03 September 2005

The economic ripples of a national disaster

As we begin to assess the physical damage done by Katrina, Americans will also begin to feel the more far reaching effect of this national disaster: the economic realities that is the web of our economy.

New Orleans lies at the crossroads of what is considered the New and Old economies of our Nation. One that embodies not just the raw resource of our nation but also the ability to trade upon that resource.

The realities of Katrina will be far-reaching into the lives of every Americans. This disaster will most likely prove to be inflationary as it has touched many of the things that we take for granted. The things that affect our daily lives. It is not only the banks, insurance companies, stocks, bonds, futures, etc. that have been affected as in 9/11 or other disasters.

To simplify and further explain:
  1. The area affected lies at the intersection of our nation's most heavily traveled water transport and port system which is the vital link between producer and consumer....importer and exporter.
  2. There are 7.5 million residents of Mississippi and Louisiana. States whose economy relied most heavily on the hardest hit areas.
  3. Oil: nine of fourteen refineries in the region are completely shut down representing a whooping 12.5 percent of the US refining capacity. In addition, 20% of US oil production is off-line as well as a large chunk of our natural gas capacity which affects the entire nation. This area is the largest domestic supplier of oil and natural gas to our nation. We have already had to open up our petroleum reserves to offset soaring prices and dwindling supply. And, the global need is only worsening removing any excess capacity that could be tapped.
  4. Global market exports and imports are now disrupted. The cost of American goods are almost immediately more expensive in foreign markets as a result.
  5. New Orleans ports "handle roughly half of the corn, wheat and soybeans exported from the U.S., much of which reaches the city on barges traveling on the Mississippi River." WSJ. About 20 percent of U.S. corn is sold overseas, and almost 40 percent of U.S. soybeans. The vast majority moves down the Mississippi River in barges so it can be shipped out of New Orleans.
  6. The AP notes, "The Mississippi River is the cheapest route for shipping many crops and other commodities destined for overseas markets."
  7. New Orleans is the nation's second-largest port for incoming coffee shipments. But redirecting those shipments will not solve all the problems, because the city is also a major coffee production center. Our own Cincinnati based Proctor and Gamble produces their coffee in this region for the American consumer. About a quarter of the entire U.S. stock of unprocessed coffee is stored in New Orleans. More than half of the Folger's and Millstone brand coffees are made at two plants in New Orleans.
  8. New Orleans is also the leading port for incoming shipments of imported steel, plywood, and natural rubber.
  9. Storage and re-distribution: even if port delivery is shifted to other parts of the nation there are logistics issues with shipping (trucks and trains are much expensive than barges), storage at already overworked ports, and problems with national security inspection of incoming goods. A resource that is already strained where existent at all.
  10. A very large percentage of perishables arrive into this region for distribution across the US. For instance: 25 percent of Cincinnati-based Chiquita's banana imports arrived in the United States at the company's Gulfport, Miss. facility.
  11. A broad range of items from the Gulf Coast are among the US largest producers: oil, natural gas, shrimp, oysters, chicken, cotton, sugar, and rubber to name but a few.
  12. The ramifications of the petroleum shortage will affect transportation costs of goods and the manufacturing of everything from plastics to consumer goods. These costs will undoubtedly be directly passed on to consumers.
  13. Airlines: Delta (in bankruptcy), American, and Continental receive a large portion of their jet fuel from this region at comparatively reduced pricing. An industry already in turmoil can hardly sustain another large hit such as this.
Inevitably, as a result, we will all feel the long term effects of this crisis. Katrina took a swipe at one of the very significant contributors to the well being of our nation's economy.

Big OIL is already gouging the American public as we have seen by immediately rising oil prices, and I am sure that we will see many other vultures descend upon us in the coming months exploiting this tragedy.

This disaster could be far more impacting than any other in our nation's history. This region is one of the life-lines of our economy and a hub to our consumer-based economy.

3 Comments:

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