The ripple effect Katrina squeezes Maryland
Companies see more work after Katrina
Friday, Sept. 9, 2005
E-Mail This Article  Click here to enlarge this photo Dean Geiser⁄The Gazette
Jim Gentilcore (right) and Johnny Bowles of BAE Systems in Lexington Park load sheets of plywood onto a truck bound for Mississippi with supplies for survivors of Hurricane Katrina.
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From area companies’ damaged sites in that region that will need to be repaired to increases in costs for most businesses in gasoline, natural gas, heating oil and delivery services, the economic aftershocks of Katrina reverberate.
‘‘This storm will impose much larger losses than previous hurricanes and floods, because of the lack of federal and state preparation for storms and flooding in southern Louisiana,” Peter Morici, a professor of international business at the University of Maryland, College Park, said in a report. ‘‘The storm will likely reduce economic growth by at least 0.5 percent in the third quarter and 1 percent in the fourth quarter, and perhaps much more.”
Companies such as Bethesda defense and aerospace giant Lockheed Martin Corp., as well as hoteliers Marriott International of Bethesda and Choice Hotels International of Silver Spring, have damaged sites along the Gulf Coast that shut down. Some will require significant repairs.
| Disasters can sometimes cut two ways. While some companies face damaged facilities, displaced employees, higher costs and lost business, others will have more work as they rush to fill the voids created by Hurricane Katrina. For example, Spherix Inc., a Beltsville operator of call centers, expanded its center in Cumberland to take over for a center in New Orleans that shut down last week. The Cumberland facility began taking more calls on Aug. 29, Richard Levin, Spherix’s president and CEO, said in a statement. Also, Kellogg, Brown & Root Services, an Arlington, Va., subsidiary of Houston construction and oil company Halliburton Co., has already received a $16.6 million Navy contract to repair Gulf Coast military facilities damaged by Katrina. — Kevin Shay |
‘‘Thankfully, all damage reports to date have revolved around structural damage, power outages and flooding,” said Anne Madison, a spokeswoman for Choice, which franchises hotels under brands such as Comfort Suites and Clarion. ‘‘We have yet to receive any reports of serious injuries to hotel staff or guests.”
Lockheed officials were still trying to confirm the status of some employees on Thursday, including at the company’s Michoud assembly plant in New Orleans and its closed Biloxi, Miss., facility. Federal officials formed a command center at Lockheed’s Stennis Space Center in Mississippi, where about 1,000 people were sheltered, officials said.
Coventry Health Care, a Bethesda managed health care company, has been able to contact all of its 56 employees in the southern Louisiana offices in Metairie and Baton Rouge. With its Metairie office damaged, Coventry can still work in the Baton Rouge site and has transferred work to a new office in Shreveport, La., and an affiliate health plan’s office in Atlanta, officials said.
Health services calls are being handled by an affiliate in North Carolina. Coventry will let customers affected by the hurricane make late premium payments.
Hanger Orthopedic Group of Bethesda, which specializes in prosthetics, reported damage to four of its patient care centers, while six others lost power in New Orleans and Mississippi. Damage estimates were not available, but Hanger officials said revenue from the four damaged facilities was about $2.4 million last year.
Gasoline priceshaving most impact
Every company is hurt by Katrina due to rising gasoline prices, said Kenneth Busz, president of the Frederick County Chamber of Commerce.
‘‘Obviously, goods are shipped using oil and gas and so on,” he said. ‘‘It all has an impact.”
Gas prices will remain above $3 a gallon for many months, even after Gulf refineries are running again, Morici said.
‘‘Our gas prices have gone up 37 percent in a week,” said Bridget Burns, CEO of Century Fence Construction LLC in Upper Marlboro.
Before Katrina, Burns estimated it cost $65 to fill up one of her construction trucks. Last week, it cost $90.
‘‘It’s something you have to figure into your costs,” Burns said. The increased gas costs, she said, ‘‘really gives you a perspective.”
At the Frederick branch of Noland Co., a wholesale distributor of mechanical equipment and supplies primarily to the construction industry that runs 16 delivery trucks, fuel rates were having the biggest impact, said Doug Frushouer, branch manager.
But he was also seeing Katrina’s impact on other prices.
‘‘In plumbing, everything is PVC-based now, and the resin manufacturers were in [the affected region]. We’ve seen a 30 to 40 percent increase in price in the last three days,” Frushouer said. ‘‘We’re also seeing galvanized sheet metal go up. Evidently, hydrogen is used in the [production] process; that type of steel has increased by 35 percent in the last week.”
Consumers will end up footing the bigger bill, he said.
‘‘Our price will be passed along to the plumber, from the plumber to the builder, and finally from the builder to the homeowner,” Frushouer said.
Because many raw materials such as chemicals, plastics and industrial scrap steel come through the port of New Orleans — the nation’s largest — prices on those goods will be affected, Morici said. The situation is compounded by the loss of east-west transportation routes that will impede shipments across the United States, he added.
‘‘It’s a convergence of problems,” said Brian Patchan, executive officer of the Frederick County Builders Association. The fuel issues, he pointed out, will have a direct impact on the supply and delivery side of the building industry. ‘‘Plywood or drywall producers only have so much capacity, even when not affected” by a disaster, he said.
Most of the price changes seen by Briddell Builders in Libertytown in the past week have been for wood, said Andrew Wivell, vice president in charge of purchasing and negotiating with subcontractors. ‘‘Wood has increased an average of 10 percent across the board in the last week, plywood 20 percent,” he said. ‘‘Due to the hurricane, five out of six categories increased by 10 percent; the other category is plywoods.”
Most delivery companies have already tacked on fuel surcharges, Wivell said.
‘‘That’s the most immediate effect we’ll see around here,” he said. ‘‘I fully expect in the coming weeks that anything petrol-based — blacktop, shingles, vinyl siding — will increase in price.”
Like Frushouer, Wivell expects consumers to see higher prices — eventually.
‘‘Builders will be eating a lot of these increases because of being locked into prices due to building contracts,” he said. ‘‘Even if builders have escalation causes, they’ll have to decide if passing those costs along are worth damaging their relationship with a customer. Where it’s really going to hit us is via the subcontractors we work with. They’re the ones who purchase the materials.”
Ken Simonson, chief economist of the Associated General Contractors of America said Katrina will have varied impacts on construction markets for the rest of 2005 and into 2006. Petroleum and natural gas are key ingredients in asphalt, roofing materials, plastic pipe and insulation, he said. Cement was already in short supply in most states and the Washington, D.C., region, Simonson said. The industry association is lobbying federal officials to allow Mexican cement into the Gulf states without a 55 percent duty.
Delivery pricesexpected to increase, too
Costs are also rising for products such as coffee, much of which passes through the crippled port of New Orleans, and oysters, many of which come from Louisiana. Officials with delivery companies such as United Parcel Service and Federal Express said this week they will tack on surcharges of between 5 percent and 15 percent.
The pre-Katrina price for a box of oysters was $42. Now, seafood restaurants pay $48, said Greg Daley, president of Mid-Atlantic Seafood in Prince George’s County.
‘‘The cost of eating seafood could go up,” Daley said. ‘‘Supplies are limited, and what’s available costs more.”
Crab supplies have also been decimated, after Slidell, La., a major distributor of crabs to Maryland, was ‘‘all but wiped out” when Katrina knocked out portions of the Interstate 10 bridge over Lake Pontchartrain, he said.
Stacey Felzenberg, manager of communications and coalitions for the National Fisheries Institute in McLean, Va., said the biggest impact would be in oyster sales.
‘‘Forty percent of the nation’s oyster supply comes through Louisiana,” she said. ‘‘According to oyster men in Louisiana, about two-thirds of that state’s crop is wiped out. The beds need to be recultivated, and it will be at least two to three years until we see a new crop.”
Felzenberg said consumers should expect a large price increase in oysters, and that those who enjoy Gulf shrimp shouldn’t expect to have any for a while.
Freight and fuel costs will have the biggest impact on Supreme Seafood Co. in New Market, said co-owner Steve Trout. It will be a month before he really knows the impact on seafood coming out of the Gulf, but that should be minimal, he said.
‘‘I’ve talked to all my people in the region, and they’re already up and running,” Trout said.
Businesses will be hurt in the near future not just through higher gas and other costs caused by Katrina, but through transportation gridlock, said Richard N. Parsons, president and CEO of the Montgomery County Chamber of Commerce. The chamber is part of a Washington, D.C., regional campaign that kicked off this week to make people aware of the need for better transportation infrastructure in the area.
‘‘With the dramatic rise in gasoline prices, the cost of traffic congestion went up,” Parsons said. While he lauded the progress of projects including the Intercounty Connector, Parsons said the region can’t afford similar delays on needed improvements such as expanding high-occupancy vehicle lanes on Interstate 270 and the Beltway.
The Greater Washington Board of Trade is involved in another regional campaign that recently began related to September being National Preparedness Month. Officials are urging that businesses and public entities prepare for natural and manmade disasters in this area, said Alan Smith, a board spokesman.
