Katrina puts supply chains to the ultimate test

Highways in the Gulf Coast region have sustained serious damage in the wake of hurricane Katrina, with major bridges along east-west interstate highways washed away. Rail lines suffered similar damage. Reaching these areas to effect temporary repairs was the first challenge, but funding for repairs will have to be addressed.

The Federal Emergency Management Agency (FEMA) funds is spending an estimated $500 million per day in its initial response to Katrina.

Though the Bush Administration has called the economic impact of Katrina “temporary,” the need to restore vital infrastructure will carry a heavy price tag. Many of the Gulf ports have done initial assessments of their facilities and found they could be returned to operation fairly quickly. Most damage at the Port of New Orleans appears to be to buildings. Container cranes had been secured and initially appear to be operational. Following safety inspection, they are expected to be returned to operation.

But two immediate problems faced the ports. One is debris and silt in channels and harbors. The other is locating port workers who may have been evacuated or faced significant personal losses due to the hurricane. Some clean-up and dredging will be needed to restore the ports, but the bigger problem is expected to be along the river system, which could require more substantial clean up and dredging.

Mode shifts from river barge to rail and truck are expected to add cost for shippers. Rail lines are also being taxed by increased volumes and reroutings away from the affected area. Delays are inevitable, but railroads are providing no initial estimates of the impact.

Many of the crops that would normally be exported through ports like New Orleans had not been harvested at the time of the hurricane, so some of that traffic is expected to continue to flow through the ports as the recovery efforts proceed. This also provides ample time for those shipments to be rerouted.

Container traffic through the ports presents a different problem. While the cranes may be operable and draft may be sufficient for ships to dock, local infrastructure represents a longer term concern. Local warehouses and terminals have sustained significant damage. In addition, highway and rail line repairs have to be made to restore distribution capacity.

New Orleans is the 20th largest container port in the U.S., followed at 22nd by Gulfport, Miss. New Orleans handled 251,000 twenty-foot-equivalent units (TEUs) in 2003 and Gulfport handled nearly 200,000 TEUs that same year. Other Gulf ports – Mobile, Ala. and Lake Charles, La. – handled 23,900 TEUs and 19,000 TEUs, respectively.

Estimates of the economic impact of Katrina range from the simple Administration response that disruptions will be “temporary” to a more specific 0.5% drop in gross domestic product (GDP) in 2005 and as much as a 1% drop in 2006. At the time the hurricane struck the Gulf Coast, peak shipping was starting for the prime retail season. The impact of Katrina on consumer confidence and spending is undetermined.

http://www.fema.gov/