Market Overview

Harvey and Irma Recovery One Month Later: IHS Markit Assesses Supply Chain and Recovery Dynamics


Harvey expected to be second-costliest U.S. hurricane since 1980;
Irma expected to narrowly miss the top five

(NASDAQ:INFO), a world leader in critical information,
analytics and solutions, has released a new forecast on the impact of
Hurricanes Harvey and Irma on the national and regional economies,
transportation infrastructure, automotive industry and the crude oil,
refining and chemical sectors.

U.S. economic impact:

"We currently estimate that the damage from Hurricane Harvey will total
somewhere between $60 billion to $100 billion in 2017 dollars, making it
the second most destructive storm on record after Katrina; Irma, at $30
billion, will rank sixth," said Patrick Newport, executive director -
U.S. economics for IHS Markit. "We estimate that the hit to
third-quarter GDP growth from these two storms will be about 1.2
percent: -0.5 percent from Harvey and -0.7 percent from Irma."

  • Hurricanes Harvey and Irma have disrupted economic activity in the
    third quarter, but recovery and rebuilding will boost growth in
    subsequent quarters.
  • The extent of the reduction in GDP growth during the third and fourth
    quarters and the subsequent rebound during the first half of 2018 will
    depend on the extent of damage to key segments of the impacted
    economies and how quickly the reconstruction efforts can get under way.
  • Personal income will take a direct hit from Hurricane Harvey and Irma
    due to the lost wages of displaced workers, as will real spending
    growth. Real residential investment growth is expected to turn
    positive in the third quarter.
  • The hurricanes are not expected to alter the course of the Federal
    Reserve; IHS Markit expects they will proceed with a rate hike of 25
    basis points in December.

Impact on energy industry

"Compared to prior storms, the increased global connectedness of the
U.S. energy industry caused Harvey and Irma to have a greater impact on
markets outside of the U.S.," said Kurt Barrow, executive director – oil
markets, midstream and downstream for IHS Markit. "The energy abundance
created by tight oil and shale gas means the U.S. is now a major
exporter of crude, refined products and NGLs and increasingly LNG and
petrochemicals. As a result, importers of U.S. energy were also affected
by these U.S. hurricanes as never before."

  • Global crude oil markets were relatively undisturbed by the hurricanes
    as production shut-ins were more than offset by the decline in
    refinery demand. High crude oil inventories and uncertainty of offtake
    initiated inland U.S. crude oil price discounts relative to Brent
    while coastal crude oil grades, like LLS, mostly remained in-step with
    the international benchmark Brent.
  • Within a matter of days, one-quarter of the U.S. refining system was
    offline as three major Gulf Coast refining centers shuttered. After
    the storm passed, it took several weeks for these plants to return to
    full capacity due to the inherent complexity of these refineries and
    some logistics issues with crude oil supply, product offtake or
    utilities supplies caused by the flooding.
  • The impact of Harvey and Irma on gasoline prices was similar to prior
    storms Katrina, Rita and Ike in magnitude and duration. Retail prices
    across the U.S. were affected as refinery supplies shut down and
    offshore imports took time to arrive. Imports of gasoline from Europe
    increased rapidly but prices on both the East and West coasts
    increased by over 20 cents per gallon relative to crude oil price,
    those prices then began to decline. Directly impacted markets like
    Atlanta and Miami saw higher prices that lasted longer due to the
    impacted supply chains in these markets.

Impact on Texas, Florida economies

"Harvey and Irma have posed significant short-term challenges but they
will not change the favorable long-term growth trends for Houston or
Florida," said Karl Kuykendall, principal economist - U.S. regional
economics for IHS Markit.

  • Houston's role as an energy and trade hub provided a strong urgency to
    get the city back on its feet. There were massive disruptions in
    Harvey's aftermath but the main levers of Houston's economy are
    largely up and running again.
  • Florida avoided a worst-case scenario with Irma but the evacuations
    leading up to the storm, widespread power outages in the aftermath,
    losses in the agriculture industry, and a temporary hit to tourism
    will cut into Florida's near-term growth.
  • The most long-lasting effect of the storms will fall on homeowners who
    sustained damage and the construction industry. The bulk of the
    rebuild should take place within the next 12 to 24 months but the pace
    will depend on how quickly relief and insurance monies are distributed
    and the availability of labor.

Impact on transportation infrastructure:

"The difference in cooperation between all parties this time versus
earlier storms such as Katrina was very dramatic; most everyone was as
prepared as possible and relief efforts were well coordinated," said
Charles Clowdis, director - industry consulting for IHS Markit.
"Federal, state, local authorities, volunteers and other groups learned
from the lessons of Katrina and were better prepared despite the
uncertainty of both storms and the lingering rain from Harvey."

  • Transportation infrastructure has been restored almost entirely with
    some delay on local streets in Houston due to the Addicks dam release.
    Railroads have resumed operations, with some of them having slower
    train speeds in the Houston area. Ports have mostly resumed
    operations, with some slower operations in Houston due to closed
    refineries. Airports have resumed operations in all impacted areas.
  • Transportation volumes stalled by the hurricanes have started to come
    back. Transportation rate spikes have also begun to stabilize, but are
    still higher than they were before storms hit. Tightening in freight
    capacity, even before the hurricanes hit, will have an effect on
    increased transportation costs in the third and fourth quarters of
    2017. Demand for flat bed and specialized trucks will increase.

Impact on chemical industry:

Chemical producers continue to improve resiliency to hurricane events,
with risk assessments leading to reinforced structural systems and added
redundancy for critical piping and control systems, implementation of
precautionary actions regarding asset operations, and pre-positioned

"In the next decade the U.S. will build 25 percent of the world's needed
capacity for new chemicals demand. U.S. chemical exports will double
from 2005 levels, linking the global chemical markets integrally to
events that affect the U.S. Gulf Coast," said Dewey Johnson, executive
director - chemicals for IHS Markit.

  • The chemicals supply chain consists of long multi-step chains and
    combined product chains of precision formulated products. Each
    position in the chain can present bottlenecks because of inventory
    availability or inter-dependency of the chemical products.
  • Due to minimal asset damage, the chemicals sector is recovering
    rapidly from Hurricanes Harvey and Irma. With that said, various value
    chains are not back to pre-event production levels due to bottlenecks
    from feedstocks or unit operations within the plants.
  • Chemical product supply chains that were already in tight supply (eg.
    propylene, polyethylene, caustic soda, etc) will see additional
    tightness perhaps lasting into the first quarter of 2018. A number of
    the chemical products will see price increases cascading through their
    supply chains into the first quarter due to an exacerbated tight
    supply and elevated costs due to recovery and feedstock cost increases.

Impact on automotive industry:

"In regards to new light vehicle sales, auto dealers in the areas
affected by Harvey and Irma will realize a surge of replacement demand,
which will boost overall U.S. sales levels through the first quarter of
2018," said Chris Hopson, principal analyst - automotive for IHS Markit.

  • The Houston Designated Market Area (DMA), according to IHS Markit new
    light vehicle registration data, is the 10th largest in the U.S.
    (January–July 2017), with approximately 215,000 new vehicles
    registered and a 2.1 percent share of total U.S. light-vehicle
    registrations so far this year.
  • Incoming sales data for September reflects a very strong surge in
    light vehicle demand levels within the Houston DMA, although light
    vehicle demand in Florida appears to be recovering at a slower pace.

About IHS Markit (

IHS Markit (NASDAQ:INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 key business and government customers, including 85
percent of the Fortune Global 500 and the world's leading financial
institutions. Headquartered in London, IHS Markit is committed to
sustainable, profitable growth.

IHS Markit is a registered trademark of IHS Markit Ltd and/or its
affiliates. All other company and product names may be trademarks of
their respective owners © 2017 IHS Markit Ltd. All rights reserved.

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