It turns out that severe weather disruptions almost always involve water. Since the most potent source of water is evaporation from the ocean’s surface, the majority of US weather disruptions are near salt water coasts. And, because people and businesses like to be near coasts, oceanic storms have big effects, including on transportation.
Hurricane Harvey is no exception. FTR has quantified preliminary numbers, gauging the impact in the overall trucking market. Hurricane Harvey’s broad swath across Texas (and beyond) will strongly affect over 7% of US trucking, with some portion of that fraction out of operation for at least two weeks. During the first week, almost 10% of all US trucking will be affected.
That number jumps near 100% for the Gulf Coast region west of the Mississippi. After a month, the numbers fall but are still significant--impacting nearly 2% (national) and 25% (regional). Due to the already tight nature of the truck environment, this means that loads could be left on the docks. The largest effects will be regionalized, but transportation managers across the entire United States will be scrambling.
There are four broad effects of these disruptions:
1.The most obvious disruption is idle trucks waiting for water to recede from roads and loading docks.
2.The second effect is the extra shipments of relief and construction supplies.
3.The third effect is extra shipments and lower productivity due to out of cycle supply chain demands.
4.Finally, there is simply slower operations due to congestion, circuity, and backed up loading docks.
FTR has studied several major weather events, starting with Hurricane Katrina in New Orleans LA. These weather events show significant pricing effects, highlighted by seven extra percentage points of annualized pricing for the five months following Katrina in 2005 and a peak of 22% year-over-year spot price increases following the monster winter of 2014.
“Look for spot prices to jump over the next several weeks with very strong effects in Texas and the South Central region,” according to Noël Perry, partner at FTR. “Spot pricing was already up strong, in double-digit territory. Market participants could easily add five percentage points to those numbers.”
Additional Impacts: Texas provides 30% of US refinery capacity, a production base that will be hard hit by this storm. Regional diesel supplies will be strongly affected, with national prices jumping as well.
“With companies such as Exon Mobile and Phillips 66 closing down their refineries, we are talking about impacts to fuel and energy,” said Larry Gross, partner at FTR. “In addition, Houston is a big interchange point for rail and intermodal, so it’s not just trucking which will be disrupted. Freight cars are sitting idle outside of Houston. Will they wait out the storm or be re-routed? Of course, those final miles from the railyards are still dependent on trucks. Freight transportation is an integrated system, and this becomes more obvious during major weather events when disruptions occur.”
There is also the question of contract rates between shippers and trucking companies. “There is always a lag between spot rate increases and contract rates,” said Perry. “Analysts have been wondering when trucking contract rates will begin following spot rates up. The combination of regional and fuel effects from Harvey, coupled with the electronic logging device (ELD) mandate in December, could be the catalyst to a pricing spiral.”