Odd Lots - Why Tracy's Furniture Is Stuck on a Grounded Ship

Episode Date: March 23, 2022

It's happened again. Another container ship owned by the Evergreen Maritime Corp. has gotten stuck a year after the Ever Given became lodged in the Suez Canal and briefly halted the flow of global trade. This time the grounding happened in the Chesapeake Bay and involves the Ever Forward -- a 1000-foot container ship which happens to be carrying the contents of Tracy's entire Hong Kong apartment. On this episode of Odd Lots, Tracy Alloway and Joe Weisenthal speak with maritime historian Sal Mercogliano about why another ship has gotten stuck, what it says about shipping and infrastructure, and how long Tracy might have to wait to get her stuff.See omnystudio.com/listener for privacy information.

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That's vanguard.com slash audio. All investing is subject to risk vanguard marketing corporation distributor. Hello and welcome to another episode. of the Odd Lots podcast. I'm Tracy Allaway. And I'm Joe Wisenthal. Joe, do you remember that time I tried to ship a teddy bear in a single container from Hong Kong to New York? Or was it L.A.? Well, to the U.S. Yeah. And basically the story is like, it's just so operationally complex and paperwork and there was no space. And it didn't make it in the end, right? No, I couldn't, basically, I couldn't get on a ship. I kept getting bumped and bumped and bumped. And finally, it seemed like it was going to be six. months until I could even get space. And so it didn't seem worth it. And now, now that I've moved to New York,

I got to repeat this entire experiment, you know, in reality. And I got to put all my apartment belongings into a container, put them on a ship, and actually ship them from Hong Kong to New York, except it turns out I still can't actually ship anything from Hong Kong to New York. I love how, like, no one has more experience with the physical. realities of our commodity and infrastructure system than you between the teddy bear, between the barrel of oil that you bought and kept under your desk for a while. And now this, you seem to have a knack for experiencing firsthand what the rest of us just see as lines on the chart. I think I have a knack for failed logistics. But for our listeners, those who haven't been keeping abreast of all the

shipping news, there is another ship that is stuck. This time it's stuck in the Chesapeake Bay, just outside the port of Baltimore. And, you know, ironically, I guess, that irony isn't the right word here. But it happens to be owned by the same company that owned the Evergiven, the boat that got stuck in the Suez Canal. This time, the container ship is called the Ever Forward. Only, of course, it's not going forward. It's stuck in the mud with all my belongings in it. So the Evergiven got a lot of attention, obviously, in part because it blocked. all the traffic of the Suez Canal, which everyone knows. I take it, ever forward, it doesn't seem to be blocking as much, I think, but it has all your stuff on it.

That is correct. So there were some news reports around this, but definitely not as much attention as the ever given, given that that thing was blocking an actual percentage of global trade, who could no longer go through the canal. The Chesapeake Bay remains open. but it's interesting to me personally for obvious reasons. But it also, the fact that this has happened again feeds into a number of the themes that we were discussing all throughout last year. And I know we've been talking about a lot of other stuff recently, but I think we have to dive into this one. We owe it to Odd Lots listeners and ourselves.

So we are going to be speaking with Sal Mercogliano. He is a maritime historian and a history professor at Campbell University. He also runs an excellent YouTube channel, which has been going in depth on what's actually happening with the ship, the Ever Forward. Sal, thank you so much for coming on the show. Well, thank you for having me. Why don't we start with the basics? Because, you know, I read the news articles.

This thing has been stuck for just over a week now. What exactly do we think happened here? How can a massive container ship have this kind of incident for a second time? Sure. So Ever Forward was on a routine voyage. She had come through the Panama Canal and was stopping at four East Coast U.S. ports. It had stopped already at Savannah and offloaded. It had gone up to Baltimore and offloaded part of its cargo.

And it departed on the evening of March 13th and was heading down to Norfolk and then eventually to New York. So the ship departed routinely, came off the birth, late at the evening, early morning. and she seemed to be following all the rules. I mean, everything seemed to be fine. They were maneuvering. There seemed to be no incidents with her. And she's part of this new class of what's called a Neo-Panamax vessel. These are vessels that can use the new lane of the Panama Canal that was opened in 2016.

So these East Coast ports have been dredging and building to accommodate vessels like this. And Everford was heading southbound through what's called the Craig Hill Channel. This is the channel out of Baltimore down to the Bay Bridge at Annapolis. And the ship was following the track that it normally does in the Dredge Channel, which is well lit, well charted. She had a Chesapeake Bay pilot on board in addition to her normal crew and master. And the vessel went through the buoys at the top of the channel, but proceeded to keep going out of the channel. Didn't appear to make the change at all to the course to head southbound. and what she wound up doing was plowing into the mud on the east side of the channel.

She draws about 42 feet of water in the condition she was when she left Baltimore. She is now sitting in anywhere between 18 to 24 feet of water about an entire ship lengths off the channel. She's over 1,000 feet long. So what is what's being done right now? And you mentioned the ship has been stuck for a little over a week. What's been tried and what is the sort of basic idea? of what people are trying to do to get the ship moving again. Sure.

So, again, we're not exactly sure what caused this incident. Let me go back to that for a second. Okay. So, you know, there's either a mechanical issue, which is, you know, she couldn't steer or it is a human error. Was there a miscommunication between the pilot and the crew? Was there an issue regarding the proper helm order? Did they lose their situational awareness? I find the latter the least likely because this is a well-lit channel.

It's like a landing zone. for an airplane well lit with the buoys heading to the Bay Bridge there. So we're probably looking at a mechanical or communications error. In regards to the salvage of the vessel, so we're a week into this at this point. And again, ever given took just six days to get free. And now we're over a week into this. And what they've begun to do is start dredging in two areas, one off the stern of the vessel and one off the forward bow of the vessel, off the right side of the vessel.

And what they're trying to do is remove the mud and spoil from around the propeller and rudder of the vessel and also trying to clear the forward bow and an attempt to pull the ship into the channel. The problem is the amount of spoil that is there. This is the material that had actually been removed from the channel. And the method they're doing with the dredges they have there are big for the United States, but they're not like the vacuum dredges you see in the Suez Canal. I'll give you an idea. The biggest dredge on scene here can move about 60 cubic yards of material in each of its moves with its big clamshell.

The Massoud, which was the dredge used in the Suez Canal, could move 70,000 cubic yards of material in an hour with its vacuum suction. Wait, was that the little one that turned into a meme, or was that something else? That was the big dredge. It wasn't the little digger. Although I've seen a lot of memes. I've seen a lot of memes right now. with the little digger on the way to the United States. Can you just say those two numbers again?

How much could the Suez Dredger do versus the one that we have operating right now? Sure. So there's two dredges right now operating. The one off the bow of the vessel can move about 15 cubic yards in each move. The one off the stern, the Dale Piot, can move about 60 cubic yards. The Meshore, which is the big dredge that was used on Evergiven, can move 70,000 cubic yards an hour. Whoa. Okay.

Here's my question. Why don't we have a bigger dredger? Well, and that's a big issue. I would argue, you know, one of the things that we've been talking about with port infrastructure is the focus. I mentioned the expansion of the Suez Canal. So we've been dredging channels. We've been bringing in these large ship-to-shore cranes. But one of the things that has really lagged is our dredging capacity. And we've seen recently through the infrastructure bill money being contributed or being allocated to build new dredges. And we're seeing. new dredges build. It is a priority that really needs to be done. We do not have sufficient dredging capacity in the U.S. And there's a law that requires, there's the Dredging Act of 1906 that requires dredges within the United States to be U.S. owned, U.S. built, U.S. crude, very similar to the Jones Act of 1920. And this is because we want dredges within the United States. The problem is we just haven't allotted a lot of money to it. And there really hasn't been the impetus to fund this, and I think this incident is really highlighting that danger. I can't believe, Tracy,

we're going to have to now do an episode, an hour just talking about America's systematic underinvestment in dredging capacity. But at some point, we're going to have to do this. But also, why haven't we? I mean, why, like, why has there been this sort of underappreciation? I mean, I understand, like, dredging isn't just about getting ships unstuck. So why this sort of systemic underinvestment? Well, it has to do with the, way we handle ports in the United States. So you've, you had Gene Seroca on. Gene is the CEO of the port of Los Angeles. Ports in the United States are owned by the states and municipalities. So they're a local entity. Yet the waters that connect those ports to the ocean are federal.

And so they fall under the Army Corps of Engineers specifically. And so the Army Corps of Engineers has been tasked to basically maintain the dredging. And they do it either with their own fleet of dredgers or they contract out with that. And, you know, this comes back to everything from Hurricane Katrina and, and the dikes and all the waterways maintenance. And we just have underinvested in this. It's not a very sexy topic. No one likes to talk about it. No one likes to pay money for a dredge. It's, you know, it's just not, not as sexy as an aircraft carrier or something, you know, more nautical. But it's absolutely essential. And one of the things that we've seen happen, again, over the past decade is these East Coast and Gulf Coast ports have been using what dredges are available to get

those channels down to accommodate these larger vessels, these ultra-large container vessels. And while Ever Forward is not an ultra-large container vessels, she's actually substantially smaller than ever given by about 400 feet and 8,000 boxes. She is still a mammoth vessel when you look at her compared to the vessels that have previously come into U.S. ports. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy.

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in Health, Sautonu Canada. So we build these massive container ships and, you know,

Joe and I have had a number of guests on at this point talking about how the ships

get bigger and bigger and the reasons why that happens. But at the same time, it doesn't seem like, again, we've made sufficient investment in the infrastructure, if you include dredging in the category of infrastructure, to actually make the whole system work efficiently. Right. And I think that's a key element right there, because one of the things we're watching is, okay, how can we better improve it? And we've talked about, you know, improving throughput in the ports, everything from road, rail, dreage trucks, you name it. But again, the maintenance of the ports are really essential and be able to flow the cargo. And in particular, one of the things you're seeing right now is because

of the backlogs on the West Coast that have been going on now for over a year, you're seeing shippers, those who want to move cargo are shifting over to the East Coast. You know, the ports of New York of Charleston, Savannah, Baltimore, Norfolk, Houston are actively seeking this cargo. And it's successful. They're getting it. You're seeing this. Matter of fact, you're seeing where you had seen backlogs off the port of Los Angeles, which are over 100 ships. Now they're down to 40. Now we're seeing them off Charleston. We're seeing them off Norfolk. We're seeing them off New York. And we're kind of moving the issue. And Port of Baltimore, in particularly, is a very interesting port because it does not just containers. It does bulk cargo, coal in particularly. A lot of vehicles move through. It's an active moving port.

And so moving ships in and out as expeditiously as you can becomes a priority. And there's going to be a question about was Everford going too fast for the channel she was in? Because the faster you go, and it's literally the same thing with Evergiven, too. If Evergiven hadn't been going as fast, 13 knots. And Everford was doing 13 knots too. Had they been going slower, the salvage and the damage and the ability to get the vessels off would have been minimized. Is that faster than they should be going in either the Suez or the Chesapeake? Well, it's funny you said that because I had Marine Traffic, which is an AIS tracking app,

which does all the kind of monitoring. Ever Forward came through this same area in December. And when she came through in December, she did roughly the same speed. So it was roughly about 12, 13 knots she was using coming in. So I was able to see her departure. And it seemed to be the same exact. Now, she may speed it up just a little bit prematurely before turning into the channel, and that's something that's going to have to be investigated.

So I want to ask a question, which is very important to me personally, but what are the chances that something really bad happens in the situation and my entire apartment's belongings is just like jettisoned into the ocean or, I don't know, the ship cracks up and I lose everything. Is that an above 0% chance? I would say you're not without some worries, Tracy. I think one of the reasons we're seeing this salvage taking time. Again, I think the Coast Guard's announcement that she'll be free this week is very premature. Bill Doyle, who's the CEO of the Port of Baltimore, headed the dredger Association of the United States.

I mean, he nodes dredging, and he says this is going to take several weeks. since the vessel is fully aground, meaning its bottom is touching. Again, she draws 42 feet of water. She's in 18 to 24 feet of water. She's literally up higher than she normally is sitting on mud. They have to be concerned about several issues. Number one, this vessel cracking. Ships are designed.

This is a 2020 ship brand new. Ships are not designed to touch anything. They're designed to be buoyant. And the hulls are very thin in certain areas. I'm talking millimeters thick. And what you have to worry about is the vessel shifting, moving, and cracking. This could necessitate an oil spill, for example, or fuel spill. So they want to move her very carefully.

The other thing is since there's no buoyancy acting on her, there's nothing pushing her up to keep her afloat. Everything is pushing down. And what you have to worry about is if you pull her back into the channel, she went out to the channel to the east side. So you would have to pull her to the west. You don't want the vessel to roll. And that's the worst case scenario, in which case your apartment goods would then be wet in the ocean or in the bay. This leads to my next question. I guess it's the two potential.

A, if Tracy's entire apartment goods go into the ocean, who pays her for that? But B, who is paying right now, assuming Tracy does get her stuff? But how are the sort of costs of delay allocated? Right. We all remember the law of general averages from previous episodes. So I'm also worried about my liability and whether or not I end up paying for the contents of this entire ship. Well, I'm glad you mentioned that, Tracy, because that's what I was going to allude to. Oh, good.

I'm hoping you have insurance on this because right now, this entire salvage is being done by Evergreen, the company associated with this. And they have not yet declared general average, in which case the cargo would have to bear a portion of the salvage. Right now, it's under the Protection and Indemnity Club that ensures the vessel. So they're paying for the salvage right now. And, you know, they contracted with Don John Smith, which is actually a combined company doing the salvage. Smith had done the salvage on Evergiven in the Suez. And so now Don John Smith are doing this.

And again, there are certain liabilities that are going to have to be looked at. Number one, cargo delay. This cargo is not going to be delivered on time. So there may be liabilities against that. But again, if the vessel has a catastrophic issue, then that may be something that has to be done. And under shipping agreements, the cargo bears part of the responsibility. If they declare general average, then the question becomes, does the cargo pay? This is why whenever you ship anything, you need to get insurance on it, because if not, you open yourself up to huge liability.

They may have to start taking containers off this vessel. If they think they can't move it safely, she didn't have that much ballast on her. Because the ship has offloaded cargo, ships tend not to take ballast in what they call brown water. They like to do it out in the ocean in blue water because they have to run that ballast water through a system to clean it, to purify it. And that's expensive because you have to pump off that material at the end. So this ship probably didn't have very much ballast on board. They were probably going to ballast after they left New York. So that means taking fuel off. And if that's not enough, the problem with that is it raises the center of gravity of the vessel.

That means you've got to start taking those loaded containers at the very top off. And that is a complicated problem. You need huge cranes to come out to do it. It's a very slow process. But that may be necessary. While we're here, I'm looking at reading a little bit more about the Foreign Dredge Act of 1906, suddenly relevant. Can that be way? You know, I know sometimes like you talk about, oh, can the president suspend or pause the Jones Act? Act, and sometimes you hear about that during emergencies. Can the president do anything? Like, could we get a bigger dredge from another country just temporarily? You can waive the Dredge Act and bring it in. The problem you have, of course, is whatever foreign dredge exists is not here. It's too far away.

It's going to be a delay to get it over here. And one of the reasons that this Dredge Act was enacted was to ensure that we had dredges in the United States that could do this. So that in case of an emergency, in case of an accident like this, where a ship runs ground. Now, fortunately, ever forward went out of the channel. She hasn't blocked Baltimore. Right. So, you know, we still see the free movement. However, when they do salvage her, she's going to temporarily block the channel to bring it out. But I think this again goes to that idea of infrastructure. You know, one of the things we're not talking about, too, is the size of tugs.

You know, it was estimated that this ship grounded and there's a grounding force, the amount of pull you would need to pull her off. According to naval architects, I've talked to the marine industry excuse me, the Marine Innovation Safety Lab. They've estimated it's going to take anywhere from 20 to 24,000 metric tons of pull to get her off. A normal tug pulls about 60 tons. So it gives you the idea of what you need. And again, we're not investing a lot in our tugboats, which sounds very small. I know it's not a very sexy topic.

But in truth, as these vessels get bigger, they're much bigger than the tugs that were designed to handle vessels 10, 20, 30, 30 years ago. I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets, from corporate law to constitutional law and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars, and policy experts to break down what the rulings really mean. We do this every weekday, then bring you the best conversations in our daily podcast.

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What are the chances that instead of building out the infrastructure, so getting bigger dredgers, getting bigger tugboats, widening channels and things like that, that we settled for smaller container ships? Is that realistic or desirable at all? Well, I would say two things on that, Tracy. Number one, we will continue to get vessels bigger and larger than even this because insurance companies will keep insuring them and ports will keep accepting them and operators will keep getting them. I should say that right now, right in the midst of this grounding Evergreen, the parent company, just ordered three ultra-large container vessels, 24,000 box vessels. They did the same thing, by the way, when Evergiven had run ashore. Literally a day or two after Evergiven ran ashore, they placed a huge. order for these vessels. They love these vessels because their economy of scale. Again, the longer,

wider, bigger you make them, the more efficient it is for them. There are things that can be done to do this. The problem is it shifts cost onto transportation, which in turn gets passed on to the consumer. If you slow down these vessels, if you require tug escorts and things like that, you're going to make it more expensive. And if you go for smaller vessels, that becomes even more expensive. We could talk for hours about this. I've found this conversation to be riveting, but, you know, just my last question is basically, we had the ever given, now the ever forward. A, how like rare is this? I mean, like, you know, normally I don't think ships running aground, particularly if they don't either in the U.S. or if they don't block the Suez Canal,

probably get much news attention. How rare is it to have these sort of two big incidents within the span of, I guess, I guess a year? But then also, how much generally is, are these attributable to the overall shipping conditions, which we talk about being extremely tight? And I'm thinking about, okay, they were going maybe a little faster than they should be or going to ports that they might not otherwise be going to do to redistribution of port capacity. So how much, how unusual is this, but how much can we sort of tie these incidents to the tight global shipping market? Well, I think in terms of the size of the vessels, that's the big issue we're seeing right now. So ships do ground fairly commonly. It was just a mare ship that

grounded on the approaches into Germany, for example, but they were able to free her fairly quickly. The problem with big vessels, like Ever Given, like Ever Forward, is that when an incident happens with them, they magnify the level of salvage needed because they're so much bigger than we're talking about. Again, Everford is smaller than Evergiven, but she's still over a thousand feet long. She's longer than the largest aircraft carrier we have. So they're tremendous vessels that we're talking about. And any incident involving them requires a lot more resources than we've had in the past. So I think you have that element about it.

And again, this fuels the world economy because we're able to move goods seamlessly at very low transportation costs. And particularly, again, you know, ever forward is a good indication of that movement of cargo from the west coast to the east coast. I think on the other aspect there that you were kind of alluding to, I think we also have issues we have to remember during COVID. This has been going on now for two years. And one of the stories that doesn't get a lot of attention, unfortunately, is the 1.8 million mariners who crew these vessels and issues with everything from being able to get them off for normal crew rotations.

You know, as the ships get bigger and larger, the crews get smaller. And, you know, now with crews, because most of this is done by foreign crews, top five, you know, crewing nations in the world, you know, Indonesia, India, China, Philippines and Russia. You know, those crews can't get off in Baltimore, typically, and fly home for a crew rotation. Some ports during COVID wouldn't let the crews even step on the dock. And so where you would have crews on board for two, four, six months, they're over a year on board. And so, you know, I think crew rotation, crew fatigue and, you know, what we expect are these mariners. Plus, we're shopping around for the cheapest mariners out there, too. So, you know, we're looking, you know, hey, you're getting too expensive.

So I'm going to go to this country next and go get them. And unfortunately, you know, mariners don't really register very well. Look at the nearly dozens of ships stuck in Ukraine right now that the mariners are trying to get off. And not a lot of stories about those, unfortunately. Yeah, we had COVID and people stuck because of those restrictions. And now the situation in Ukraine as well, it just seems never ending. We're going to have to leave it there because we are rushing this out as a bonus episode. So we're a bit limited on time.

But really appreciate you coming on. And I have a feeling we might end up speaking about this again. We got to have sail back. I could talk to cell for hours. Thank you so much for coming on. Thank you for having me, guys. So that was Sal Mercogliano. I should just say his YouTube channel is called What is going on with shipping, and he's providing really detailed updates of what's going on with the Ever Forward. So if you're interested, you should definitely check those out. So, Joe, I just have to clarify one thing, because our producer actually messaged me while we were discussing what's going on in the intro,

and he asked me if I'm joking about my stuff being stuck on the ship. For total clarity, I am not joking. There's a lot of nervous laughter here because it is quite stressful to think that everything that I have might be stuck on a ship that's, you know, there's a question mark over whether it's going to be able to get off of its mudbank. But yes, my stuff is actually on that ship. Yeah, this is so crazy and so wild. And I'm like, I just want to say, I'm thinking about making my entire identity be one of repealing the foreign dredgey act of 1906. I think that could be like a new, like, I might make that my thing. It is like a really obsessive.

No, but like to learn it's like, oh, we have a shortage of dredge capacity. We have a shortage of tugboat capacity in the U.S. So many interesting things I learned in that short period of time. And I'm very sad that you don't have your stuff from Hong Kong, but I'm selfishly happy that this turned into such a illuminating discussion. We get to talk more about it. I would just say, you know, I am now the face of. structural underinvestment in our ports and our tugboats and our dredges. And, you know, it's inconvenient

not being able to sit on a couch for over two months now. I would like to have a couch at some point. But I did also think that Sal's point about what's going on with seafarers is an important one, because that has been two years of a regulatory and logistical nightmare for people who are actually working on ships. And especially in Asia, we heard stories. of people, you know, who'd been stuck on board and couldn't get home for months, if not more than a year at a time. So definitely worth mentioning. Yeah, we talk about the physical infrastructure a lot, but the toll on the people actually keeping it going is obviously immense. Yeah. All right. Well, it looks like we have a lot more to discuss on the shipping front. And I'm sure we'll have some future

episodes on this topic. But for now, shall we leave it there? Let's leave it there. All right. This has been another episode of the Alldlots podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Jill Wisenthal. You can follow me on Twitter at The Stallwart. Follow our guest, Selmer Cogliano. He's at Mercogliano. As also definitely check out his YouTube. Big thanks to our producers, Magnus Henrickson and Colin Tipton. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg. Under the handle at Podcasts. Thanks for listening. doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all.

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