The (Big) Ripple Effect
Katrina's blow to the energy industry will be felt all across the economy
But concerns aren't limited to distribution problems. Higher energy prices make it more expensive to fuel up tractors and move goods. Patrick Sullivan, director of market development for the Mississippi Department of Agriculture and Commerce, says that aside from crop damage, many farmers are concerned about high diesel costs. Michael Orr of Pattison Bros., a grain terminal in Clayton, Ill., is worried that higher fuel costs for river barges may hurt his business; he estimates that 80 percent of the cost of shipping is directly tied to the price of fuel.
With Gulf ports crippled, companies and shipping lines scrambled to find alternatives. Chiquita, the banana importer, diverted shipments from Gulfport, Miss., to Freeport, Texas, and Port Everglades, Fla. Last year, Gulfport handled 25 percent of Chiquita's imports, moving 15 million boxes of bananas.
Lumber prices surged last week, as Katrina devastated sawmills and plywood plants on the Gulf Coast and wiped out "vast inventories of wood products" at ports, according to one industry newsletter. Up to 1 million board feet of lumber on the docks in New Orleans was destroyed. Coffee futures prices also soared. About 27 percent of all U.S. green coffee stocks, some 1.6 million 60-kilogram bags, were stored in New Orleans.
$4 a gallon? Rail travel was diverted; one of the nation's four largest rail lines, CSX, had to curtail all traffic out of its New Orleans terminal, a key interchange for transferring freight traveling to and from the western United States. CSX reported damage to rail lines from New Orleans 100 miles east to Pascagoula, Miss.
But Katrina's biggest economic impact could be on the form of transportation most Americans know best--the auto. General Motors, which controls 54 percent of the large SUV market, has been banking heavily on a brand-new series of big utility vehicles, due next year, to help reverse a financial nose dive. But $3 gas--and the once implausible possibility that prices could hit $4 a gallon--could end America's love affair with big haulers. A new survey by Kelley Blue Book and Harris Interactive found that 59 percent of car shoppers said rising gas prices have influenced their purchase decisions. That's up 13 points from July and is the highest reading since the survey began in 2004.
If any good is to come out of the tragedy in the Gulf, it may be a major reassessment of whether such critical economic infrastructure should be concentrated in a natural disaster zone. "It's not a regional disaster," says Larry Goldstein, president of the Petroleum Industry Research Foundation. "It's a national disaster."
With Matthew Benjamin, Paul J. Lim, Richard J. Newman and Nisha Ramachandran
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