natural disasters tend to affect insurance companies as well as local businesses affected by the disaster. The impact on other businesses can vary. For example, disruption in the oil drilling and refining activities in the Gulf of Mexico during the 2005 hurricane season caused some companies to lose revenue due to the loss of productive capacity, but also caused the price of oil to increase thus benefiting others in the industry. Landstar System, which has a contract to provide trucking services to the U.S. Government in the aftermath of natural disasters, was also a beneficiary.
Some studies have suggested that commodities provide an effective hedge against natural disasters because disasters such as floods, drought and hurricanes can affect commodity supply and increase the price. However, the effect can differ across countries example could be a drought could cause a shortage of corn and increase corn prices. The higher corn prices raises feed prices, which could cause ranchers to slaughter cattle earlier than usual and depress the price of that commodity in the short term.
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Ben I do not agree with you that natural disasters benefit companies at all, even bearing in mind raised comodity prices. They only do this to decrease their losses it does not fix the sales they miss due to shortages in the supply chain. Hurricane Katrina cost the local government 105 billion dollars in repairs and reconstruction. This does not take into account the lost revenues and tax dollars that would have been made from the interrupted oil production which was slowed down to less then 42% due to destruction of oil rigs and pipelines, as well as port closers. You should take a look at this page:
ReplyDeletehttp://en.wikipedia.org/wiki/Economic_effects_of_Hurricane_Katrina
After doing significant reading this morning on the subject, I have realized that you may have been right to an extent Ben. Natural disasters have been widely agreed upon to provide economic stimulus in the short term, but this does not take into account the fact that all of this money spent has been taken from long term production elsewhere, or the possible production of other capital goods that could have taken place. Nothing that destroys capital in an economy can be a positive in long run economics. An interesting article from the New York Times on this issue can be found at:
ReplyDeletehttp://www.nytimes.com/2008/07/08/business/worldbusiness/08iht-disasters.4.14335899.html?pagewanted=1&_r=1
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ReplyDeleteI would have to agree with sean. When it comes to local or small businesses they are usually unequipped for disaster recovery following a major catastrophe. Without the resources of a large corporation, small business owners face tough decisions to close, sell off, or reopen the business. The U.S. Department of Labor estimates over 40% of businesses never reopen following a disaster. Of the remaining companies, at least 25% will close within 2 years. Over 60% of businesses confronted by a major disaster close by two years, according to the Association of Records Managers and Administrators. This information can be found in further detail at:
ReplyDeletehttp://sbinformation.about.com/od/disastermanagement/a/disasterrecover.htm
I have to agree with sean and Nadine, small business are usually not prepared at all for natural disasters. For example Despite the devastating impact of Hurricane Katrina last year, most small businesses remain unprepared for natural disasters in the months ahead, according to a new survey.Of more than 500 small-business owners polled nationwide, 84% said they are not worried about storms, floods, earthquakes, or other natural catastrophes affecting their business within the next 12 months, according to the survey by Harris International for MasterCard. Only a third reported being fully prepared, the survey showed.
ReplyDeleteLacking the resources of larger firms, small businesses are particularly vulnerable to natural disasters, said Bruno Perrault, the head of MasterCard's small- and midsize business division."For smaller companies located in a disaster zone, when their location is impacted, it means their entire business is hit," Perrault said.
So even to this after all the natural disasters many places have been through small business are not prepared for them. For more informations, or even if you plan on owning a small business one day there are good tips on how to prepare for a natural disasters. This information and tips can be found on this site:
http://www.inc.com/news/articles/200604/disaster.html
Although natural disasters do have this impact on small business's, it can affect a smaller business than you think! When looking into small business, a farmer, or a rancher can be concidered a small business. From experience i can tell you a natural disaster is critical, and it can crush farms. In Alberta alone from the 2009 summer drought, over 250 farmers had quit farming. Cow numbers by county separated into drought and non-drought regions indicated that about 74 per cent of the provincial herd was in the drought regions; 26 per cent were not affected by drought. This means over 1.3 million cattle suffer from the drought in 2009.
ReplyDeleteIn December of 09' the drought had caused such scarcity in straw and feed, that farmers that had lost their farms had become rebelious, burnt 1800 square bails on a farm i am not aloud to disclose personaly. The bails weighed around 1600 pounds each and burnt within a friday to sunday period. Thus losing thousands of dollars in feed or bedding used to grow the AAA Alberta beef we are all proud to share with the world. (this is one of many bail burning incidents) All this for the simple fact the disaster of the drought in Alberta was enough to leave cows skin and bones, crops that never were havested from fields, and left farmers desperately looking to find a new pasture with a watering hole for their cattle. When looking back to the terrible season Alberta farmers had alone, devestated the beef market in canada, dropping cattle prices to an all time low. Which goes back to why i agree with ashley's post here, saying "for smaller companies located in disaster zone, when their location is impacted, it means the entire business is hit," (Perrault) Well if you take a single farm to be a sub-contractor of the alberta wheat pool, or the alberta beef association, every farm that is involved in these programs contribute to the same cause, natural goods to consume.
Thus the drought in 2009 that has been carried over for about the past 8 years now, has consumed a large amount of farms. Putting ever barring weight on the other farmers, who have had to adapt to the situation. Meaning one little farm can be just as devistating as a large business.
http://albertabeef.org/
Disease control is an often over looked as an effect of natural disaster on business. A new risk on the minds of many business executives is the possibility of a significant swine flu outbreak, said Vicki Wheaton, employee communications manager at Seattle-based Varolii Corp., a provider of hosted software system and support services to help client companies manage interactions with customers and employees.
ReplyDeleteTo improve communication links between employees in an organization, or to alert employees of a pandemic outbreak, notification trees can be set up in advance and triggered via the Web, 800 number or hand-held device. Those notifications also can occur automatically in response to a specific event, such as the loss of power to a data center.
Communications also can be two-way, with employees reporting on their day-to-day status to a central repository or calling in for day-specific or scheduling information, Wheaton said.
"Two years ago, the prospect of a bird flu outbreak caught our attention, and we built an application specific to pandemic notification based on best practices," Wheaton said. "Now swine flu has put that back on the map."