Update on Hurricane Harvey: Impacts on Global Supply Chains

Update on Hurricane Harvey: Impacts on Global Supply Chains

Executive Summary

  • Since August 25, ports, airports, railways, roads and oil refineries along the Texas and Louisiana coast have been experiencing significant operational disruptions due to Hurricane Harvey
  • Up to 18 per cent of US oil and gas production and 33 per cent of US chemical production has been disrupted, boosting prices and threatening shortages for basic building industrial blocks in sectors ranging from automotive and electronics to packaging and healthcare
  • Both major airports in Houston have reopened and were expected to resume full operation by the end of this week, while many ports and terminals have resumed some vessel operations
  • Many refineries, pipelines and chemical plants were still operating at reduced capacity; gasoline and fuel prices as well as trucking costs have sharply increased in the Gulf Coast region as companies started to resume operations
  • 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; another hurricane of equal strength was projected to make landfall in Florida on September 9 or 10.
Greater Houston Area: Display of Everstream Analytics real-time alerts on airport operations, road closures, chemical explosions and production shut downs as of September 1

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. As of September 4, ports, airports, railways, roads and oil refineries along the Texas and Louisiana coast were still experiencing operational disruptions due to the hurricane; however, many businesses were expected to resume operations on September 5 following a long Labor Day weekend.

Hurricane Harvey: Everstream Analytics Reporting History
Hurricane Harvey: Everstream Analytics Reporting History

Impacts on Manufacturing and Supply

Oil and gas industry

Torrential rain and unprecedented amounts of flooding have disrupted 18 per cent of US oil and gas production and 33 per cent of US chemical production, boosting prices and threatening shortages for basic industrial building blocks such as chlorine and ethylene. As of September 4, about 8.1 per cent of daily Gulf of Mexico natural gas output remained offline. Some experts predicted that minor damage could cause refineries to remain closed for approximately two weeks, while significant damage could keep refineries closed for up to three months. Late last week, some Texas refineries were already beginning operations to restart production, but will have to deal with flooded or damaged roads, stalled- out trucks and closed pipelines and ports.

Greater Houston Area: Industry clusters of affected manufacturing sites and suppliers mapped in Everstream Analytics

Reduced plant operations:

  • Colonial Pipeline Co confirmed that it restarted one of its fuel lines between Houston and Lake Charles shut because of Hurricane Harvey, with another line scheduled to restart on September 5. Colonial is the biggest US fuel system, with pipelines that connect refineries along the U.S. Gulf Coast to markets in the Northeast
  • Exxon Mobil has begun to restart operations at its Baytown refinery, which is the second largest refinery in the United States. ExxonMobil Pipeline Co was also restarting lines to move gasoline and diesel to customers.
  • Valero Energy Corp has begun to resume production in multiple sections of its Port Arthur refinery, while operations at its refineries at Corpus Christi and Texas City were back to normal. Its Three Rivers and Houston facility were previously reported to be operating at reduced capacity.
  • Production has also begun to resume at Phillips 66 crude and refined products terminals, notably at Beaumont, Pasadena and Freeport.
  • Citgo was working to restart facilities in Corpus Christi.
  • Full power has been restored to the Total refinery in Port Arthur, and the company reportedlyplanned to restart operations there soon, though no specific date has been set.
  • The Flint Hills refinery in Corpus Christi was reportedly carrying out a restart process in stages.
  • NuStar facilities in Texas City and Houston were reported to be closed, but the company wasevaluating when they might reopen. The company’s Corpus Christi North Beach Terminal came backonline on August 28.
  • Several refineries in the area of Lake Charles, Louisiana are operating at reduced capacity. Refineriesowned by at least two companies, Citgo and Phillips 66, reduced operations in the area.
  • The Petrobras refinery in Pasadena, Texas, restarted operations last weekend and will return tonormal operations by the end of this week.
  • Marathon Petroleum Corp’s Galveston Bay Refinery in Texas City has begun restarting units on August30 and would increase throughput as transportation logistics improved.

Full plant closures:

  • The largest US oil refinery, located in Port Arthur and owned by Motiva Enterprises, has been shut down since August 30 and was expected to remain closed for at least two weeks.
  • Phillips 66 continued to assess equipment condition at its Sweeny refinery before beginning the restart process. Operations were still suspended at the Phillips 66-operated Gulf Coast Fractionators plant in Mont Belvieu due to lack of available storage at the Mont Belvieu hub.
  • Royal Dutch Shell Deer Park refinery and chemical plant in southeastern Houston was still assessing start-up efforts on September 4 and will re-start once all system checks have been completed.

Chemical and manufacturing industry

The Houston area is home to many of the world’s largest petrochemical producers who manufacture chemicals essential for various industries ranging from automotive and plastics to packaging and life sciences. Port closures in Texas and Louisiana have reportedly affected 39 per cent of the waterborne chemicals trade. As of September 4, multiple chemical producers still had force majeure in place, telling customers they would not be able to fulfill their contracts because of Harvey, often because logistics were stalled by the storm. This has led to a supply shortage of up to 68 different types of chemicals in recent days, disrupting for instance more than 33 per cent of US chlorine and caustic soda production as well as 40 per cent of US ethylene capacity. While the former products are used in the automotive and electronics industries, the latter is a major base material used in the plastics and food packaging sectors. Downstream manufacturing supply chains of industrial goods like car parts, rubber tires and medical devices could all also be affected by the shortage. According to industry sources, chemical and plastics buyers will be faced with a supply shortage and higher prices as soon as inventories run out. Given the complexity of the ethylene manufacturing process, it may take many more weeks for production to reach levels prior to the storm’s landfall. Shipment delays of petrochemical products could extend to an average of two weeks if transported via rail, creating supply chain bottlenecks which may only be eased by seeking supplies outside the US. Continued disruptions due to road closures, power outages and limited air, rail, truck and sea freight capacity will prolong the recovery time of manufacturing sites and suppliers and extend impacts on supply chains into the next few months.

Overview of manufacturing industries potentially affected by supply shortages of chemical products

Other chemical products affected

According to the American Chemistry Council, some 30 per cent of US propylene, butadiene and benzene capacity was shut down as a consequence of the storm. Other products affected include methanol, on- purpose propylene (propane dehydrogenation), a broad range of plastics – low density (LDPE), high density (HDPE) and linear low density polyethylene (LLDPE) such as polypropylene (PP) and polyvinyl chloride (PVC), synthetic rubber, downstream derivatives such as acrylic acid, cumene, ethylene oxide (EO), monoethylene glycol (MEG) , propylene oxide (PO), and styrene, chlor-alkali and air separation plants.

Reduced plant operations:

  • ExxonMobil has been able to restart its polyethylene plant at its Beaumont complex, although the refinery remains closed.
  • BASF’s Port Arthur chemical production sites in Port Arthur and Freeport were running at reduced rates.
  • Huntsman restarted its Conroe specialty chemicals site on August 31 and resumed regular shift schedules there on September 1.

Full plant closures:

  • ExxonMobil’s Mont Belvieu polyethylene plant was still shut down and damage assessment was underway.
  • BASF’s smaller Texan sites in Beaumont, Bishop and Pasadena had to be shut down as Hurricane Harvey approached.
  • Two explosions have occurred on August 31 at the Arkema plant in Crosby plant, with additional explosions likely to occur over the coming days, further damaging the site. The plant shutdown was expected to affect PP, PVC and PE markets.
  • No operations at Formosa Plastics Point Comfort plant which produces olefins and polyolefins units.
  • CP Chem’s Pasadena Plastics Complex, which produces PE, was reportedly still shut down.
  • DuPont shut its cracker in Orange on August 30 due to expected power outages, while running onstandby in anticipation of the storm.
  • Huntsman’s plant in Port Neches reportedly remained shut.
CompanyProductsLocation
MexichemPVCUS, Mexico, Colombia
LyondellBasellAcetic acid, benzene, ethylene glycol, ethylene oxide, IPA, propylene glycol, styreneLa Porte, Channelview, Bayport, Pasadena (Texas)
OlinEDC, chlor-alkaliFreeport (Texas)
OxyVinylsPVCDeer Park, Pasadena (Texas)
AscendAcrilonitrileAlvin (Texas)
CelaneseVAMPasadena (Texas)
CP ChemHDPE, LDPE, LLDPECedar Bayou, Orange, Pasadena (Texas)
CovestroPolyols, liquid caustic soda, hydrochloric acid, pre-polymersBaytown, Point Comfort (Texas)
TotalPPLa Porte (Texas)
Equistar ChemicalsHDPE, LDPE, LLDPEMatagorda, Victoria, Alvin, La Porte (Texas)
Formosa PlasticsHDPE, LLDPE, PP, PVC, chlor-alkaliPoint Comfort (Texas)
IneosPPLa Porte, Alvin (Texas)
Force Majeure Declarations (as of September 5)

Air freight

George Bush Int’l Airport (IAH) continued to restore service following a several-day closure due to Hurricane Harvey, with the airport operating at 75 per cent of its normal capacity and all foreign flights traveled as scheduled. William P Hobby Airport (HOU) was reportedly operating at approximately 60 per cent of its normal capacity. Both airports are restoring service using a phased approach, with full airline service expected by this weekend. The Houston area airports are key hubs in the US aviation system. Chicago-based United Airlines, which has a major hub at IAH, and Dallas-based Southwest Airlines, the leading airline at HOU Airport, are the carriers most affected by the closures.

United Cargo announced on September 1 that it had resumed cargo operations at IAH, re-opened its freight facility and accepted non-perishable shipments for general and expedited cargo on widebody flights to, from and through IAH to US locations only. On September 7-8, cargo carriage to and from IAH would be expanded to include non-perishable shipments for general and expedited cargo on widebody flights from any origin. All non-perishable shipments, including speciality products, will be accepted from September 9 onward for widebody flights and on September 11 all non-perishable restrictions will be lifted on all widebody and narrowbody flights. No timeline has been set yet for shipments of perishables and, as of August 31, United Cargo stated that the resumption of carriage of freight on trucks to and from IAH is still pending as road conditions around the airport were unstable. As far as other airlines are concerned, Delta Cargo expected to reconsider lifting its embargo on cargo at IAH on September 4. United Airlines said that it expects to have 80 per cent of flights operational by September 7 with all flights running normally by September 8. American Airlines, Delta and Jet Blue returned to their normal schedules from HOU on September 3. Southwest Airlines also restarted flights on September 2, with international services having resumed since September 4. Due to a shutdown of the biggest US oil pipeline on August 30, which runs from Houston to the East Coast, fuel supplies including oil and aviation fuel have already begun to shorten and prices to surge, which may lead airlines to raise higher shipping prices.

Road freight

The impact of Hurricane Harvey continued this week in the southeastern parts of Texas as rivers discharge the unprecedented amounts of rainfall. The Beaumont area was still experiencing widespread flooding impacting most major and minor routes. Flooding on the Louisiana Highway 12 and IH-10 continued to be a challenge from Beaumont to the Louisiana state line. IH-10 was re-opened in both directions at the Texas-Louisiana state line, but westbound was reduced to one lane for four miles due to debris. Conditions also continued to improve for the Houston metro area, with the greatest impacts now in the areas southwest of Houston. All major highways in the Houston metro have reopened. Last week, 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.

Greater Houston Area: Flooding impacting road network as of September 5

Coupled with a preexisting driver shortage and fuel shortages due to shut downs of oil refineries, trucking costs have jumped by 350 per cent on average this week. Rates for truckloads travelling between Dallas and Houston were priced at between USD 8-10 per mile, up from normal rates around USD 2.40. Gasoline retail prices have also surged through September 3, reaching USD 2.62 per gallon and potentially reaching USD 2.75 in the next few days. Many stations in the Dallas area have been out of gas since September 1 and this is largely attributed to panic buyers. In San Antonio, about 72 per cent of gas stations were out of gas last weekend. Long lines at gas stations may also occur in the Southeastern and Eastern states as far as the Port of New York which receives gasoline supplies from the Colonial Pipeline. The duration of the supply shortage is largely dependent on when major refineries such as Motiva’s Port Arthur and Exxon Mobil’s plant in Baytown resume normal operations.

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. Sources expect heavy traffic on September 5 from 08:00 to 21:00 local time as employees returning to work and rehabilitation workers continuing their efforts would be faced with continued road closures. Further inland, terminal operations as far as Dallas and Fort Worth have been impacted. Trucking company Central Freight Lines, for instance, advised customers that its Beaumont Terminal will remain closed through September 5, but that the Victoria Texas and the Houston Terminals were open, running limited operations. Shipments destined for the Houston area were run on line haul schedules from Fort Worth, expecting that the majority of customers in Houston would reopen on September 5.

Rail freight

Greater Houston is also a major interchange point for rail and intermodal transportation for industries ranging from automotive to plastics and farming. Freight transportation via rail has consequently been impacted and major US railroads have warned customers that rail services might be disrupted for a few weeks. While lines running between Houston and San Antonio or Laredo have been re-opened, rail lines along the Texas-Louisiana coast were still being assessed with no timeline for resumption of services provided at the time of writing.

Union Pacific Corp. reportedly shut down all freight rail traffic along the Gulf Coast from Brownsville, Texas to Lake Charles, Louisiana, stating the parts of its major rail yard at Englewood and areas surrounding Beaumont were flooded. Traffic entering or leaving through the north and east sides of Houston were on hold and its main line between Houston and San Antonio was out of service. On September 3, the corporation confirmed that freight trains were running from Houston to Angleton and Freeport, with alternative routes between Angleton and Bloomington being reviewed. In addition, an important rail segment to Chocolate Bayou was reinstalled. The North-South route between San Antonio and Hearne was also 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 have been re-routed via Longview and Forth Worth, Texas. BNSF Railway said on September 1 that rail access into the Houston complex from the north and west is largely clear and has begun accepting some Houston-bound import containers at Los Angeles/Long Beach for delivery to Houston when tracks reopen. Nearly all BNSF facilities, including the Pearland Intermodal Facility and the Pearland Automotive Facility in the region were open. Routes were said to be open into central Texas and traffic is moving through San Antonio, including trains destined for Mexico through our Eagle Pass gateway. Flooding-related outages, however, remained in some locations, primarily north and east of Houston. BNSF rail yards at Beaumont and Silsbee remain closed and access to serve locations east of Houston into Louisiana was blocked. The company further informed customers that it had issued an embargo for carload shipments destined to, originating from, or passing through, locations in Texas and Louisiana out of service due to the condition of transportation infrastructure.

Rail operator Kansas City Southern reportedly also suspended service between Houston and Laredo and embargoed cross-border traffic via Laredo and Brownsville/Matamoros. Its railroad system in Beaumont, Texas and Lake Charles, Louisiana was also being impacted by the moving storm. It is expected that using other modes of transportation to ship goods to the affected area or by-pass it is likely going to add more costs as demand will sharply increase once employees are back at work and business operations resume.

Ocean freight

As damages to the cranes, warehouses, containers and other equipment were reportedly limited and flooding started to recede, the Port of Houston was reopened to vessel operations on September 1. Barbours Cut and Bayport Container Terminals were operational from 07:00 to 17:00 local time, and expected to handle 10 container ships on September 4 and 5, including ships operated by Maersk Line, CMA CGM and MSC. The Odfjell Terminal in Houston, a key terminal to the liquid bulk chemical industry, have also been accessible since September 1. Truck gates were said to be functional though some lanes would be closed. On September 4, Labor Day in the United States, port facilities were also open and vessels were exceptionally worked at the terminals. Last week, many container lines decided to omit calls at Houston and redirected ships to the ports of Mobile and New Orleans, Louisiana, Savannah, Virginia and Altamira, Mexico for further proceedings, advising customers that shipments would be delayed. Updated vessel schedules and omissions can be consulted here:

http://porthouston.com/portweb/terminal-toolbox/container-terminals/vessel-schedules-arrivals/

The Coast Guard allowed ships up to 40-foot drafts in the Houston Ship Channel, the conduit for ocean- going vessels between Houston-area terminals and the Gulf of Mexico, for transits during daylight hours. However, larger ships and an upper portion of the channel were still restricted until the Coast Guard has declared the channels’ depth safe for fully loaded container ships, bulk carriers or product tankers. Meanwhile, salvage efforts continued on September 4 to remove a sunken drydock in an industrial portion of the channel. The Port of Houston is a major export hub for the petrochemical industry, and import hub for food, machinery and retail consumer goods.

As of September 4, operations for larger vessels also remained suspended at several ports and terminals along the central coast of Texas due to Tropical Storm Harvey. However, progress was being made at multiple ports. The Port of Freeport and the Port of Galveston have resumed normal operations. The ports of Corpus Christi and Texas City were said to be in recovery mode and have reopened with some restrictions. The ports of Beaumont and and Port Arthur have also been reopened to some smaller vessels, with the latter allowing some barge traffic to enter the port, which is home of the country’s largest oil refinery, and was considering allowing ships to enter on September 5. Ships were however not allowed to enter the port along the Neches River because of extreme river currents from Hurricane Harvey. The Port of Texas City was reportedly transitioning into recovery mode, and has been reopened with restrictions. The Texas City Channel, Texas City Turning Basin, and Industrial Canal were re-opened. Also, the Port of Corpus Christi remained in recovery mode. The Corpus Christi Ship Channel was reopened for one-way vessel movements during daylight hours, with a maximum draft size of 43 feet. Vessels with up to 20 feet draft may operate within the Inner Harbor. The port and ship channel was expected to reopen completely on Monday, September 4.

Impacts on Infrastructure

Power outages

Areas affected by Hurricane Harvey and its aftermath reported less than 65,000 customers without power on September 4, the lowest level since the storm made landfall August 25. Power provider AEP Texas was reporting that 37,290 customers were still without power, with the majority of the outages concentrated in Aransas County and Nueces County while Entergy indicated that at least 19,906 customers were without power, mainly in Orange County and Jefferson County. AEP Texas announced estimated times of restoration for the following Texas Towns: Port Lavaca, September 4; Ingleside, September 6; all other cities, September 8.

Outlook

As of September 4, many rail operators and trucking companies were unable to predict when they would fully resume shipping operations. Large vessels back might not be allowed into the ship channels and some rail tracks may restrict shipping operations for the next few weeks. Hurricane Harvey is very likely to have longer term impacts as no immediate access to the area has been possible for almost a week, unlike during the aftermath Hurricane Katrina in 2005, thus prolonging the recovery phase over the coming weeks. In another part of the country, a State of Emergency has been issued on September 5 in anticipation of Hurricane Irma approaching the state of Florida. The predicted category 4 hurricane is located about 530 miles east of the Leeward Islands and may reach Florida by September 9 or 10.

Trajectory of Category 4 Hurricane Irma as of September 4

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