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Hurricane Harvey's Disruption and Ongoing Impact to Film Supply Chain

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In Brief

Almost six months after Hurricane Harvey made landfall in the Houston, Texas metro area, countless business and economic sectors are still trying to recover. How quickly they recover has been in large part due to the repair and continuity of the supply chain.

Hurricane Harvey's Impact on Petroleum Products

On September 7, 2017, the Institute for Supply Management (ISM) published the results of a survey that attempted to assess and predict how Hurricane Harvey might impact six key business metrics. Members of the Manufacturing and Non-Manufacturing Business Survey Committees were tasked with predicting as best they could whether these metrics may be impacted by shortages of input materials following this devastating natural disaster.

The survey showed that 67% of responding supply managers predict that input materials pricing will be at least somewhat negatively impacted over the next three months. Further, they foresee that supplier deliveries will also be negatively affected in the same time frame.

 

Because Houston, Texas is home to the sixth largest import terminal in the world, any disruption in daily activity causes a ripple effect. Due to the level of disruption and devastation from Harvey, the effects are still being felt six months later.

 

Indeed, the far-reaching impact of Hurricane Harvey involves every business sector in the U.S. It was compounded with the limited access and supply of the most valuable commodity produced in Texas: oil.

 

In an article published on October 13, 2017 in Plastics Today, "In late August, Hurricane Harvey's flooding rains shut down more than half of U.S. production and nearly one quarter of global production of linear alpha olefins (LAOs), a group of chemicals essential to the production of most polyethylene (PE)..."

 

Increased Demand Worldwide for Polyethylene

Polyethylene is the world's most-used plastic, figuring in the manufacture of countless materials ranging from film for packaging and medical devices to plastic bottles and pipes used for construction. Chemical producers who usually rely on obtaining their supply of LAOs from Houston-based production were forced to scramble to find other suppliers.

 

Demand for PE is also experiencing a global growth trend globally. It is the material of choice for food and consumer packaging because it is durable, versatile, and inexpensive. As people's incomes around the world rise, they become the new consumers of goods that are made of or packaged in plastic.

 

How Shortages in PE Production Affect the Supply Chain

Due to unprecedented petroleum plant closings in Texas, an estimated 300,000 tons of ethylene production has been lost to Harvey. Numerous producers had the unpleasant task of informing their customers that they could not fulfill their contractual supply obligations.

 

Joel Morales, Senior Director, Polyfins, Americas, at IHS Markit, states, "A shortage in LAOs to produce PE is likely to lead to price increases for the short term, which will impact not only PE producers but others down the supply chain, including manufacturers of plastic packaging, films, and bottles."

 

Shipping Challenges Complicate Matters

With roads and train tracks underwater, delays of two weeks or more were standard. In the weeks and months that followed, logistics played an important part in transitioning the flow of supply back to normal. One company, Formosa Plastics Corporation with plants in Point Comfort, shut down production in advance when faced with the certainty of Harvey making landfall. As soon as some of the companies up the chain in need of plastics and petroleum-based supplies realized the implications of the storm on the supply chain, they sought solutions outside the U.S. to be prepared for an extended disruption.

 

Ongoing Impact on Film Supply Chain

Two significant direct results of the disrupted supply chain were physical materials shortages and the concomitant rise in costs of goods and materials.

 

Disaster relief efforts were hampered when it became apparent that production of plastic tarps and medical saline pouches were backlogged. International aid organizations rely on the ready availability of plastic-based supplies.

 

Providers of supply chain risk solutions have estimated that the region of Texas affected by Harvey is responsible for almost $600 billion in economic activity. Texas's chemical industry has been designated as a foundational block of the interconnected global supply chain and the average recovery time is estimated to be 10-20 weeks. However, considering an event of this magnitude, experts have predicted it could take as long as 52 weeks to resume full pre-production volumes.

 

Sourcebook Enterprise subscribers have the ability to visualize and analyze supplier plant locations for geographical risk. Hazards included in the analysis are tsunamis, seismic events, wildfires, coastal flooding, tornados, high winds, river flooding and hailstorms. 

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 Post Tags: Film Risk Analysis