens. The yield goes down. The 10-year Treasury note, the benchmark 10-year T-note fell to 4.22%. You're listening to Marketplace.

This is Marketplace. I'm Kyle Risdahl. There were a couple of economic indicators of note out today. Kay Schiller, the home price people, said housing prices in the 20 biggest cities in this economy were up 6.6 percent in the 12 months ended in January. Low supply, people with low rate mortgages not moving. You are familiar, I'm sure, with the underlying causes there. Mortgage is not moving. You are familiar, I'm sure, with the underlying causes there. Consumer confidence. That's the one from the conference board, not the University of Michigan. Dipped in March specifically about the economy to come is how people were feeling less confident.

Also, orders for durable goods, big expensive stuff. They picked up in February after a couple of down months. New aircraft figured prominently. They always do, given how expensive they are. Also, orders for computers up 3.1 percent. That's been a strong category for a couple of months now, as Marketplace's Samantha Fields explains. Right around this time, four years ago, COVID was shutting down much of the world. Where were we? Well, we were in the whole lockdown rush. Everyone has to go home and work from home. Patty Harrington at Forrester says a lot of people who worked in offices had desktop computers that they couldn't easily bring home with them. It just doesn't work.

So what did companies do? They bought a lot of laptops for their employees to work from home. A lot of people also bought themselves new personal computers early on in the pandemic when there wasn't much to go spend money on outside the house. Now, Janet Tong at Alex Partners says it's just time for a lot of those people and companies to replace or refresh those computers. There's a natural refreshment cycle. I use a computer for three years. It's time to get a new model. On average, Tong says, people buy new computers every three years or so. So a lot of this is just cyclical. There is another factor that could be playing a smaller

role here too, she says. New computers that have AI capabilities. All the major computer vendors have already announced their new product coming out with AI capability installed into the computers. That's something that's fairly new to the market. And she says people and companies that like to keep up with the latest, newest tech might be compelled to try them out. I'm Samantha Fields for Marketplace. All right, here's a tidbit from the Government Accountability Office. In 2022, that's the most recent data the GAO has, the federal government committed almost $700 billion to contracts. That's services like engineering support or health care.

It's also goods, pharmaceuticals, IT equipment, airplanes. To be clear, that is just the amount committed in a single year. It's not continuing expenditures. But the reason I bring it up is that a growing share of those contracts are being won by tribal businesses. According to an analysis by Tribal Business News and the market research firm HireGov, firms owned by tribal nations, Alaska Native corporations, and Native Hawaiian organizations won a record $23 billion in federal contracts last year. That's up for the eighth consecutive year. Marketplace's Savannah Marr took a trip to the annual Reservation Economic Summit in Las Vegas to have a look around.

On the first day of the summit, some 200 people are milling around this conference room in Caesar's Palace. They're here for the matchmaking expo, which is sort of like speed dating. Only it's 9 a.m. and people are in business attire. And the goal is to leave with a contract. You have to kiss a lot of frogs. You have to meet a lot of people. Sharon Hamer founded Akiak Holdings, owned by the Akiak Native community. We're in remote southwest Alaska, and we can provide the same level services as the lower 48 tribes. Services in IT and facilities management.

She's hoping some of the 75 buyers here will be interested. There are a couple of Fortune 500 companies like Walmart and lots of federal agencies. We met with Department of Interior, USGS, FDIC. A couple of defense and energy agencies are on Brad Root's agenda. He's with the Puyallup Tribal Enterprises Group. We have Global Logistics Group. We actually have a candy company. We have Manufacturing Group, which is what I'm responsible for. All new ventures that the Puyallup Tribe launched or purchased just in the last two years.

They offer printing, manufacturing, assembly. the last two years. They offer printing, manufacturing, assembly, warehousing, distribution, anything that really can go to serve the federal government. For the last 30 years, Puyallup has been a gaming tribe, and its Emerald Queen Casino just outside of Tacoma, Washington, has been a pretty reliable economic engine, except for a tough stretch starting in March of 2020. COVID came and really hurt the gaming, you know, that this kind of basically shut them down. And Root says that was a wake-up call for the tribal council. That was one of the things that helped prompt them to get diversification. The pandemic gave lots of tribal governments the same scare,

says Lillian Sparks Robinson, CEO of Wopila Consulting. It was just difficult for the public to access these otherwise normally successful ventures that promote economic development in tribal communities. Not just gaming. Tribal hotels, restaurants and tourism enterprises also took a hit. Meanwhile, federal spending picked up under the CARES Act and the American Rescue Plan. Government contracting certainly became more of an attractive idea. To tribes that couldn't afford another economic shock. Because the revenue that's generated pours back into the infrastructure, the education, the housing, the health care, elder programs. Tribal enterprises are standing in for a tax base in many communities.

And often they have a dual mandate of generating revenue and gainfully employing as many tribal citizens as possible. Sparks Robinson says tribal firms don't always behave like traditional profit-driven companies. It is certainly a constant, this education and awareness piece about how Native entities operate differently. Sharon Hamer spent a lot of her 15-minute matchmaking sessions educating potential business partners about how Akiak Holdings works and what its revenue pays for. She says the firm's community impact is part of her pitch.

Because it is so compelling. Since its 2019 launch, Akiak Holdings has won some big contracts, including a $100 million deal with the Department of Defense. Hamer says it's helped her rural tribe make a major investment. Every home in the native village of Akiak got broadband right at the height of COVID, which was very, very important. Hamer didn't walk away with a contract today, but she built some new relationships that down the road out today, 19 cents. That's been the price of a single banana at Trader Joe's for 20 years.

But inflation waits for no one. The company said this week that its costs have gone up. So a banana will now cost you 23 cents. About which two things. First of all, for the record, inflation is, well, if not actually falling the past couple of months, then at least steady and lower than it had been. Also, people buy single bananas? Our digital and on-demand team, I have no idea what their banana consumption habits are. Include Carrie Barber, Jordan Mangy, Dylan Miettenen, Janet Nguyen, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive director of digital and on-demand.

I'm Kai Risdell. Levy is the executive director of Digital and On Demand. I'm Kyle Risdell. We will see you tomorrow, everybody. This is APM. All over the country. We need to improve reading in Wisconsin. Schools are changing the way they teach reading. I'm calling for a renewed focus on literacy. We have gotten this wrong in New York and all across the nation. And it's happening because of a podcast.

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