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Critical U.S. Supply Line Is Disrupted

By Neil Irwin

Washington Post Staff Writer Thursday, September 1, 2005; A01

The effects of the monster storm that devastated the Gulf Coast spread through the nation's economy yesterday, disrupting shipping and rail networks and sending prices for lumber, coffee and other commodities soaring. Hurricane Katrina is likely to drag down U.S. economic growth in the months ahead, analysts said, threatening what has been a robust expansion.

Katrina's economic effects may be more lasting than those that usually follow big storms, economists and businesspeople said yesterday, owing to the severity of the damage and the unique geography of the New Orleans region. The storm hit a chokepoint 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.

New Orleans is underwater, and its future is uncertain -- as is that of the $49 billion in goods, 60 percent of U.S. grain exports, and 26 percent of the nation's natural gas supply and crude oil that flow through nearby ports each year.

"The Mississippi River is the aorta of the American economy, and New Orleans is the access point to it," said Al DeLattre, a supply-chain specialist with consulting firm Accenture Ltd.
In an attempt to fend off disruptions to the nation's fuel supply resulting from the storm, President Bush yesterday moved to release at least 1 million barrels of oil from the Strategic Petroleum Reserve, a 700 million-barrel emergency stockpile. Oil prices fell slightly yesterday on the news.

Signs emerged yesterday of the havoc the storm wreaked on the companies and transportation lines that supply the nation, with dozens of firms disclosing the scope of damages at facilities near the Gulf of Mexico or simply stating they could not yet say what that scope might be.
Union Carbide Corp. officials could not even get to their chemicals plant in Hahnville, La., the firm said yesterday, and it will probably take weeks to resume operations there. Chiquita Brands International Inc. reported severe damage at the Gulfport, Miss., facility where it stores one-fourth of the bananas it imports from Central America.

Yellow Roadway Corp., one of the nation's largest trucking companies, has 20 trucking terminals in the area affected by the storm, some of which may have been destroyed, chief executive William D. Zollars said yesterday. With major bridges near New Orleans damaged, the company is routing trucks hours out of their way.

Rail carriers Norfolk Southern Corp., Union Pacific Corp. and Burlington Northern Santa Fe Corp. have all stopped freight traffic into the afflicted area. And shipping experts said it is hard to predict how long it will take the Port of New Orleans and other nearby ports to reopen, given that they may need to dredge new channels and make major repairs. Efforts to reach officials of the Port of New Orleans were unsuccessful yesterday.

"I don't think there is any historical precedent for an incident of this scale," said C. James Kruse, director of the Center for Ports and Waterways at the Texas Transportation Institute.

The damage might even be felt at the breakfast table. New Orleans warehouses hold about a quarter of the nation's raw coffee, 211 million pounds. Concerns that importers will have difficulty rerouting coffee shipments and that large amounts of inventory have been lost pushed the price of coffee for December delivery up to $1.01 a pound yesterday on the New York Board of Trade, an increase of more than 3 cents, after gains Monday and Tuesday.

The sugar Americans add to their coffee could get more expensive too; Department of Agriculture officials are sufficiently concerned about tight sugar supplies because of Katrina that they raised import quotas on refined sugar on Tuesday.

Exporters of U.S. goods, especially farmers in the Midwest, may have the most to lose if New Orleans area ports are out of service for a prolonged period. The harvest is just beginning -- the time when grain and other major commodities for export are carried by barge down the Mississippi River, then deposited in cargo ships to be carried overseas.

Exporters of manufactured goods might simply reroute and ship goods out of Houston or Tampa. Agricultural exporters have fewer options in shipping corn, wheat or soybeans. Moving the crops by train might cost up to five times as much, and even then, other ports often lack the specialized warehouses and equipment needed to handle the crops. If it takes more than a few weeks to fix the ports, a glut of grain and widespread spoilage could yield a disastrous season for farmers.

"If this is a week-long problem, it's probably not too damaging," said J.B. Penn, undersecretary of agriculture for farm and foreign agricultural services. "But if it's much longer, then it's a real problem."

In most severe weather events, a perverse bright side to the economic outlook often emerges. After major storms such as Hurricane Andrew, an economic boom often begins within a few weeks as residents with insurance checks begin rebuilding their houses. Already, in anticipation of such a boom, lumber prices have risen. Yesterday, prices for lumber to be delivered in September rose $10, to $297 per thousand board feet.

But that effect may be slower coming this time around, economists and construction executives said, because of the sheer severity of the damage. "If this was a normal hurricane in Florida, you'd have construction people in pickup trucks heading south right now to help clean up and rebuild," said Steven Cochrane, chief regional economist of Economy.com Inc. "Instead you have the governor saying to stay away."

Reconstruction in the worst-hit parts of New Orleans and neighboring areas will have to wait until levees can be rebuilt and floodwaters pumped out, and there are no reliable predictions on when that will occur. Cochrane guesses that rebuilding -- and its eventual impact in generating jobs and growth -- will not come until next year.

Russell L. Burns, an executive vice president of Turner Construction Co., one of the largest nationwide general contractors, said the firm is not yet pursuing business rebuilding the Gulf Coast; it is too busy trying to figure out how its crews might help get hospitals running and bring in equipment to clear streets in the affected area. "We are not even really thinking about the reconstruction process right now," Burns said.

Some economists said gross domestic product, a broad measure of U.S. output, will grow more slowly in the third and fourth quarters of 2005 than they had expected. For example, John Silvia, chief economist of Wachovia Corp., lowered his GDP growth forecast by 0.5 percentage points to 3.1 percent for the quarter ending Sept. 30.

"There's a lot of lost output here," he said. "The railroads are not working, shipping up and down the Mississippi isn't working, there's a huge loss of personal income in the Louisiana-Mississippi-Alabama region. People just don't have jobs. There's no jobs, no profits in that region for the next few months."

Ben S. Bernanke, chairman of President Bush's Council of Economic Advisers, acknowledged that the hurricane will cause economic distress but predicted in an interview on CNBC yesterday that those effects will not be long-lasting. "My guess is though that as long as we find that the energy impact is only temporary, and there is no permanent damage to the infrastructure . . . the effects in the overall economy will be fairly modest," Bernanke said.
While economists pondered the storm's impact on supply chains and aggregate demand, the businesspeople at the center of the storm have more narrow concerns.

Cindy Goodwin, 47, abandoned the Kenner, La., hair salon she has worked in for 25 years and owned for the past seven, on Saturday afternoon. She has no flood insurance and no idea if the 1,100-square-foot shop still stands.

"I'm not sure if it's a few broken windows and water we can mop up, or worse," Goodwin said yesterday in Shreveport, La., where she is staying with relatives. Her 20-year-old daughter, Angele Goodwin, fears business will be tough in the months ahead regardless of the salon's condition. Customers "will want to pay $5 to get just a trim, rather than $50 for a perm or $60 for highlights," she said.

Cindy Goodwin added, "We've got little old ladies. We're not a froufrou kind of shop. Maybe we should consider going down a bit in our pricing until everybody gets back on their feet."

posted by Henry @ 8:47 PM