CSCMP's Supply Chain Quarterly
October 24, 2018
Forward Thinking

Twin hurricanes may go down as nation's most expensive natural disaster, report says

Harvey, Irma to shave 1.2 percent off Q3 GDP growth; transport services back to normal in Houston.

The combined damage of Hurricanes Harvey and Irma could go down as the most expensive natural disaster in U.S. history, consultancy IHS Markit said Tuesday in an economic assessment 30 days following the back-to-back monster storms.

The firm said the cost of Harvey, which hit during the last week of August and ravaged Houston, the Texas Gulf Coast, and parts of Louisiana with unprecedented rainfall, will total between $60 billion to $100 billion in 2017 dollars. That alone would make Harvey the second most destructive storm on record after Hurricane Katrina in 2005, which cost $108 billion. Irma, which followed Harvey with winds and storm surges that destroyed several Caribbean islands, raked Puerto Rico and wreaked havoc on the Florida Keys and the state's southwest coast, will cause damages estimated at $30 billion, IHS said.

The loss of economic activity from the twin storms will subtract 1.2 percent from the nation's third-quarter gross domestic product growth, according to the firm. However, recovery and rebuilding efforts should boost GDP growth in subsequent quarters, it said.

Personal income and real—or inflation-adjusted—spending will take a direct hit from the hurricanes due to the lost wages of displaced workers, IHS said. However, it will not alter the Federal Reserve's plan to raise the key federal funds borrowing rate by 25 basis points at the rate-setting Federal Open Market Committee's December meeting, the firm predicted.

The storms should not have an adverse impact on the Texas and Florida economies, the firm said. "Houston's role as an energy and trade hub provided a strong urgency to get the city back on its feet," IHS said. "There were massive disruptions in Harvey's aftermath, but the main levers of Houston's economy are largely up and running again."

Florida, a major consumption state, avoided a worst-case scenario with Irma, but the evacuations leading up to the storm, widespread power outages in the aftermath, losses in the agriculture industry, and a temporary hit to tourism will cut into the state's near-term growth, the report said.

Houston's transport infrastructure has been almost entirely restored, according to the report. Railroads have resumed full operations, albeit with slower train speeds in the Houston area. Ports have mostly resumed operations, with some slower operations in Houston due to still-closed refineries. Airports have resumed operations in all impacted areas.

Freight volumes stalled by the hurricanes have started to come back, IHS said. Rate spikes immediately after the incidents have begun to level off, though rates are higher than they were before the storms hit. Tighter freight capacity in place before the hurricanes will lead to higher transport costs in the third and fourth quarters, according to the firm.

"The difference in cooperation between all parties this time versus earlier storms, such as Katrina, was very dramatic; most everyone was as prepared as possible, and relief efforts were well coordinated," said Charles W. Clowdis Jr., director-industry consulting for IHS. "Federal, state, local authorities, volunteers and other groups learned from the lessons of Katrina and were better prepared despite the uncertainty of both storms and the lingering rain from Harvey."

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