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Crisis after Katrina: Supply chain woes mount
Sacramento Bee


September 07, 2005

Middle America's main artery is blocked, and everyone is about to feel some of the pain.

The mighty Mississippi River - the main transportation artery for Midwest commerce - is clogged by shutdowns at Gulf Coast ports from Louisiana to Alabama.

The impact of Hurricane Katrina, the massive supply chain interruption it has produced and subsequent rebuilding efforts in the devastated region will take months or even years to gauge, say experts, but they predict the effects will include:

- Higher prices for some produce.

- Lower prices for grain and feed.

- Sticker shock on some durable goods, including automobiles.

- Tighter supplies of construction materials.

"We simply don't know the extent of the economic and infrastructural damage in the Southeast," said Peter Morici, a business professor at the University of Maryland. "Of course, gas and heating fuel are going to be higher, and transportation of all goods will cost more in the short term."

Katrina's fury also damaged Southeastern cotton and sugar cane crops and delayed the planting season in Florida, a region that supplies produce to much of the East Coast during the fall and winter months.

Reports from the two states indicated that thousands of acres were flooded just as harvesting was to begin. Agricultural officials there said the rice will eventually be harvested. Louisiana and Mississippi combined grow about 20 percent of the nation's rice crop.

Midwest grain producers depend on ports damaged by the hurricane to handle 60 percent of their exports.

Grain silos are already full with the remains of last year's bumper crop, and the harvest season begins in two weeks. Meanwhile, estimates of ports reopening range from five days to three weeks or more.

Now grain prices are falling, and export trade negotiations are at a standstill.

"It's like you're at an auction and no one wants to buy anything," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.

Although steel prices have fallen from year-ago highs, the Port of New Orleans' closure could put automakers and other steel-dependent industries in a pinch. Steel-related imports through the port totaled 15 million metric tons last year, including scrap iron and coke.

"We just don't know how all of this is going to play out," said Robert Wisner, an agriculture economist at Iowa State University. "We're hearing that when river and ports do open that it will just be during daylight hours because nighttime navigation equipment is out. That will cut shipping capacity by 50 percent."

Reconstruction post-Katrina will likely take several years, say experts. In New Orleans alone, "a large share" of 200,000 homes in New Orleans have been rendered "uninhabitable" according to an estimate released by economists with the National Association of Home Builders.

Hurricane Andrew in 1992 leveled an estimated 28,000 homes. The four storms that hit the Gulf last year destroyed 27,500. The 1906 San Francisco earthquake lay waste to about 28,000 structures.

Once private insurance and federal money flood the region with cash, demand will surge for building materials that are already in short supply, including concrete and drywall.

Prices for some plentiful commodities, such as lumber, could soar as well. Lumber prices rose last week in what commodities analysts said was anticipated demand to rebuild homes and businesses hit by Hurricane Katrina.

"Construction labor and construction materials will be at a premium because it's going to take so much to rebuild that area," said Morici, the Maryland economist.


Distributed by Scripps Howard News Service,

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