Friday, June 25, 2010

Gulf Coast distributors grapple with oil spill

Distributors tied to the Gulf Coast oil and fishing industries are devastated by the recent oil spill there; others fear a trickle down effect in the months ahead

Distributors serving the Gulf Coast oil and fishing industries have been hit hard by the recent oil spill, some dealing with immediate consequences while others worry about the trickle down effect in the months ahead. The moratorium on deepwater drilling has put people out of work and closed the supply line for products needed to keep the oil rigs up and running, and the oil-laden waters have stopped fishing boats in their tracks. Both situations are causing big problems for distributors like Ed Fabacher, president of Harvey, La.-based hose and accessories firm Fabacher Inc.

Fachbacher says no one can imagine the impact of the oil spill “unless you see it for yourself. People outside this area really have no idea of what is happening down here.

“This is even worse than [Hurricane] Katrina," he says, referring to the continuous effect on business from the ongoing spill that is spewing oil into the Gulf every day.

Fabacher says his business is down dramatically since the oil spill began in late May. His company does a substantial amount of business with the marine and fisheries industries. In particular, he sells expansion joints, hydraulic hoses, and braided metal hose to those sectors.

“The boats are just sitting there and not going out,” he said in an interview this week.

While there has been a slight pickup in selling products to battle the oil spill, it doesn’t equate to the business lost from the marine industries, he adds.

Fabacher also sells products to the oil industry and is concerned about the moratorium on oil drilling in deep and shallow waters. The Obama Administration imposed a six-month ban on deepwater drilling May 27 following the explosion and fire that killed 11 people on a drilling platform and caused the massive, ongoing oil spill. Although a Louisiana judge ruled against the ban in a court case heard earlier this week, the White House has said it will appeal the decision; in the meantime, oil companies have said they will not start drilling again until the legal wrangling is over.

“We just don’t know what’s going to happen…if this moratorium continues,” Fabacher said.

Some oil rigs have left the Gulf and headed elsewhere while many others have shut down.

Fabacher said in some areas of Louisiana, 75 percent of employment is tied to oil.

“Long-term this could be devastating to the region,” he says.

Other distributors share Fabacher’s concerns. Dan Petron, regional vice president for Fastenal’s Louisiana/Coastal Area says sales at the distributor’s branches closest to the affected coastline are down about 20% since the spill occurred. Fastenal’s local branches provide a range of industrial MRO supplies to companies that build and service the region’s oil rigs.

“The trickle down is happening pretty quickly,” Petron says, pointing to a large customer—a local Halliburton yard—that virtually shut down, operating now with just a “skeleton crew.”

“We hope that if [the moratorium] is lifted, things will go back pretty quickly,” he adds. “[The situation] is really affecting the folks down there. People are frustrated. They wish the moratorium would be lifted quickly.”

Dan Ahuero, president of GHX Inc., a hose and accessories distributor based in Houston, agrees. GHX does business with the upstream oil and gas industry in the Gulf from locations across Texas, Louisiana, Alabama, and Florida. Most of GHX’s customers in that sector are service providers to the oil companies. While Ahuero says that area of his business has not been negatively affected yet, he says he’s concerned about the long-term outlook. Like Fabacher and Petron, he worries about what will happen if the moratorium on drilling lasts much longer.

“We’re concerned, number one, about the service providers, primarily in Louisiana, contemplating having to have major layoffs if that portion of their business goes away as a result of the six-month moratorium—and especially if that moratorium is extended,” he says. “The economy is already [affected], then to have layoffs on top of it–that’s just a compounded effect.”

The environmental factor
The other devastating aspect of the disaster is the environmental impact of the oil that continues to pollute the Gulf waters every day. As Fabacher pointed out, it has devastated the fishing industry. Cleanup efforts are ongoing and will be for months and perhaps years.

“It’s so hard to believe what this is doing to the environment down here,” Fabacher says.

Some reports have indicated that hundreds of birds a day have been pulled from the Gulf waters, cleaned and relocated. Turtles and other forms of wildlife are dying daily.

Restaurants have few patrons other than those who are working on the cleanup, and there is a feeling that the oil spill is getting worse, since it could be some time before the leak is fixed.

As devastating as that is, the cleanup is likely to bring new business to distributors down the road, especially those in the hose business. Ahuero says his company has received orders for equipment going directly to the cleanup.

“Anybody in the hose industry is probably going to get some business out of this because a lot of the types of cleanup they are doing involves suction pumps, hose, and rigid nozzles—to suction up the oil on the surface,” he says, noting the unfortunate nature of the business. “So there will be some hose and fittings used for that purpose.”

Fabacher says his company has supplied some products for the cleanup, but notes that the business is nothing compared to what he’s lost, particularly from his marine business. Petron says Fastenal has supplied some products for the cleanup as well.

Other distributors have seen their business improve as they support the cleanup. In reporting its May sales figures recently, W.W. Grainger said it has seen, and expects to continue to see, increased sales related to the Gulf oil spill. The distributor said it saw an increase in sales for products such as oil booms, degreasers, and safety supplies, and expects oil spill-related sales to contribute to growth for some time.

Grainger said oil spill-related sales contributed about 50 basis points to its 10 percent increase in the United States in May.

Looking ahead
In addition to the economy and the environment, local residents are also worried that a hurricane could be brewing in the Gulf soon. If there is a strong hurricane, water could flow over the barriers that have been set up to keep oil out.

Fabacher, a former president and founder of NAHAD—The Assn. for Hose & Accessories Distribution, says his company will tighten its belt and work extra hard to get through this environmental disaster.

“Sure we’re concerned, but we’re also optimistic,” he says, praising his staff as well as other employees who work in the Gulf region. “There will be many bumps in the road for us, but trust me we’re going to get through this. I promise you that.”

While those in New Orleans have been affected by the moratorium on oil drilling, the Florida Panhandle is worried about the effects of the spill on its pristine beaches. Tar balls are rolling up onto many Florida beaches and tourism is down significantly. Cancellations at hotels are increasing daily and the fishing industry there has been hit hard as well.

This report was compiled by Jack Keough, or 508-734-0029, and Victoria Fraza Kickham, or 617-875-5956.

1 comment:

  1. Thank you, John and Victoria for a great post on a very serious matter, it really about time that the world steps up to the danger of oil spills especially as more and more oil is been supplied from higher risk sources in deep oceans.