Procurement after a Natural Disaster

September 27th, 2017

Industries to keep an eye on after a hurricane (or two, or three)

 

Today’s post is by Mike Figueroa, Assistant Director of Customer Services at SafeSourcing.

Both hurricane Harvey and hurricane Irma have wreaked havoc in Texas and Florida over the past several weeks, resulting in dozens of lives lost, and costs in damage to buildings alone are being estimated as between $100 and $400 billion dollars. But of course the cost isn’t limited to direct building damage as there will be costs in disruption to production activities, costs, and increased demand for goods. So what are some of the things procurement professionals should keep an eye out for post-natural disaster?

Crop losses: Orange crop losses are estimated at 10%, grapefruit at 20%, and could increase due to the greening disease Florida has been battling with that is exacerbated by moisture. Other crops of fruit, nuts, and melons are expected to be similarly affected.

Lumber: Even before the two hurricanes hit land, demand for plywood for boarding up windows increased. Now that the rebuilding efforts are underway, lumber is in greater demand than ever. Prices in Texas and Florida are expected to rise by 20%, partially due to a secondary cause of a recent 10% tax on Canadian soft wood imports.

Insurance: Currently the insurance industry is estimating they will be on the hook for about $300 billion in property and business loss claims, with losses in the $35-$70 billion dollar range. The re-insurance industry that further protects the financial health of the insurance agencies, is considering re-negotiating their rates to account for such monumental loses.

Energy: Total production of gasoline and natural gas is not expected to have been reduced by more than 1%. However, the disruption caused by the storms has had an interesting impact on demand as well, while hundreds of thousands of people are not driving back and forth or able to utilize the amount of energy they did on a normal basis. The outlook in the mid-term is a volatile and unpredictable market.

The bottom line is that for procurement professionals, a wide variety of industries have been thrown into turmoil, making it difficult to begin new initiatives or guarantee pricing for the short term. Furthermore, logistical concerns for moving product in and out of the affected areas will incur protracted lead times. This both presents challenges to sourcing new contracts, while also making it critical to lock down future agreements. Where commodities affected by natural disasters are concerned, everyone will be feeling the pinch. However, these challenges above make it more important than ever to lock-in favorable agreements more important than ever.

For more information on how SafeSourcing can assist your team with this process or on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today.

 

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