Hurricane Harvey: Immediate Impacts on Global Supply Chains

Hurricane Harvey: Immediate Impacts on Global Supply Chains

Executive Summary

  • Since August 25, ports, airports, railways, roads and oil refineries along the Texas and Louisiana coast are experiencing significant operational disruptions due to Hurricane Harvey
  • The George Bush Intercontinental Airport (IAH) may not open before August 31, causing backups and re-routing of flights throughout the US aviation system
  • The Port of Houston is unlikely to open before September 1 as investigations into impacts on shipping channels continue, resulting in shipments delays and re-routing of container vessels
  • With refineries and pipelines being affected, shipping rates and fuel prices across the country are likely to spike over the coming days and weeks
  • Hurricane Harvey is likely to have longer term impacts as no immediate access to the area has been possible since the landfall on August 25, unlike after Hurricane Katrina in 2005

Background

After a period of rapid intensification, on August 25 Hurricane Harvey made landfall near Rockport, Texas with maximum sustained winds of up to 210 km/h. Harvey is reportedly the strongest hurricane to make landfall in Texas since 1961, producing life-threatening flood conditions and tornados over southeastern Texas, inhibiting cross-state transport and cargo movements and resulting in large-scale evacuations in the region. The Greater Houston and southeastern regions of Texas have been most impacted, with flooding severely disrupting public transportation operations and prompting a significant number of highway and road closures throughout the state. Ports, airports, railways, roads and oil refineries along the Texas and Louisiana coast are experiencing significant operational disruptions due to the hurricane. Through Friday, September 1, Harvey is expected to drop another 15 to 25 inches of rain across southeast Texas and to track north-eastwards over the coming days, potentially reaching Indianapolis around September 2.

Supply Chain Impacts

Airfreight

As of August 30, George Bush Intercontinental Airport (IAH) and William P Hobby Airport (HOU) were closed until further notice due to conditions from Tropical Storm Harvey. Over 1,000 flights per day have been canceled at George Bush Intercontinental Airport and over 300 flights per day at William P Hobby Airport. A Notice to Airmen (NOTAM) issued by the Federal Aviation Administration (FAA) indicated that the airport remained closed to all but emergency relief and military aircraft. The NOTAM was set to expire on August 31 at 4:00 PM local time at George Bush Intercontinental Airport and on August 30 at 12:00 PM at William P Hobby Airport, which would lift the restriction; however, officials may choose to extend the notice as necessary. Some reports suggested that Southwest Airlines may resume flights from William P Hobby Airport on August 30. Once the airport does reopen to commercial operations, delays may persist as individual airlines determine when meteorological, terminal building and network conditions are suitable to resume flights. Latest media sources also suggested that disruptions in operations of the Colonial Pipeline, the biggest US oil pipeline, running from Texas to New Jersey may lead to fuel shortages and raised oil prices over the coming days and weeks. This includes, for example, jet fuel on the East Coast.

The Houston area airports are key hubs in the US aviation system. George Bush Intercontinental Airport is the second-busiest hub for United and is served by a long list of other domestic and foreign airlines. Hobby airport is one of the top airports for Southwest and biggest low-cost carrier for the US. The closures will have a ripple effect throughout much of the nation’s aviation system, causing backups and re-routing of flights that normally pass through the two hubs. Elsewhere, flights have resumed at the Corpus Christi (CCIA) and Harlingen (VIA) airports in an attempt to return these two south Texas airports to their normal schedules. American Airlines reported that they have resumed commercial service at Corpus Christi International Airport on August 28, while Southwest Airlines and United Airlines were still making plans to resume service.

Road freight

Rising waters due to days of heavy rains and catastrophic flooding of long stretches of highways and railroad tracks have brought freight transportation in the Greater Houston area to a complete standstill. On August 27, the number of Houston-area trucking runs requested reportedly plunged by 80 per cent. Other sources suggested that the storm would affect up to 10 percent of the US’s trucking capacity for the next two weeks, making it difficult for retailers and other shippers around the country to find enough trucks to ship goods, as many trucks have been stranded. In addition, many available trucks have been turned over to relief and rebuilding efforts by freight companies. Based on analysis of similar major- weather events, some analysts indicated that annualized trucking rates could jump up by a value of between 7 to 22 per cent in the next few weeks. As a result of production shutdowns by major refineries along the Houston Ship Channel and the Colonial Pipeline facing operational problems, diesel supplies were already significantly reduced in Houston, Dallas and San Antonio and this may extend to Austin and even Atlanta shortly. The national average price for gasoline was projected to soon hit its highest since 2015. Further effects that could exacerbate trucking disruptions once transportation in the area resumes include huge freight demand for basic needs items and building material as well as a setback in operations due to congestion and labor shortage. Further inland, terminal operations as far as Dallas and Fort Worth have been impacted. Trucking company Central Freight Lines, for instance, advised customers that one of its terminals sustained damage and that all shipments destined for the Houston area were being held at destination break terminal or the Fort Worth, Texas terminal.

Rail freight

Greater Houston is also a major interchange point for rail and intermodal transportation. Due to extensive flooding, freight transportation via rail in the area surrounding Houston has come to a complete standstill. Rail company Union Pacific Corp. reportedly shut down all freight rail traffic along the Gulf Coast from Brownsville, Texas to Lake Charles, Louisiana. However, the North-south route between San Antonia and Hearne was reportedly reopened, and interchange traffic with Mexican railroads was open at Laredo gateway. Some West-coast-bound rail shipments from Louisiana normally transiting through Houston were said to be re-routed via Longview and Forth Worth, Texas. Amtrak and BNSF Railway confirmed that they had suspended operations at all Houston-area rail yards and facilities due to limited access to their sites for trucks as well as high water on the main rail lines. Rail operator Kansas City Southern reportedly also suspended service between Houston and Laredo and embargoed cross- border traffic via Laredo and Brownsville/Matamoros.

Ocean freight

All facilities at the Port of Houston have been closed since August 25 when Hurricane Harvey made landfall on the Texan coast through Wednesday, August 30. Port terminals and nearby warehouses reportedly only sustained limited damages, but operations can only resume once the Coast Guard deems channels safe and flooding in the area has subsided, allowing employees and trucks to reach the port area. Operations are thus unlikely to resume before Saturday, September 1. Also, pilots at the Houston Ship Channel, the conduit for ocean-going vessels between Houston-area terminals and the Gulf of Mexico, were reportedly not boarding vessels. The Port of Houston is a major export hub for the petrochemical industry, and import hub for food, machinery and retail consumer goods.

The Port of Corpus Christi, which is focused on energy and bulk shipments, was said to repair moderate damage, and allowed only smaller vessels to navigate. Large vessels were still prohibited from entering the channel, with authorities hoping to resume normal operations by September 4. The port closed after an oil drilling ship broke from its mooring on August 26, sank a tugboat and beached in the ship channel’s entrance to the Gulf of Mexico. About 30 cargo vessels were waiting at anchor on August 30. The ports of Freeport and Galveston as well as the deep water port Barbours Cut were reportedly also closed. The Port of Galveston was expected to remain closed until an unspecified time later in the week. The Port of Freeport and the Freeport Harbor Channel were expected to remain closed for all vessel traffic until August 31, at the earliest. However, as of August 30, channels at the ports of Beaumont and Port Arthur, Texas remained open despite refineries shutting down operations when Hurricane Harvey hit the Texan coast again. In Louisiana, the ports of Lake Charles and New Orleans were reportedly open and operating normally.

Container lines initially waited for port terminals to re-open, but have started to adjust schedules and put contingency routings into action in response to prolonged port closures, advising customers that cargo will be delayed. Maersk’s Ohio and Denver container vessels were said to omit calls at the Port of Houston, diverting to the Port of Freeport, Bahamas. Import shipments from both vessels are projected to arrive in Houston on September 2. The MSC Sao Paulo is re-rerouted to the Port of Mobile for further proceedings to Houston on September 2. Other vessels including SL Illinois and MSC Stella, both scheduled for August 31, were pending terminal openings in Houston. Ocean carrier Hapag-Lloyd also informed customers that a scheduled vessel bound for Houston on August 28 would omit the call and be discharged at the Port of Altamira, Mexico for further transshipment. Seaboard Marine diverted its Constantin S container vessel, scheduled for August 31 at Jacintoport International Terminal, to the Port of New Orleans while Sealand’s Angol 1710 service was still waiting outside the Port of Houston on August 28.

Once the Houston Ship Channel and the Corpus Christi Ship Channel reopens, port pilots who board incoming ships and navigate them up the channel would likely have to run vessels through shallower channels as flooding could have increased the levels of silt. Therefore, in order to make ships lighter, shipping companies might have to unload more goods at other ports before calling at the Port of Houston or Corpus Christi, until the Coast Guard declares the channels’ depth safe for fully loaded container ships,bulk carriers or product tankers.

Outlook

As of August 30, many rail operators and trucking companies were unable to predict when they might resume shipping operations. Even after the weather clears at the end of the week, it could take days before floodwaters recede enough to allow the Coast Guard to assess ship channels, allow dockworkers back into ports, or allow trucks to resume routes. As many people lost their homes and vehicles, labor shortage may impact the ability of ports, airports and rail operators to resume normal operations quickly. Hurricane Harvey is very likely to have longer term impacts as no immediate access to the area has been possible for six days, unlike during the aftermath Hurricane Katrina in 2005, thus prolonging the recovery phase over the coming weeks. One trucking expert expected that drayage rates would spike three days after highways are accessible and port and rail operators resume operations with employees being back at work and companies looking to once again move shipments in and out of the Houston area.

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