A Year After Sandy, Food and Fuel Supplies are as Vulnerable as Ever

This article was originally published on blog.reuters.com. Photograph by Mike Segar, Reuters.

A year ago, Hurricane Sandy revealed harrowing realities about the basic systems New Yorkers rely on every day. We now know, for example, what happens when fuel supply lines get cut and electricity goes down: mob battles at gas stations and, more terrifying, empty shelves at food stores. Worse, such breakdowns tend to cascade. No power means whatever food is left will rot. No gasoline means delivery trucks can’t restock stores.

It’s a domino effect, one that last year brought New York to the edge of real disaster. According to numerous resiliency experts I interviewed, at the moment Sandy hit, New Yorkers had only about three days of food on hand.

In the months after, city and state officials tended to focus on reinforcing the infrastructure that’s under their direct control. In New York, this means public facilities like Hunts Point Food Cooperative Market in the Bronx, which was forced to shut down temporarily.

Yet as the 9/11 Commission found, some 85 percent of the U.S.’ critical systems on which Americans depend — including those for food and fuel delivery — are controlled by private companies. And the corporations that control these systems have in recent years radically whittled down both the number of warehouses that serve New York and what’s in their contents.

The reality is that private food and fuel systems everywhere are already extremely fragile, and grow more so almost by the day. At best, Sandy-like shocks cause temporary price spikes. At worst, these ruptures can trigger the sort of panic that can forever change the character of a community.

And, so far, no government has even begun to study these risks.

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In 2000, truckers in the United Kingdom blockaded deliveries to gas stations as part of a protest against new taxes, giving the world a sense of what happens when food systems seize. By the time the truckers backed off a few days later, supermarkets were nearly cleaned out and large swaths of the manufacturing and medical sectors were crippled.

In 2005, Americans witnessed a far worse breakdown after Hurricane Katrina. There was so little product on hand locally that panic and looting set in long before governments or corporations could bring in food from undamaged regions.

Twenty years ago, such disruptions would have been much smaller. Then, there were many more companies operating more warehouses, many of which kept weeks of goods on hand. In the years since, waves of mergers and acquisitions have radically reduced the number of companies that distribute food directly to citizens as well as to institutions like schools, hospitals, hotels and prisons.

Much of the same is also true among the companies that refine and distribute fuel.

In 1995, the top five companies involved in domestic refining controlled a little over a third of the market. Today that number has doubled to about 67 percent, according to the research group IBISWorld. And these companies often enjoy far greater degrees of dominance within particular regions, and have concentrated supplies in fewer and fewer locations.

To make matters worse, beginning in the nineties, most of these companies began to adopt “just-in-time” supply practices, supposedly innovative schemes that cut costs by sharply reducing how much supply is held in warehouses and fuel depots on any given day. The basic goal is to keep only the minimum amount of food and fuel needed to meet near-term demand on a normal day.

Such just-in-time supply practices have become startlingly pervasive. In late 2010, the Business Continuity Institute conducted a wide-ranging survey of the supply practices of companies in 12 countries and across 12 different sectors. Half the respondents said they used consolidated suppliers and practiced just-in-time. These companies are also much more likely to experience severe disruptions to their supply chains, the survey found.

A growing number of experts are concluding that such stripped-down systems are fragile. Last January, for instance, the British think tank Chatham House found that just-in-time-based economies under duress can hold up for only a week before businesses and industries are forced to shut down.

And yet the drive to go lean continues.

Post-Sandy, food services giant Sysco went out of its way to garner press for the technological sophistication of its “transparent” supply chain. This was the same message Wal-Mart pushed after Katrina, when the company claimed its systems were superior the government’s, boasting to the press of “an infrastructure that allows [it] to react.”

There’s nothing inherently wrong with efficiency. But there are real limits to how “smart” a company can make its supply chain before it starts to endanger the well-being of the public as a whole.

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Unfortunately, policymakers’ attention to these problems has proven ephemeral at best.

After the attacks on September 11, the U.S. government found there was so little food in the pipeline at any one moment that they recommended that every household keep at least two weeks of food on hand. But after realizing how tough this would be for poorer families and people living in small city apartments, they dropped the effort.

Thomas Forster, a food expert at the New School, says local officials are equally to blame. When I spoke with him, he posed a rhetorical question: “Who makes that decision when it’s left to the market?”

One of the more dramatic examples of how federal and local officials are failing to address these threats came only a few months after Sandy. In February, activist hedge fund Elliott Management called on New Jersey-based Hess Corporation to shutter sell its existing refining and storage facilities, long the dominant supplier of fuel to the New York region.* Even with the memory of gas shortages still raw, there was not even a murmur of complaint from any official.

“The fact is our food supply systems are far more subject to disruption than even a few years ago,” says Chris Gopal, who helped design one of the world’s first super lean supply chains, for Dell Inc. “If governments are not looking at the effects of consolidation in private supply systems, then they are missing the problem entirely.”

But missing the problem entirely means public officials will have failed at their most basic job, which is to keep their citizens safe. It’s time for them to face up to the revolutionary restructuring that’s taken place in today’s private food systems and do something about it. There’s always another emergency. Let’s make sure that, in the midst of it, there’s always another delivery truck.

CORRECTION Oct. 31: This piece originally stated that Elliott Management advocated for Hess to close its facilities, but it actually argued it should sell them.