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Supply Chain Disruptions

An Analysis of Hurricane Katrina

You may be in Quebec, but that doesn’t mean you’re safe from hurricanes. Many seemingly “local” natural disasters tend to have global impacts on the supply chain. Whether it’s a volcanic eruption or a tsunami, nature can impact fuel prices & shipping costs, cause manufacturing delays, and affect delivery schedules across the globe.

Although it’s hard to plan for all possible scenarios, the one thing we’ve learned from the tragedy of Hurricane Katrina is that it is important to prepare for the inevitable.

Hurricane Katrina: Landfall

On August 25th, 2005, Hurricane Katrina first landed in South Florida, striking Fort Lauderdale and Miami. At the time, it was a category one hurricane with winds of 70 MPH. As it passed into the Gulf of Mexico, it grew into a category three hurricane, its winds recorded at 120 MPH. By the time the second landfall came on August 29th, it had become the third-strongest hurricane ever to affect the United States.

The direct impact of Hurricane Katrina had effects across North America, driving up fuel prices while slowing down transport and delivery of goods and supplies to manufacturers, distributors, and retailers.

Hurricane Katrina’s Impact on the Global Supply Chain

Gulf Shipping Halted

Upon landfall, the storm disrupted one of America’s largest commercial ports, directly affecting worldwide commerce. During Katrina, disruptions experienced included:

Companies located overseas experienced lost revenue due to absent customers from the port shutdowns.

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Hurricane Katrina’s Reach

Hurricane Katrina caused damage as far north as Quebec, Canada. On August 31st, the storm system previously known as Katrina was partially absorbed by a weather front and continued to produce heavy rainfall along the St. Lawrence River Valley. There was isolation of several villages in the northeastern part of Quebec due to multiple washouts. These washouts destroyed many roads in the area, effectively cutting these villages off via land travel. The villages were then supplied by boats usually supplying the Magdalen Islands. The system crossed over uninhabited regions in Labrador before completely dissipating.

Effects Of Hurricane Katrina on North American Oil Prices

New Orleans is a key petroleum supply point for the United States and about a quarter of America’s domestic oil comes from the region, so the impact of Katrina was felt far from the Gulf. The Port of New Orleans is home to two of the four Strategic Petroleum Reserve facilities and to 17 petroleum refineries with a combined capacity to distill almost 450 thousand cubic meters of crude oil per day.

Immediately before and months after Katrina made landfall in New Orleans, fuel prices across the country skyrocketed. Hurricane Katrina did massive damage to the nation’s oil industry, which is based primarily in the Gulf of Mexico. Before the storm hit, the Gulf of Mexico produced 29% of the nation’s oil. The day after the storm made landfall, 95% of oil production in the Gulf stopped. Repairing and restaffing took over 10 months until platforms were back in production. This raised gas prices to over $3.00 per gallon.

Higher fuel prices resulted in increased product and operational costs, as well as costs for the processing, manufacturing, and transporting of shipping goods. The rise in prices also increased farm production costs, therefore lowering overall production and impacting quality.

Effects of Hurricane Katrina on Freight Shipping

The effects of hurricanes can slow or stop freight for days or even weeks. Delays in delivery can cost carriers up to $56/hour for each shipment that is held up. This can lead to thousands of dollars lost per shipment, and millions lost across the industry.

The Port of New Orleans is an essential transportation and distribution hub for water-borne commerce with many different brokerages either headquartered in or otherwise located at the Port of New Orleans. The region accounts for much of the country’s oil refining and petrochemical production, including corporate headquarters for on-shore and off-shore producers of natural gas and petroleum. Due to this large stake the region has in the oil industry, Katrina’s landfall devastated the freight industry and even evoked a hazmat response.

HAZMAT RESPONSE TO HURRICANE KATRINA

After Katrina hit, it was estimated that a total of 8 million gallons of oil were lost as a result of damage to oil pipelines, refineries, and storage facilities. Of those 8 million gallons lost, the largest of the many spills that occurred was at the Bass Enterprises facility in Cox Bay, Louisiana. This spill and many others like it were cleaned up using a combination of absorbent pads, drum skimmers, and controlled explosives.

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Breaking the Supply Chain

The storm’s destruction led to postponed deliveries, closed ports, canceled cargo flights, and an unstable supply chain. This caused U.S. imports to decrease by $5.6 billion by the end of 2005 due to slower economic activity. The lower national income from lack of ability to import increased the cost of raw materials made in America. This resulted in a rise in price internationally for American-made products.

Reconstructing The Supply Chain

The Triple-A Supply Chain

In 2004, the Triple-A supply chain strategy was created by Dr. Hau L. Lee. many companies began to use this popular method the year after Hurricane Katrina hit the Gulf Coast. The 3 A’s stand for:

  • Agility: Respond quickly to changes in demand or supply as well as external disruptions.
    • Promote the flow of information between suppliers and customers.
    • Develop relationships with suppliers.
    • Design for postponements and cancellations.
    • Maintain a supply of key components in case of disruptions.
    • Have a dependable logistics system or partner.
  • Adaptability: Adjust the industry to the supply chain’s design to meet changes in the markets.
    • Monitor economies worldwide for new supply base markets.
    • Evaluate the needs of consumers.
    • Create flexible product designs.
  • Alignment: Having a strong partnership between buyer and seller.
    • Exchange information and knowledge freely with vendors and customers.
    • Assign roles, tasks, and responsibilities clearly for suppliers and customers.
    • Share risks, costs, and gains.

Due to current events, some industries are still using this method to help them deal with recent supply chain disruptions.

2022 Supply Chain Strategy

As a result of past storms and current forecast predictions, businesses have been conducting disaster recovery and business continuity plans to help secure their industry’s supply chain. The disruption Katrina caused to the flow of goods brought a lot of awareness and is helping to strengthen shipping supply chains for hurricane season. The similarities between the 2022 hurricane season and the 2005 hurricane season are staggering. With a loop current pushing really far into the Gulf of Mexico for this time of year it is best to be aware and stay ready for the unexpected. Stay informed on ways to ship during hurricane season to maintain a continuous supply chain for your industry.

Effects Of Hurricane Katrina Broken Down:

Effects of Hurricane Katrina on the Gulf Coast

Hurricane Katrina currently stands as one of the most catastrophic natural disasters in U.S. history with winds reaching 175 MPH, taking a total of 1,836 lives and causing over $161 billion in damages. Many jobs and international operations were put to a halt due to the destruction of global trade ports in the Gulf of Mexico. About 15 million people and 90,000 square miles were directly affected by this event, spanning from Florida to Texas. Katrina’s destructive path through the United States closed vital transportation routes for domestic and international trade.

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Local Economic Impact of Hurricane Katrina

The inland areas directly affected by Katrina were Florida, Mississippi, Alabama, and Louisiana. Before Katrina, Mississippi’s ports were strongholds for trading within the global economy. The destruction resulted in an absolute halt of trade in and out of the United States through ports in these areas. The estimated loss of value was nearly $100 million in product at the Port of New Orleans, Gulfport, Pascagoula, and railroad port Bienville.

In 2005, 85% of sugarcane, and 14% of the nation’s rice production based in Alabama, Florida, Louisiana, and Mississippi were destroyed by the storm. The loss of just these 2 exports threw supply and demand into a state of imbalance. But imports from Central and South America impacted the entire nation as well. For instance, bananas are America’s largest imported produce item, with most coming from Ecuador, Costa Rica, Colombia, and Honduras. Katrina’s impact on the banana market was felt from Ecuador to North Dakota, California to Maine, as imports of bananas were blocked or inaccessible, leading to an increase in their retail prices.

Regional Economic Impact of Hurricane Katrina

The United States’ government has many facilities in the Port of New Orleans area, including NASA’s Michoud Assembly Facility, the USDA’s National Finance Center, the US Navy’s Space and Naval Warfare Systems Command, and the U.S. Fifth Circuit Court of Appeals.

Tourism and conventions are a vital part of the Port of New Orleans’s economy, accounting for as much as 40% of the city’s tax revenues. In the wake of Katrina, the number of tourists shriveled to 3.7 million – down a startling 63 percent. Spending numbers also tanked, with visitors shelling out 42 percent less in 2006 than in 2004. Tourism in New Orleans was back to square one.

Hurricane Katrina put a halt to Louisiana’s export industry. In New Orleans alone, an estimated 95,000 workers lost their jobs within 10 months after the hurricane struck. This led to over $2.9 billion in lost wages for the American people and economy. The Port of New Orleans was damaged which heavily disrupted the nation’s shipping industry. The facility shutdowns delayed deliveries and reduced truck capacity. In addition to the lost profits of paused importing, the delays in delivery times added on days to weeks of vehicle use. Katrina led to hundreds of thousands of dollars lost in missing and damaged shipping vehicles.

International Economic Impact of Hurricane Katrina

New Orleans is a major grain port, both domestically and internationally. Other exports include raw and processed agricultural products, fabricated metals, chemicals, textiles, oils, petroleum, and petroleum products, tobacco, and paperboard. Global importers in Europe and Asia, expecting to receive rice, grains, and wheat from the states who experienced the impact of the hurricane received less import capacity of these materials, effectively harming their economy as well. This would continue until the end of the storm’s reign.

How Much Was Spent In Hurricane Katrina Relief?

Of the estimated $160 billion in economic damage from Hurricane Katrina, the federal government returned with roughly $114.5 billion in recovery. Along with relief funds from the government, non-profit organizations helped raise and fund recovery projects to aid the victims of the storm. $19 billion was used to aid the immediate relief of victims of the storm. Of that sum, the funds were divided as so:

  • $14.7 million for inspections and hazard relief.
  • $4.7 billion for executive expenses.
  • $4.4 billion for technical and direct assistance.
  • $2.2 billion for Premis cleaning and inspection.
    • Debris removal.
    • Public building repair and replacement.
    • Damage inspections.
  • $8 billion for human service needs.
    • Unemployment compensation.
    • Personal needs that are not met by insurance.
    • Temporary housing.
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HUD, FEMA, And The Red Cross

During this time of distress, the U.S. Department of Housing and Urban Development (HUD) and the Federal Emergency Management Agency (FEMA) teamed up to help recover the direct area affected by Hurricane Katrina. In response to this tragedy, these groups led funding and assistance for the immediate area. CDBG-DR Funding, Disaster Housing Assistance Programs, and Population Recovery in New Orleans were the main focuses of the two organizations.

As a result of this time, the American Red Cross set up the Hurricane Recovery Program. This aid focused on the direct area the storm impacted as well as the evacuees. Currently, in 2022 The Red Cross continues to aid the survivors of the Hurricanes of 2005.

Keep Your Products Moving No Matter What

The bottom line when it comes to natural disasters is you need to keep your products in the hands of your customers, no matter what. When an unforeseen event occurs, ensuring your supply chain continues to operate smoothly can become a tricky situation. This is where partnering with a third-party logistics provider (3PL), like FreightCenter, gives you the upper hand during normal and unprecedented events.

We understand how critical it is for your business to run smoothly, and we are ready to help you develop a supply chain strategy that takes the guesswork out of shipping. Visit us online today and run a free instant quote or call one of our shipping experts at 800.716.7608.

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