A Manitoba manufacturer of plastic wrap for pasta and pills or a Saskatchewan fertilizer miner might seem comfortably insulated from the hurricanes hitting the southern U.S.
Yet, in a sign of just how global Canadian businesses have become, Hurricane Harvey turned out to be a headache for Winpak Ltd. The Winnipeg-based company is a leading North American supplier to food and pharmaceutical companies, and it relies on oil-based resins to make plastic packaging.
Refineries in Texas and Louisiana supply the bulk of these resins. Winpak faces an unexpected 8-per-cent spike in the cost of raw materials after last month's storm closed many Gulf Coast facilities, an increase that CIBC World Markets analysts predict the company will eventually pass on to consumers.
Hurricane Irma shut down phosphate mines in Florida owned by Mosaic Co. over the weekend, which in turn may fuel higher prices for fertilizer sold by rival Potash Corp. of Saskatchewan Inc.
Common sense dictates that when a hurricane hammers a major industrial centre, business is going to suffer. Credit rating agency S&P came out with a report on Monday that said: "For any region, recovering from a disaster – natural, economic or other – is a challenging task. It can take years, or even decades, to get back to pre-storm economic conditions."
In looking at what's coming in the wake of Harvey and Irma, the focus to date has been, understandably, on the people and businesses caught up in the storms. Individuals are suffering and there's a long list of companies that will take a direct financial hit, including property owners, refineries and insurers.
The low-level disruption that Harvey and Irma caused at a seemingly distant company such as Winpak demonstrates the increasing economic reach of a disaster. Supply chains are now long, stretching across continents or around the world. Most companies pared the number of suppliers they use in an effort to cut costs, which leaves them vulnerable if one of those suppliers shuts down. Big business relies on sales to customers around the world.
There's some comfort in the fact that people and businesses are resilient in the wake of setbacks. "We find that major natural disasters are associated with a temporary slowdown in most major growth indicators," a report from Goldman Sachs said on Monday. "We also find that costly and broad-based natural disasters are associated with particularly large declines in economic activity, but also sharper subsequent rebounds."
The cost of coming back from natural disasters is soaring, in part because storms are hitting major cities and industrial regions, but also because of the increasing scale of the businesses that are damaged. S&P noted that prior to this summer, "the most costly Atlantic storms in recent years were Hurricanes Katrina and Ike, and Superstorm Sandy, with damage estimates ranging from $30-billion [U.S.] (Ike) to over $108-billion (Katrina). As of this writing, damage estimates from Hurricane Harvey range up to $180-billion, well beyond these previous storm figures."
As recent storms show, seemingly distant events now matter. It's difficult, if not impossible, for corporate executives and investors to anticipate what's coming. And unexpected events aren't restricted to Category 5 hurricanes: A surprising setback could include cancellation of a trade deal that most Canadian corporations have come to take for granted.
The larger lesson from the storms that pounded Texas and Florida is their knock-on impact, the unexpected and far-reaching consequences of a major event. It's easy to foresee a hurricane shutting down oil and gas production in the Gulf of Mexico. But no one has a crystal ball that can project what that storm will mean for a packaging company in Winnipeg.
Andrew Willis