Harvey wreaks havoc on modern logistics of trade

The Merriam-Webster Dictionary defines force majeure as a “superior or irresistible force” or “an event or effect that cannot be reasonably anticipated or controlled – act of God.”

Hurricane Harvey’s recent pounding of the Houston metro area and the Texas Gulf Coast, certainly fits this definition. To watch the thousands of displaced people and the massive damage caused by the rains and the flooding was heartbreaking. It may take months or even years for some people and businesses to recover from the destruction.

What is especially devastating about this storm is that it fell directly upon Houston, the fourth-largest city in the U.S., and one of the nation’s major commerce and logistics hubs. The Port of Houston alone is a sprawling 25-mile-long complex that ships to and receives products from all over the world. According to statistics, it is the busiest port in the U.S. in terms of foreign tonnage, and the second-busiest in the U.S. in terms of overall tonnage. Overall, it is the 13th-busiest port in the world. As with virtually all other operations in Houston, the port was shut down for several days as Hurricane Harvey hit the coast. It officially resumed operations on Sept. 1.

During my career, I have developed a tremendous respect for the logistics component of trade and the people who work daily to get products from the manufacturer to the final consumer. As Harvey hit Houston, I called my contacts in the logistics industry to see how they were handling the situation. People in the rail and trucking industries were desperately rerouting all the traffic they could from entering the Houston region. In certain cases, this meant taking a meandering route to get the product to its final destination. In most cases, this also added to the cost of the shipment.

Some firms that I talked to were caught with thin inventory in terms of production inputs that come from the Houston area for their manufacturing operations, thus affecting production. The trend during the past 20 years has been to reduce in-plant inventory to as little as possible in order to save on leasing space and to maximize production space. When disasters such as Harvey strike, this can backfire on management. Too little inventory leaves a company vulnerable to unforeseen events. This was evidenced when the 2011 Tohoku earthquake and tsunami rocked Japan, causing the most destruction it had seen since WWII. The initial shock and the aftereffects caused major delays in supply chains throughout the world.

Just-in-time inventory shipments have been adopted in practically every industry. This is great when you consider a company does not have to occupy space and spend resources warehousing inventory until it’s actually needed. When a disaster strikes, this strategy can come back to haunt a company.

Forces majeures show us that modern supply chains can be quickly affected. A global logistics hub such as Houston, which plays a huge role in the U.S. economy, is particularly susceptible to natural disasters. Because Houston is such a big petroleum center, many industry insiders are predicting a rise in gas and diesel prices during the next few months.

And the effects of Harvey are not only going to be felt locally or even nationally, they can cause problems globally. More than 27 percent of the share of imports into the Port of Houston come from Mexico. Because the U.S. and Mexico economies are so economically integrated, Harvey’s effects also will be felt strongly south of the border.

As the Texas Gulf region struggles to recover after Hurricane Harvey, every part of the supply chain that moves commerce nationally and internationally will have to be on its A-game. This entails the supply chain managers at production plants, the third-party logistics firms that get paid by companies to move their products, customs brokerage firms, and the truck drivers, pilots, and rail engineers who physically move the products.

And these skills are not only needed for commercial trade, they are also critical to the function of getting relief supplies to the thousands of displaced people who need food, water, clothing, and medical supplies. These different components of the logistics chain are going to be needed more than ever to help the Houston region get back on its feet.

Jerry Pacheco is the executive director of the International Business Accelerator, a nonprofit trade counseling program of the New Mexico Small Business Development Centers Network. He can be reached at 575-589-2200 or at jerry@nmiba.com.

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