We pen this posting on the eve of the sixth day since the unprecedented hurricane and massive northeast storm impacted the northeast coastal region of the United States. The densely populated U.S. states of New Jersey and New York were directly in the storm path and suffered the most in many human and other dimensions.
The headline pertaining to the multi-industry supply chain disruption thus far reflects on the effects of a continued lack of widespread electrical power, continuing interruptions in petroleum, transportation and retail focused supply chains. Keep in mind that in our coverage of previous natural disasters of this magnitude, it takes a certain amount of days for the true impact to make its way among the various tiers of industry supply chains. Thus, by traditional measurements, we are still early in the true assessment process.
To date, state and federal agencies have placed top priority on restoring widespread power outages and supplementing food, water and fuel supplies. By Thursday evening, approximately 4.5 million customers were without power across the Northeast Region, down from the over 8.5 million at the height of the storm. The problem, however is that the most damaged areas remain to be restored. Utilities supporting the most impacted areas in New Jersey and New York indicate it may take up to another week to fully restore electricity. The Federal Emergency Management Administration (FEMA) expected to have at least 70 portable industrial class generators in-place by this weekend with more anticipated. But, as is often the case in these conditions, coordination among state and federal administrators as to what locations have highest priority and what specific types of generators are required has led to frustrations. Meanwhile, electric utility repair crews have been brought in from across the country, some of which have been airlifted to the east coast by U.S. Air Force aircraft from as far away as California.
As the days continue, availability of fuel supplies has become critical as automobiles, trucks and portable backup generators are running short of fuel. On Friday, the White House announced that the Defense Logistics Agency (DLA) would buy up to 12 million gallons of gasoline and 10 million gallons of diesel and heating oil to keep emergency recovery operations moving. Federal and State authorities were able to waive existing regulatory procedure that allowed the first tankers to arrive in the previously closed New York harbor on Saturday. There are reports however that the petroleum trading hub facilities within the harbor suffered extensive damage from the storm.
According to reports published in The Wall Street Journal, the overall petroleum supply chain is dealing with issues of storage tanks and equipment having been damaged among some port facilities, as well as a continued lack of electrical power. According to an update from the U.S. Energy Information Administration (EIA), the net consumption of gasoline, diesel and heating oil across the Northeast averages 2.2 million barrels per day. The breakdown of supply is noted as follows:
- 42 percent is supplied by local refineries.
- 31 percent comes from other U.S. refineries, the majority being on the U.S. Gulf coast
- 27 percent imported from other countries.
The EIA notes that New York and New England metropolitan areas are more dependent on the latter foreign based imports that flow through New York harbor. The Colonial Pipeline that flows supplies from the Gulf coast was out-of-service for the bulk of last week. On Friday that flow was re-started but is operating on back-up power generation.
A special shout-out should be extended to Hess Petroleum, who had made adequate plans to maintain adequate safety stocks and equip its retail service stations with backup power. Not only did Hess continue to pump supplies in the midst of the emergency, it also offered to share fuel supplies with its competitors to ease long lines of people seeking fuel. Perhaps that’s a statement around the benefit of being independent.
On the transportation front, the largest impact involves ocean shipping, as New York area ports struggle with lack of power and other clean-up needs. Ocean container vessels destined for the ports of New York and New Jersey are now being re-routed to other east coast ports, most notably the port of Norfolk in Virginia. On Friday, Taiwan based Evergreen Line initiated force majeure clauses in shipping contracts, an indication that contractual agreement to original shipping destination will not be fulfilled. To add more insult to injury, industry leader Maersk Inc. indicated to its customers that they will have to shoulder the added costs of diverting ships to alternate ports and added surface transportation to reach original destinations. This, in our view, is yet another example of the current attitude of arrogance of this particular industry.
As retailers and other outlets prepare for the ever important upcoming Black Friday shopping milestone that occurs in a little over two weeks, they face the challenge of inbound supply shipments that can be delayed for that same period. While many will attempt to overcome delays by expedited trucking, congested roads and lack of power infrastructure may present additional obstacles.
Both FedEx and UPS have begun air cargo operations into New Jersey, New York and other nearby airports, but facilities remain backed-up and congested, while airports need more time to return to full operating condition. Similarly, rail lines such As CSX have re-started freight operations into the impacted areas but it will take a few additional days to overcome infrastructure and other issues.
Home improvement and contractor retailers Home Depot and Lowes continue to respond to added product demand needs in the impacted area. Supply Chain Matters reached out to both and according to a spokesperson for Lowes, the retailer’s Emergency Command Center is working directly with vendors and strategically located distribution centers to ship hundreds of truckloads of needed products to stores located from the outer banks of North Carolina up through the New England states. Lowe’s has 4 distribution centers located close to the areas directly impacted by the storm.
Again, assessing the overall supply chain impact is still a work-in-progress. However, the magnitude and implication of yet another historic natural disaster is leading to added insights. An event that was anticipated, if ever, to occur in a hundred years impacted one of the most densely populated urban and distribution centered areas in the United States.
The November 5 – November 11 cover of Bloomberg BusinessWeek featured the poignant headline: “It’s Global Warming, Stupid.” We would add that this ‘new normal’ of extraordinary climatic activity assures that global supply chains will be responding to disruption events for quite some time to come. The ability to sense, respond and mitigate such events for the best possible outcomes for the business are the new table stakes.