Katrina Knocks Out Product Pricing and Availability

By Jacqueline Emigh  |  Posted 2005-09-09

Katrina Knocks Out Product Pricing and Availability

Beyond the snarl of road shutdowns and traffic tie-ups in the Gulf region, Hurricane Katrina is spurring nationwide business snares over product availability, pricing and warehouse storage, now that the once bustling Port of New Orleans is closed for the foreseeable future.

As of this week, Procter & Gamble is still assessing the damage to its facilities in New Orleans, and deciding what to do about four large warehouses there once used for storing Folgers coffee, said Susanne Dusing, a company spokesperson.

Meanwhile, Chiquita Brands International announced last week that, due to severe storm damage, its port and warehouse operations in Gulfport, Miss. are making a temporary move to two cities elsewhere in the nation: Freeport, Texas and Port Everglades, Fla.

Katrina also threw monkey wrenches into the supply chains of untold numbers of smaller businesses, to an extent that could threaten the survival of some.

"I was just about to post a notice on our Web site that were suspending shipments until FedEx comes up with a more reasonable schedule," said Randy Petry of Gambinos Bakery, a producer of pralines, Mardi Gras cakes and other Southern delicacies, when reached this Wednesday at the companys store in Baton Rouge, La.

"We lost half a million dollars worth of lumber in a warehouse in New Orleans, all of it washed away by Katrina. The [New Orleans] Port Authority told us were covered by insurance, and I really hope so," according to William Almond, who is secretary, treasurer and chief financial officer at Almond Brothers Lumber Company, a business that ships OSB and other lumber products to destinations throughout the world.

For its part, Gambinos Bakery had been running a thriving baked goods business over the Internet, as well as out of several brick-and-mortar stores, some of them located in New Orleans.

Since the storm, FedEx, UPS (United Parcel Service) and the USPS (United States Postal Service) have temporarily ceased operations in the city of New Orleans.

Read more here about how Katrina has applied a stranglehold on supply chain and logistics.

Meanwhile, at Gambinos site in nearby Baton Rouge, FedEx has only managed to make pick-ups a couple of times a week, according to Petry.

"But our items are highly perishable, so we need to get them out the door right away," the bakery executive said.

Almond Brothers is also running into huge snafus around filling customers orders, but the barriers are different.

Located in Coushatta, La. at the northwest corner of the state, the lumber firm has traditionally sent internationally bound orders directly to warehouses surrounding the port of New Orleans, and from there to ocean ships departing the port.

Almond uses warehouse facilities not just for storage, but to prepare OSB and other wood for ocean shipment.

With the port of New Orleans out of commission, the company now needs to find warehouse facilities in another port.

"But Savannah is much too far away, and the warehouse space in Houston was already hard to come by even before the storm," he said.

Transporting the goods to warehouses raises another mares nest of issues. Due to a rise in fuel prices spurred by Katrina, costs are skyrocketing for trucking, the lumber companys customary mode of transport.

Since Katrina struck, Almond has also looked into alternatives such as railroad and barge shipment.

But unlike hired truckers, the railways cant assure that the wood will be protected from any rain that might fall during transport.

Next Page: Companies struggle to ship products.

Companies Struggle to Ship


Barge shipment poses other obstacles, Almond said. The large and expensive containers required for shipping the wood by barge would be making one-way trips to warehouses—unless the company opted to pay return fare for empty containers.

Meanwhile, Louisiana-Pacific Corp., a large lumber producer based in Nashville, Tenn., has temporarily switched its production plant in Silsbee, Texas from siding to OSB structural panels, according to a company spokesperson.

To read about how cyber-looters have capitalized on Katrina, click here.

"OSB is sort of an equivalent to plywood," the spokesperson said. "People will need [OSB] as they rebuild."

Yet right now, some manufacturers are finding it tougher to find raw materials, a problem that, in turn, further affects the availability of finished goods.

"Practically all the materials used in manufacturing around here have always come through New Orleans," said Gambinos Petry.

Although Gambinos has been able to locate raw materials from alternative sources, Petry isnt all that pleased with the results.

"Weve found alternative sources [of materials], but the quality isnt as high," he said. "Its been especially hard to source flour."

By Friday of this week, Gambinos—a 50-year-old veritable institution in Louisiana—had taken down its Web site for the time being. "We havent been able to ship any product," Petry said, during a follow-up interview.

Gambinos isnt using any computer-based tools to deal with these supply chain and logistical nightmare. Neither is Almond Brothers.

But makers of the software tools point to a number of supply chain/logistics customers with operations in the Gulf Coast region.

International product distributor Cargill uses Red Prairie Corp.s WMS (warehouse management system), said Erv Bluemner, Red Prairies vice president of product marketing for transportation solutions.

Dawn Salvucci-Favier, director of transportation and logistics management at Manugistics Inc., cited a grocery store chain and a large food distributor in the Gulf region as members of Manugistics customer roster.

Manugistics provides a wide variety of tools for strategic and tactical supply chain management, Salvucci-Favier said in an interview.

Using the vendors tools for supply chain network design, for example, businesses can "simulate a storm," and then locate either alternative sources or alternative product destinations based on the scenario.

With Manugistics TMS (transportation management system), customers can divert capacity between different modes of transportation, such as road and railway.

Red Prairies tools for supply chain and transportation management also cover a broad gamut, according to Bluemner, who mentioned in particular the softwares ability to "bring together multiple pick-ups and multiple destinations" for logistics.

Also according to Bluemner, Red Prairie makes HR (human resources) management tools that can help companies relocate facilities to new geographic areas which are rich in needed skill sets.

Meanwhile, the effects of all the Katrina-created supply changes are starting to be felt along the East Coast, West Coast and Midwest regions of the US.

Click here to read about Katrinas impact on chip production

Since the hurricane, wholesale pricing for OSB has already hit several spikes, reaching $2.50 per sheet by this Friday, said Dave Sims, vice president of Stones Building Center, a retail lumber store in Wausau, Wis.

Prices of other lumber products have been going up, too, "but not as badly," according to Sims.

"There isnt a shortage [of lumber] yet, because the Gulf region hasnt started rebuilding. But it looks to me as though people might be buying and hoarding lumber, in anticipation of a shortage," he said in an interview.

The retailer does expect, however, to see some leveling off of lumber prices in the near future.

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