Katrina: A Wake-Up Call for U.S. Manufacturers
In the days immediately following Hurricane Katrina, the majority of the country was glued to their TV screens, watching the chaos, disorder, and tragedy that was taking place in New Orleans and other hard-hit areas of the Gulf Coast. Certainly, it will take years—and in some cases lifetimes—to come to an understanding of the immense loss of life and property that took place during the last week of August, 2005.
But despite the tremendous attention that the storm has received, much of the media has overlooked the impact that Katrina will have on our manufacturing and overall domestic economy. This is a shame, and does injustice to those covering the economic repercussions of the tragedy, as well as those companies that will soon be affected—or are already impacted—by the aftermath of the storm. How serious will the economic implications be? According to a report issued by The Congressional Budget Office (CBO) earlier this week, Katrina could “dampen real gross domestic product growth in the second half of the year by one half to one percentage point and reduce employment through the end of this year by about 400,000.” In addition, according to the CBO, “The damage to the Port of Southern Louisiana is significant.”
For manufacturers and farmers, this port damage is critical—from both an import and export perspective. According to the State of Louisiana, the Port of Southern Louisiana is the fifth-largest port in the world in terms of tonnage. The only ports that are larger are Singapore, Rotterdam, Shanghai and Hong Kong. The Port of Southern Louisiana is huge geographically, stretching 50 miles up and down the Mississippi. It could be described as a breadbasket to the world, exporting billions of dollars of U.S. goods each year such as corn, soybeans, wheat, and animal feed (representing 15% of all U.S. exports). On the import side, it is one of the largest entry points for crude oil, petrochemicals, steel, fertilizers, and ores. It’s also one of the most economical ways to bring materials and other goods into the U.S. According to one report, the cost to float steel on the Mississippi is roughly a quarter of the amount to send it over land.
Despite its essential role in our domestic economy. The Port of Southern Louisiana is only one small piece of the economic jigsaw puzzle that was tossed in the air thanks to Katrina. The region is home to a number of other ports (e.g. New Orleans, Gulfport, Mobile, Pascagoula) which also play vital roles in our domestic and export trade. And certainly, tens of thousands of companies were directly impacted by the storm, either shutting down operations temporarily―or losing them entirely.
The trade and manufacturing consequences of Katrina will have ripple effects for months across, our economy, as supply arrives late. Companies will have to pay a premium as prices increase for key commodities. The transportation network will be strained and slowed, as companies develop alternative routes and options. And that’s just the beginning.
In short, Katrina is a lesson for everyone that organizations will need to become more resilient by developing contingency plans in the case of catastrophic events. From analyzing the costs and availability of different transportation options (for both sourcing and selling goods) to understanding—and even developing—alternative suppliers in different regions, manufacturers must become more adept at dealing with the unpredictable. While no one can predict the future, it will certainly become more important to plan for it.