Please Tell Me the Bush Administration Is Not This Bad
Monetary Policy Since 1990

Brad Setser Talks About the Port of Southern Louisiana

He writes:

RGE - Those Louisiana ports, once again: Southern Louisiana produces oil and gas offshore, refines crude, both local and imported, and then ships that gasolinel inland. Think of it as the inward flow of energy. It also handles a very large share of the outward flow of the Mississippi river basin's agricultural bounty. There are always alternatives, but I don't think there are good alternatives in either of these two areas.... The least damaged refineries are now coming back online, but some refineries will be out for a while. In the short-run, refined product can be imported, but that - obviously - costs a lot more. Grain transportation infrastructure is another. There really is no alternative to the Mississippi. The real question is how quickly the key infrastructure can be repaired - and how much it will cost to store the grain harvest if the ports are not running at capacity in time....

The economic impact of Katrina can be divided into the cost of rebuilding, the cost of feeding, housing and caring for the people displaced from their homes and jobs by Katrina, and the cost of the disruption of the energy and bulk commodity supply infrastructure. Rebuilding has its own dynamic.... [T]he loss of the economic activity of an entire city, however, is something new. The economic impact of Katrina should not be exagerrated, but neither should it be minimized....

[T]he mouth of the Mississippi also has certain intrinsic geographical advantages that are hard for other ports to match. [Stratfor's] George Friedman puts it well:

Rather, it was geography -- the extraordinary system of rivers that flowed through the Midwest and allowed them to ship their surplus to the rest of the world. All of the rivers flowed into one -- the Mississippi -- and the Mississippi flowed to the ports in and around one city: New Orleans.... The ports of South Louisiana and New Orleans, which run north and south of the city, are as important today as at any point during the history of the republic. On its own merit, the Port of South Louisiana is the largest port in the United States by tonnage and the fifth-largest in the world. It exports more than 52 million tons a year, of which more than half are agricultural products -- corn, soybeans and so on. A larger proportion of U.S. agriculture flows out of the port. Almost as much cargo, nearly 57 million tons, comes in through the port -- including not only crude oil, but chemicals and fertilizers, coal, concrete and so on. A simple way to think about the New Orleans port complex is that it is where the bulk commodities of agriculture go out to the world and the bulk commodities of industrialism come in....

The problem is that there are no good shipping alternatives. River transport is cheap, and most of the commodities we are discussing have low value-to-weight ratios. The U.S. transport system was built on the assumption that these commodities would travel to and from New Orleans by barge, where they would be loaded on ships or offloaded. Apart from port capacity elsewhere in the United States, there aren't enough trucks or rail cars to handle the long-distance hauling of these enormous quantities -- assuming for the moment that the economics could be managed, which they can't be.

A city will rise up again in Southern Louisiana; it just may be a smaller city, one shorn of the tourist trade and entirely based around the hard work of a bulk port and servicing the region's energy infrastructure.

The basic economic case for a city at the mouth of the Mississippi is why, now that most have been evacuated from New Orleans, for indications of the length of the hurricane related disruption in the key energy and transportation infrastructure around New Orleans. For now, that primarily stems from the loss of offshore oil and gas production and the loss on onshore refining capacity. Some of those losses can be made up (temporarily) from stockpiles - US stocks of crude, European stocks of refined petrol. But obviously, the longer the basic infrastructure is down, the bigger the impact -- and not just on the US market.

The same is true with infrastructure handling the outward flow of bulk commodities from the Midwest. The longer it is out, the bigger the potential disruption. Current estimates suggest the Port of New Orleans will be out for three to six weeks. I have not found an estimate for the Port of South Louisiana. According to the Los Angeles Times, the ports may not operate at full capacity until early in 2006 ... .

Clearly, workers can be brought in and housed in temporary shelters, and if you pay people enough, generally you can find the workforce you need. Think Halliburton and Iraq. So the ports will get back online. And US grain can be stored elsewhere and stockpiled until the ports are back on line. There are always options. But they all increase the cost of getting the grain harvest out and on the world market...