Why Hurricane Katrina should make us optimistic about economic impact of Sandy
By Neil Irwin,
The storm bore down on one of the nation’s busiest ports, cutting off power, destroying buildings, ruining equipment and potentially blocking the flow of goods around the nation and even the world. Surely, the damage would be severe and lasting.
That was the situation seven years ago, after Hurricane Katrina struck New Orleans and the Gulf Coast. “Katrina’s economic effects may be more lasting than those that usually follow big storms,” said an article on the front page of The Washington Post on Sept. 1, 2005, “owing to the severity of the damage and the unique geography of the New Orleans region. The storm hit a choke point in the U.S. economy — a concentration of ports, rail lines, barge traffic and major highways making up one of the nation’s major trade hubs.”
The areas hit hardest this week by the mega storm Sandy, particularly New York and New Jersey, are if anything more economically important, with much larger populations and a bigger industrial base. But what happened after Katrina offers evidence of how the modern U.S. economy really works — and some reason for relief.
Essentially, Katrina was a case study in how stunningly effective corporate America can be in adjusting supply chains and distribution channels to prevent obstructions from getting in the way of the flow of goods to the people who need them. I wrote that 2005 Post article, and with hindsight, the details were accurate, but the overall thrust was dead wrong: Katrina was more testament to the resilience of the American economy than its fragility.
The example that received the most headlines then was Wal-Mart, which deployed its legendarily efficient distribution to get goods to the places that were desperate for food, water and supplies for rebuilding. If “the American government would have responded like Wal-Mart has responded, we wouldn’t be in this crisis,” Aaron F. Broussard, then-president of the Jefferson Parish outside New Orleans, said on “Meet the Press.”
Days earlier, as the storm gathered force offshore, Wal-Mart’s emergency command center had begun routing to the Gulf Coast’s distribution centers the goods that would be in high demand after a disaster: flashlights and generators, of course, but also strawberry Pop-Tarts. “They are preserved until you open them, the whole family can eat them, and they taste good,” Dan Phillips, a Wal-Mart vice president for information systems, told Fortune magazine in October 2005.
From an emergency operations center in Bentonville, Ark., trucks were dispatched after the storm. Information on which roads and bridges were blocked — and the detours around them — was channeled to drivers. When a person in the field needed 10 trucks of water, an operations manner in the command center could check supplies and reply, “I can get you eight today and ten tomorrow,” Jason Jackson, Wal-Mart’s director of business continuity, told CIO magazine in 2005. “He then tells the logistics guy. This all takes place in a matter of seconds.”
Although Wal-Mart got lots of attention, countless companies exhibited the same kind of flexibility in the weeks after Katrina, ensuring that some of the worst fears of those initial days did not materialize. The farmers in the Midwest who rely on a clear channel out the Mississippi River to get wheat and corn to the global marketplace at harvest time were able to do so. There were no great banana or coffee shortages, as some had feared, after the usual import lanes were temporarily shut.
For example, New Orleans had been the nation’s leading port for coffee imports. But after the storm destroyed many of the facilities needed for the storage and processing of beans, more business shifted to Houston, which had been making a run at the industry. Just as Wal-Mart figured out almost instantly how to route trucks full of water to disaster zones, coffee importers quickly found the next best way to get beans from South and Central America to restaurants and grocery-store shelves.
“A lot of ships had to be diverted,” Carlos de Aldecoa, president of the Greater Houston Coffee Association, told the Houston Chronicle in October 2005. “That coffee had to be put into warehouses.”
Chiquita Brand International reportedly rerouted banana shipments meant for its facilities in Gulfport, Miss., toward Freeport, Tex., and Port Everglades, Fla. Presumably that rerouting came at a cost, even though the Gulfport facility had handled 25 percent of the company’s imports to the United States, according to a contemporaneous report in the New York Times. But the supply chain was flexible enough that no one was forced to shift to blueberries on their breakfast cereal.
An important lesson from Katrina — and one with relevance for the post-Sandy economy — is that digital technology has made business remarkably efficient at finding ways around obstacles and preventing even severe damage to crucial transportation infrastructure from impeding the flow of goods. Global positioning systems allow logistical planners to know where trucks and other vehicles are at all times, and satellite connections enable the flow of information about what routes are available.
The logistics operations at all types of companies have surely been working overtime this week to ensure that the damage on the East Coast hinders nationwide commerce as little as possible. The good news is that it seems to be working.
“Supply chains were temporarily paused to and from the affected areas or have seen volumes diverted to alternate secure storage areas in the UPS network,” Vito Losurdo, the vice president of global airfreight services for UPS, told Air Cargo World this week, predicting “limited disruption to our customers’ supply chains.”
Translation: We got this. Now if only we had an economy as resilient to financial shocks as it was to shocks from the weather.