Crisis of the Year: Hurricanes
Catastrophic hurricanes Harvey and Irma jolted supply chains and drove up costs
$60M to $100M
Combined property damages:
$42B to $65B
How much Texas is asking for, to rebuild:
Amount of hazardous fumes leaked:
2 million pounds
Anticipated quarterly GDP effect:
Florida, Puerto Rico and Texas knew the 2017 hurricane season was going to be bad, but no one was quite prepared for the epic catastrophe that touched every link in the supply chain. Airports shut down. Railways suspended service. Trucks lost cargo in the rain and floods, and 3PLs including FedEx and UPS halted deliveries to affected areas. Ports — which were hit the heaviest — flooded and suffered from chassis shortages and struggled for days to return to normal working order.
And that's just freight.
The hurricanes hit the energy and oil industry hard in Texas too: several oil refineries leaked two million pounds of toxic plumes and were shut down for days due to infrastructure damage and flooding. Homes and businesses were destroyed, and companies with suppliers located in Florida, Puerto Rico and Texas announced heavy losses.
Sharp fallout prompts pleas for help
After the storms subsided, IHS Markit ranked Hurricane Harvey as the second costliest storm and Irma as the seventh in U.S. history. Harvey racked up between $60 and $100 billion in damages, with Irma trailing at $30 billion. Their combined damages are expected to drag down Q3 GDP by 1.2%. Between the two of them, they caused between $42 and $65 billion in property damage alone, according to CRS Insight.
Just a few weeks ago, Texas Governor Greg Abbott asked Congress for $61 billion to rebuild public infrastructure in Houston. That's about a month and a half after the Thomas Index found that steel building suppliers searched for steel 1,700% more frequently and drywall 400% more frequently after Harvey.
Impact of Hurricane Harvey
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Ports of Houston and Corpus Christi flooded, service suspended for days, causing backlog and congestion
Railways Union Pacific and BNSF flooded and service suspended but quarterly profits rebound sharply
Airports closed during storm, reopen a few days later
Rates skyrocket: 3PLs, freight forwarders and brokers benefit
Lax construction standards escalated damage; Energy and oil industries severely affected; state of Texas now asking for $61 billion to rebuild
Lax regulation and a lack of zoning standards likely made Houston more vulnerable to the storm, which is probably why Abbott is asking for such a hefty federal sum.
And Abbott's not the only one asking for help. According to a recent article from the Corpus Christi Caller Times, local Corpus Christi and Port Aransas officials reproached Texas legislators for not offering more assistance. According to the report, Port Aransas has suffered $47 million in damages and is struggling to rebuild while finding homes for those whose homes were destroyed by Harvey.
Despite the damage, this has quickly become an opportunity for a variety of industries — including oil, all kinds of freight and 3PLs — to bounce back.
Using the hurricane lemon to make lemonade
While the chaos wrought by Harvey is an opportunity for all companies to assess their risk management plans in the event of a natural disaster, in a spectacular twist, several industries rebounded quicker than anyone expected them to.
Union Pacific Railway suspended service and had to navigate flooded railways during and after the Harvey storm, but then reported a 4% YoY increase in freight revenue for Q3 while Norfolk Southern beat expectations when its Q3 revenue increased 10% YoY.
Furthermore, all jobs lost due to the hurricanes are expected to be regained quickly, and the unemployment rate fell 4.2% in September according to the Bureau of Labor Statistics. The Commerce Department reported that Q3 2017 real GDP grew 3.1% despite the hurricanes, which was 0.9% higher than Q1 2017. Not only that, but Texas manufacturing and business activity spiked in September in response to the disaster.
For 3PLs, business has been good: brokerage and freight forwarding rates skyrocketed following the hurricanes, as trucks flooded the roads to deliver emergency and rebuilding materials to Texas and Florida. In fact, business has been so good that XPO Logistics COO Troy Cooper said the hurricanes "magnified" XPO's truck brokerage business unit in Q3 2017.
While it may seem callous to highlight business prosperity in the wake of such an intense natural disaster, the fact that so many industries are rebounding so quickly suggests the local economies will recover quicker than originally expected. The local economies will likely take a considerable amount of time to fully rebuild and recover, but the fallout isn't quite as dire as analysts first thought.
And that's why the hurricane season this year won Supply Chain Dive's Crisis of the Year Award — the hurricanes were a significant crisis that upended supply chains, but businesses have managed to spring back and turn the crisis into an opportunity. Not all crises result in fast turnarounds or profits — in that regard, hurricanes Harvey and Irma are unique.
Hurricanes, earthquakes and wildfires continue to plague the world, and U.S. supply chains are suffering too. Hurricanes Harvey and Irma provided two of the most useful case studies to compare the effects natural disasters have on business, but the most useful lesson will come from the recovery efforts. How long will it take to stabilize prices, and rebuild damaged yet pivotal infrastructure?
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