The Economics of a Natural Disaster

For all of the scenarios we can pencil out to test the strength of a supply chain, natural disasters are pretty good at teaching us where there is room for improvement. Current damage reports from hurricanes Helene and Milton assess insurance claims in multiple states coming in around $50 billion dollars in direct losses. And, that number doesn’t take into account future losses on crops and orchards unable to recover from flooding, significant infrastructure rebuilds or damage not covered under insurance policies.

Damage assessment figures coming from individual states are big. Georgia alone estimated 320,000 jobs related to forestry and agriculture were impacted as a result of hurricane Helene, and that the state could lose $83 billion from their economy. Florida declared upwards of $2.5 billion in agricultural infrastructural damages after hurricane Milton. And North Carolina believes it will experience an economic loss of $110 billion.

But beyond the initial calculations, supply chain dynamics look at the ripple effect caused by disruptions. What supply sources were impacted and can we get the same goods from somewhere else? Was there a breakdown in product manufacturing that will tip the balance of a specific supply and demand relationship? And, where are the disruptions in transporting goods from producers to consumers?

Supply

To assess the full damage to the sources of our domestically grown commodities, we can look at a few important factors. One, did we lose a window of opportunity to generate a supply? Two, is the affected region the only supplier? And three, will the supply problem be a long-term or short-term issue?

Cotton, Christmas trees, pecans, apples and oranges are on the list of commodities most affected by the hurricanes because they were not harvested yet and we missed a window to generate a supply that will adequately meet demand. North Carolina typically supplies 20% of the country’s live Christmas trees, a significant number of which are gone. As many as 800,000 unharvested bales worth of cotton is believed to have been lost due to hurricane damage in Georgia and North Carolina. One third of Georgia’s pecan trees have been destroyed. And all three states are still assessing damage to fruit trees that could affect fall apples and winter citrus fruits.

While the damage is extensive, some 4.8 million acres in total, all of these commodities can be found in other places. We rely on Mexico, California and several northern states for fruits and vegetables. Texas and other southern states grow cotton, pecans and peanuts. And, crops like blueberries and strawberries have already been harvested. 

Quartz has been a major headline lately and that’s because the North Carolina mine is one of the only mines of its kind. Unlike pecans, there isn’t another place to get quartz, nor is there a similar substitute for solar panels and cellphones. 

Sweet potatoes, corn, tomatoes, and rice can be replanted next year. But, there is concern for lost orchards that take years to grow and bear fruit. Flooding may have over-saturated trees and even if they are still standing, wind and water damage may mean a drop in production next year. The supply of pecans, oranges, peaches and apples in affected states could take years to build back, making this a long-term issue to keep an eye on.

Manufacturing

The poultry industry, already under supply pressure due to the avian flu, took a significant hit on the manufacturing side of production during both hurricanes Helene and Milton. One hundred and seven poultry facilities were either destroyed or damaged between the two hurricanes. The poultry sector is largely consolidated to the southeastern portion of the country. Between damage to buildings and equipment and halted production from power outages, eggs and broiler hens are expected to be in shorter supply.

Milk production, which relies on a seamless flow of systems from the actual milking process to transporting, also suffered major disruptions. Power loss, damage to milking equipment and barns, as well as losses of fence, feed, pastures and other livestock care tools have brought production to a halt or reduced capabilities at barns in all three states. As with poultry, dairy products are also expected to experience fluctuations in availability and cost as the industry works to rebuild.

It takes time for animals to be raised to go to market, lay eggs and produce milk, but building back momentum in these industries has a lot to do with how quickly equipment is replaced and facilities are rebuilt. Even if there are animals ready to be transported to North Carolina or Georgia, these states might not have the buildings, feed and systems ready to accommodate them.

Transportation

Helene threw us a curveball in regards to transportation. Along the Gulf Coast, where damage is anticipated to be significant as hurricanes make landfall, crews wait to clear debris and make roads safe for travel. Within hours, transportation can resume. Helene’s destruction extended all the way to North Carolina, where roads were obstructed or completely washed away and there were no crews waiting in the wings to make quick work of the mess.

Interstate 40, which runs east and west, and Interstate 26, which travels north and south, are considered essential freight routes. They connect North Carolina to Tennessee and are used to transport the region’s goods to other parts of the country. Repairs to both interstates are expected to take six months to a year to complete. Detours could as much as double the drive time for truckers, who also have to adhere to strict regulations and will have to make additional stops. Early estimates expect grocery prices to be impacted by upwards of 20% in order to accommodate longer delivery routes and additional drivers.

Norfolk Southern Railway in North Carolina is also expected to be out of commission for at least three months. Over 70,000 feet of track was washed out by flooding. The location of the damaged sections of track are in mountain areas, making them difficult to get to. And, multiple bridges will need to be rebuilt before freight transport can resume along this line. Meaning, goods might be available, but with fewer reliable transportation routes, it's likely there will be bottlenecks for many commodities. 

Solutions focus on efficiency. Which commodities are in shortest supply? Where will we look to secure new supplies of in demand goods? And, how quickly can we rebuild the infrastructure needed to bring back resilient supply chains?