CSCMP's Supply Chain Quarterly
October 22, 2018
Forward Thinking

Harvey moves on, leaving U.S. transportation network with formidable challenges

Trucking operations to resume out of balance, with many truckload carriers, drivers chasing high-margin "FEMA Freight." LTL carriers may see major cost hit.

There are countless unforgettable images capturing Hurricane Harvey's destructive path across Houston, the Texas Gulf Coast, and Louisiana. But for folks who ship and move stuff for a living, and who face the daunting prospect of returning a key part of the U.S. economy to working order, two are particularly poignant.

One was a photo of a stretch of I-10 in Texas that was transformed into a raging sea by days of record rainfall. The other was a deserted, flooded-out road near a spaghetti bowl of highway in Houston where all that was visible was a mostly submerged tractor-trailer. Both were stark reminders to those who manage the nation's supply chain of what lies ahead as months, if not years, of rebuilding get underway.

After regaining strength for the past 24 hours over the warm waters of the Gulf of Mexico, Harvey made landfall again yesterday morning east of Houston, sparing the nation's fourth most populous city further misery after dumping an almost biblical 52 inches of rain in some areas in just the past five days. Instead, Harvey turned towards Louisiana, but not before effectively drowning Port Arthur, Texas, home to the nation's largest oil refinery, on its way to swamping Baton Rouge and New Orleans, among other Louisiana cities.

Little has changed at this point in the transport ecosystem. The Port of Houston, as well as the city's two major airports, George Bush Intercontinental and William P. Hobby, remains closed until further notice. Omaha-based rail giant Union Pacific Corp., whose network feeds into the affected areas, continues to suspend service from Brownsville, Texas to Lake Charles, La. Most areas of east of downtown Houston are still inaccessible, UP said. The railroad has begun inspecting most of its infrastructure in Houston and west of the city, using helicopters and drones to view the damage in areas where there is no road access.

Rival BNSF Railway, which also serves the region, said Tuesday that it continues to suspend all Houston originating and destination traffic, as well as all traffic scheduled to route through Houston. BNSF's Houston-area rail yards and facilities, such as those that house intermodal and automotive operations, remain closed until further notice, the Fort Worth, Texas-based railroad said. "Given the size and scope of the flooding, normal train flows in the area are not likely to resume for an extended period," and customers should expect continued delays, BNSF said.

UPS Inc., the nation's largest transportation company, said that 574 zip codes in Texas and four in Louisiana are experiencing some level of service disruption. "There continue to be many locations where no pickup and deliveries are being made," the company said in an online service alert.

Companies shipping into the Houston area will experience extensive delays, though operations have resumed in Austin, Atlanta-based UPS said. UPS advised shippers to contact their customers prior to shipping to see if their locations have been impacted by the flooding. Rival FedEx Corp., based in Memphis, said it continues to monitor the situation but provided no details on service issues.

Not surprisingly, trucking networks are likely to find themselves out of balance once the region's highways, state, and local roads become sufficiently passable for the rigs to roll. Truckload carriers chasing so-called FEMA Freight, shipments of emergency supplies that are priced at a premium, will descend on south Texas, siphoning off capacity from elsewhere and raising spot, or noncontract rates, in the region and, for the short term, nationwide. Commercial truckload shipments bound for Houston or for south Texas may be delayed or re-routed due to a compromised infrastructure, creating a ripple effect as markets like Dallas, San Antonio, and Austin become de facto staging points and themselves become congested.

Less-than-truckload (LTL) carriers may face added pressure because they operate costly and complex hub-and-spoke type networks, part of which have been idled for days.

Re-balancing the typical LTL network will likely be expensive in terms of additional manpower needed to get loads back on their way, as well as the costs of possibly relocating personnel, cleaning up terminals, and paying freight claims.

C. Thomas Barnes, president of Chicago-based logistics technology provider project44 and a veteran of more than 20 years in the LTL, truckload, and third party logistics (3PL) segments, estimated that it will cost LTL carriers in aggregate, as much as $250 million to restore their networks to pre-Harvey conditions.

What's more, LTL rates are considered "static" in that they don't change frequently and become embedded in a shipper's or 3PL partners' transportation management systems (TMS). Attempts by LTL carriers to boost rates to offset rapidly escalating and extraordinary costs would require shippers or 3PL's to spend hours manually loading carrier rate information into a TMS, Barnes said. This becomes problematic when natural disasters create major imbalances in LTL carrier networks, he said.

According to consultancy FTR, Harvey will "strongly affect" more than 7 percent of U.S. trucking, with about 10 percent of all trucking operations affected during the first week of operation. A portion of the country's trucking network will be impaired for as long as two weeks, FTR said. After a month, about 2 percent of the national network and one-quarter of the regional system—skewed heavily towards the Gulf—will be impacted. Regional services will absorb most of the dislocation, FTR said.

Mark Solomon is executive editor—news at DC Velocity, a sister publication of CSCMP's Supply Chain Quarterly.

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