As the U.S. Gulf Coast continues to struggle with the widespread damage caused by Hurricane Katrina, reports are painting a very bleak picture for food shippers around the country, many of which are scrambling to open alternate locations from which to move their products and to find other shipping routes and modes around the area.
The storm closed nearly all the ports, airports and railroad tracks in the region, and severely damaged several key highways, bridges and roads that are crucial for freight movement. Significant portions of Interstate 10 and U.S. 90, for example, the two main east-west highways along the Gulf Coast, were all but destroyed.
Particularly hard hit by the late August hurricane was the port city of Gulfport, MS, a hub for fruit imports from Latin America. Dole Food Co., Westlake Village, CA, imports most of its bananas, pineapples and tropical fruits from Central and South America through Gulfport. Ships of prod ucts had arrived in Gulfport weekly, but the company has now had to divert those vessels to port facilities in Freeport, TX, Port Everglades, FL, and Wilmington, DE. Chiquita Brands International, Cincinnati, receives about a quarter of all its imports of bananas and other produce from Central America through Gulfport. It, too, has had to scramble to reroute shipments through Freeport, Port Everglades and other ports.
“While we are still assessing the situation, it is clear that we will need to relocate our services from Gulfport for the foreseeable future,” says Chiquita Fresh President and CEO Bob Kistinger. “While this will obvi ously impact our logistics and shipping operations, we believe our ports in Texas and south Florida are well-positioned to maintain high service levels to our customers in a cost-effective manner.”
Coffee Takes The Hit
The Port of New Orleans, which also was seriously disrupted by the storm, is the premier point of entry for Jamaican and Puerto Rican coffee and for all coffee beans imported into the United States from Latin America. The port handled more than 252,000 tons of coffee last year alone. Once cleared in New Orleans, it is generally shipped to one of 13 warehouses, totaling more than 5.5 million square feet of space, before being processed and roasted at one of about a dozen facilities, all within 20 miles of the city.
Cincinnati-based Procter & Gamble is one company with coffee operations in and around New Orleans. It hopes to restore some operations at its four coffee production facilities in the area soon. In the meantime, P&G notified retailers Sept. 12 that there may be temporary supply restrictions for its Folgers and Millstone coffee brands. Sara Lee Corp., Chicago, also hopes to have at least a portion of its coffee-roasting plant in Harahan, LA, back up and running by the end of September. That facility handles about 10 percent of all the coffee produced by Sara Lee under the Douwe Egberts, Superior, McGarvey and Café Continental brands, along with some private label products.
Among other roasters, the condition of 1.6 million 132-pound bags of green coffee stored in New Orleans warehouses remained unknown at press time. “We still don’t know whether water has gotten into the warehouses or not,” says Joe DeRupo, spokesman for the National Coffee Association in New York. “So far, it looks as if there isn’t a lot of damage to the warehouses, but no one has been able to get into the facilities yet.”
Immediately after the storm, the New York Board of Trade suspended deliveries of coffee to New Orleans. Contracts for near-term inbound coffee shipments formerly scheduled to New Orleans have been diverted primarily to Houston, where there are a number of warehouses certified by the Board of Trade to hold coffee.
Costs And Capacity
The port of New Orleans is also a major exporting hub for the country’s agricultural industry, handling more than 615,000 tons of poultry, rice, grains, vegetables and other products each year.
The storm’s effects have been particularly damaging, and, in some cases, are expected to be very costly for Midwest farmers and agricultural firms that transport products by barge down the Mississippi River to New Orleans to be loaded onto ships. According to George Friedman, founder of intelligence firm Stratfor, Austin, TX, barge traffic for agricultural products is the most economical shipping method, especially since most products have a low value-to-weight ratio. Without river access, many of these companies will have to rely on more expensive trucks and rail cars to move their products, further adding to an already tight market for truck and rail capacity.
Cargill’s grain and meat divisions, for example, rely heavily on Mississippi River barge transport to get product to New Orleans for export. In fact, the company had 300 barges of product on the Mississippi River when the storm hit. Those barges sat idle on the river waiting for it to reopen to larger boat traffic.
“We weighed other options of sending it by rail or truck, but they were not viable because of capacity issues,” says David Feider, a Cargill spokesperson. “It wasn’t something we could execute because of the tightness of capacity right now.”
One barge, Feider says, holds about as much cargo as 15 railcars or 60 trucks, “so trying to divert that much cargo elsewhere would have been next to impossible.”
The company also considered diverting shipments to Baton Rouge, LA, and then sending them through the Gulf Intercoastal Canal to Houston for unloading, but instead opted to wait out the river closing.
That was probably the best thing the company could have done to ensure the future of New Orleans. “Grain barges do not need to stop at New Orleans, and can redirect past the city and onto the Gulf Intercoastal Waterway using other ports like Houston, Galveston or Tampa for offloading,” says Rodger Baker, a senior analyst and director of geopolitical analysis at Stratfor. “The longer the shipping firms use alternative ports, the less likely they will be to return to New Orleans, assuming the alternative ports can add new infrastructure to deal with the increased throughput,” he states.
So far, that has been a problem. As shippers move to other ports throughout the South—including not only Freeport, Port Everglades, Wilmington and Houston, but also Tampa, Miami, Pensacola, Fort Lauderdale and Panama City in Florida; Newport News, Norfolk and Portsmouth in Virginia, and Morehead City, NC—those facilities were having a hard time dealing with the increased traffic. Many reportedly had to turn away cargo for the first time in their history.
Freeport, for example, traditionally handled about 300 containers of bananas a week, but since the hurricane shut down Gulfport, it has been handling more than 1,000 containers a week.
Good news came in mid-September when officials at the Port of New Orleans announced that power had been restored to many facilities there, and on Sept. 14, it unloaded its first ship since the storm hit.
Port Director Gary LaGrange estimates the port could be at about 30 percent to 40 percent capacity within a month, 70 percent to 80 percent in three months and at 100 percent in four to six months.
“We are committed to restarting commercial cargo operations at this port as soon as possible because the cargo we handle has a significant impact on the economy of the region and the nation,” LaGrange says.
“Hurricane Katrina damaged the port, and we are currently able to handle a small frac tion of our normal activity. Nevertheless, we are taking important first steps in get ting the New Orleans economy primed and re-establishing our relationships with our customers.”
However, reopening the port alone does not solve all the problems. “While much of the port infrastructure was not significantly damaged by Katrina, the massive population shift—which will be prolonged—has left many of these facilities with minimal if any staff. This leaves the ports largely inoper-
able. While this is a temporary situation, the disruption comes at the start of the harvest season, and thus will soon increase in mag-
nitude,” warns Stratfor’s Baker.
Also welcome news to the countless logistics providers and shippers who do business in and around the Gulf Coast was the start of work to repair the Twin Span Bridge on I-10 between New Orleans and Slidell, LA, and on a temporary replacement for US-90 in Mississippi. Both highway reconstruction projects began the week of Sept. 12 and are likely to take several months to complete.
In the meantime, detours around damaged railroad tracks are likely to continue to delay rail shipments. Union Pacific, one of the country’s largest cargo rail carri ers, was detouring through Memphis and St. Louis 14 trains that normally use the New Orleans gateway. Norfolk Southern, another major rail carrier, operated its first westbound train from New Orleans Sept. 13 and gave it to Union Pacific at Avondale, LA, just west of the Mississippi River. Several Norfolk Southern buildings in New Orleans were also severely damaged in the storm. CSX Corp. anticipates losses of $250 million in storm damage and business inter ruptions. It has had to reroute many trains as track and infrastructure repairs, which could take up to six months to complete, are made.
Logistics in general throughout the area also took another big hit in the form of facilities damaged by the storm. Many public refrigerated warehouse facilities “located in New Orleans in particular, have been most seriously affected,” reports Bill Hudson, president of the Alexandria, VA-based International Association of Refrigerated Warehouses (IARW). “Some facilities were literally opened up by Katrina; others were casualties of flooding; and all suffered from at least a loss of power.”
Adds Bob Shaunnessy, executive director of the Warehousing Education and Research Council (WERC), based in Oak Brook, IL, “A good number of the public warehouses, wholesalers and distributors who shut their doors for the storm are just now cranking operations back up.” For them, it has been a constant struggle to find enough dry ice to prevent further product damage without the benefit of electricity. Many have had to seek out warehousing options elsewhere.
Flower Foods, Thomasville, GA, is one such firm. It saw significant damage to 10 of its 24 bakery warehouses in the area. Those facilities are unable to operate, forcing the company to reopen a shuttered facility in Houston to serve customers in Louisiana, Mississippi and Alabama. The company is also diverting many shipments to and from other facilities in Lafayette, LA, Baton Rouge and elsewhere.
“We will continue to serve the market, but we anticipate the cost of doing so will be extremely high,” says Flower Foods President and CEO George Deese. “There will be costs associated with re-opening the closed bakery in Houston as well as extra shipping and handling costs to transport the product to the Louisiana market. However, this temporary solution will allow us to con tinue service to the territories in Louisiana, Mississippi and southwest Alabama to which we can gain access.”