Hurricane Irma & Harvey’s Ongoing Impact on Business & Supply Chain
The worst of Hurricane Harvey and Hurricane Irma has hopefully passed, but the impact will be long lasting. We’ve rounded up a series of reports with predictions on the ongoing impact on the supply chain, fuel costs, and insurance and legal implications. Be sure to read the full articles for more information.
Hurricane Irma & Harvey General Supply Chain Impact:
The Institute for Supply Management (ISM) has developed a report on the predicted impact of Hurricane Harvey on supply chain and production. The ISM surveyed members of the Manufacturing and Non-Manufacturing Business Survey Committees to ask for their assessment on Harvey’s impact.
Two thirds of survey respondents anticipate a negative impact on the pricing on input materials over the next 3 months. Respondents also expect to see a shortage of fuel and petrochemical products in this time frame. Most respondents are more optimistic about business outcomes 6 months down the road. You can read the report here.
Not surprisingly, Freight Waves reports that truck capacity is already an issue. “We’re hearing that shipping capacity is severely limited across the eastern two-thirds of the country today,” says Stephen Bennett, COO of Riskpulse. “We’ve heard that truck capacity is running about 30% of what would normally be expected today in the Southeast.”
Suppliers maybe be overly optimistic in an effort to assure buyers, so Resilinc CEO Bindiya Vakil advises on how to judge recovery times. “If roads leading up to a plant site are flooding, it usually results in one to four weeks, on average, of disruption. But if the factory is itself flooded, that equals a much longer period of disruption — to the tune of three to six months.”
Despite the sheer amount of water on the ground, a factory’s dependency on water worsens the disruption, says Vakil. “Even if your suppliers are telling you they’re experiencing minimal impact, their essential infrastructure may not be available.”
Hurricane Irma & Harvey’s Impact on Fuel:
AAA reports that gas prices have been rising across the nation, with price fluctuations differing by region. However, they also report that gas prices are starting to level out. Five refineries are still shut down, which normally accounts for 6% of US refining capacity.
In order to improve the distribution of fuel to areas affected by Harvey & Irma, the Department of Homeland Security approved a waiver of the Jones Act. The waiver will last for 7 days. The Jones Act requires that cargo ships carrying goods between US ports are built in the US and owned and operated by US citizens.
Hurricane Irma & Harvey’s Insurance & Legal Implications
Bronek Masojada, chief executive of Hiscox, warns that home insurance will rise across the US. “It’s only halfway through the hurricane season and we’ve already had one of the most expensive years ever.”
The cleanup will be long and slow, and part of that recovery might be litigation between suppliers and clients. Suppliers with contractual obligations to produce and ship a certain amount of product could be sued by their clients for breach of contract for missing targets due to Hurricane Harvey or Hurricane Irma. This is where the specific terms of the agreement become important – some suppliers implement a “force majeure” protocol in their contracts, which forgive them of obligations in the event of an natural disaster. Suzanne Trig, a partner with Haynes and Boone discusses other legal risks here.
Meanwhile, Texas just passed a law in an effort to reduce storm-related litigation. The new law will limit homeowners’ ability to file lawsuits against insurance companies. It also reduces the interest penalty that insurance companies must pay homeowners for late insurance claim payments. Proponents argue that the law will crack down on frivolous lawsuits and “storm-chasing lawyers” while critics worry it will leave homeowners without recourse if their insurance company doesn’t pay their claims.