West Virginia coal with nowhere to go following Baltimore bridge collapse

The effects of the Baltimore port’s closure likely will be felt more in West Virginia than nationally, experts said. This is because container shipping, which makes up a large part of the national economy, is only a small facet of the port’s total business, whereas coal is one of the port’s main exports.

Minor inconveniences and cost increases for container shipping and automobiles headed for dealerships from Baltimore are expected, as the Port of Baltimore is a crucial hub for car and light truck distribution, said John Saldanha, Sears chair in Global Supply Chain Management and professor, WVU John Chambers College of Business and Economics.

However, these inconveniences pale in comparison to the potential impact on West Virginia coal.

“About 40% of the total volume of coal that goes through Baltimore comes from Northern and North Central West Virginia,” which represents a quarter of all U.S. coal exports, said West Virginia Coal Association President Chris Hamilton.

Since West Virginia is the nation’s largest coal exporter, it would stand to reason that much of the coal stuck in port would be coal that originated in the Mountain State, said John Deskins, director of the Bureau of Business and Economic Research in West Virginia University’s John Chambers College of Business and Economics.

Complications stemming from this incident have the potential to damage the local economy as exporting has been a major component of West Virginia’s coal market strategy for many years, Deskins said.

“[The port’s closure] could create supply shortages, and ultimately drive up prices for many goods. Overall, [...] it is imperative that work takes place to get this port back online as soon as possible to alleviate any issues associated with shortages,” Deskins said.

If Baltimore terminals were half full of product that originated locally, “tens of millions of dollars” worth of coal could be held up in the port of Baltimore, Saldanha said.

“Regional coal producers in the Mid-Atlantic, including West Virginia, that export through the Port of Baltimore will face significant disruptions. Baltimore’s port is second in the U.S. in exports of coal. As long as the Curtis Bay coal-loading quays remain inaccessible, coal operators will have to find alternative transportation to Norfolk [Virginia] or elsewhere, as well as berthing capacity for their contracted ocean carriers to export the freight,” Saldanha said.

Docks in New Jersey and Virginia could potentially be overwhelmed by all the traffic that’s been forced away from Baltimore, as it is one of the busiest ports on the U.S. East Coast, according to experts.

Although the Port of Norfolk may seem to be a substitute for Baltimore coal exports, for those shipments to the Far East, ports nearer to the Gulf of Mexico may be a better fit as more ships are now sailing around the Cape of Good Hope, South Africa, to avoid Houthi Rebel attacks in the Red Sea, Saldanha said.

But until local coal can reliably make its way around the world, there may be losses in revenue due to customers substituting for inferior coal from other sources.

India, which purchases great volumes of Northern Appalachian coal for its superior heating quality, may seek the product from non-Northern Appalachian sources, Saldanha said. But due to the quality, these customers are likely to resume their business with Northern Appalachian coal companies once it becomes viable, Saldanha said.

Losses in coal producer revenues will likely be made up one of two ways, depending on if the producers have a monopoly on their market.

“It all depends upon the producer pricing strategy, if the producer has a monopoly then they are more likely to pass on some of the costs to the consumer. However, if there is considerable competition or substitution effects we will see producers eating most of the costs,” Saldanha said.

Another new burden for producers is the cost of transporting their product to the new ports.

“The cost of transporting coal from the Port of Baltimore to the Norfolk, Virginia coal terminals will add significant cost. I believe it is about $25 per metric ton to ship from [Northern Appalachia] to Baltimore and a little more to ship from [Northern Appalachia] to Norfolk, Virginia. From Baltimore to Norfolk would be in that range. Of course a lot depends upon the contract each individual coal producer has with either Norfolk Southern or CSX,” Saldanha said.

Saldanha said, from a supply chain perspective, it’s very important for rail carriers, ports and terminals to work with the coal producers to ensure product is delivered to customers, as losses for producers will also create losses to the ports and terminals.

With the ability to export many tons of West Virginia coal being delayed, coal companies may look to sell more domestically.

But domestic coal demand has been lower than expected this winter, and electric generation facilities operating coal plants at a lower frequency.

Still, Hamilton said, stockpiling remains a limited solution in the short term as there is already great build up due to the aforementioned reasons.