Measuring the supply chain impact of the LA fires
Drone image of fire damage in Coffey Park, Santa Rosa. Eight months after a massive fire destroyed the neighborhood in 2017, only a handful of homes had been rebuilt. iStock photo
The Greater Los Angeles wildfires are continuing to wreak havoc in the area, burning structures, displacing residents, and pushing city and state resources to their limits.
When the fires are finally extinguished, Los Angeles County and California will enter several new battleground phases: housing, insurance and rebuilding. Among the most pressing issues at hand is supply chain risks.
Various news reports claim production and networks have been disrupted by smoke, power outages, evacuations, road closures and gridlock. And that’s going to be a short- and long-term issue for Los Angelenos, according to an Arizona State University professor.
Hitendra Chaturvedi, a professor of practice at ASU’s W. P. Carey School of Business, spoke to ASU News regarding the impact these fires will have on supply chain, construction and human health — and how it might affect Arizona.
Question: Among all the other things Los Angeles County is experiencing right now with these fires, how will the supply chain be impacted in the short and long term?
Answer: There will be limited impact in the long term, but the short-term impact will be a felt via a slowdown on the routes from the LA port that go through the fire-affected areas, including the Pacific Coast Highway and parts of Interstate 405. Delivery trucks are being routed through larger distances, which will increase costs and cause delays. Moreover, the evacuation of residents is causing traffic issues that will further choke supply chain routes. Furthermore, evacuation orders are causing a reduction in supply chain workers, which will cause further productivity bottlenecks.
Another factor is smoke that is causing cargo flight delays, so the air shipments are getting delayed. Arizona relies heavily on southern California — including retail and farm produce — so we will get impacted with certain short-term price increases, shortages and delays.
Q: What are some other things most people don’t consider regarding supply chain during a crisis like this?
A: Post fires, the rebuilding effort will be herculean, and the construction and home-furnishing industries need to have a properly oiled supply chain for the massive rebuilding effort. The smoke from the fires can also cause major health risks impacting our health care supply chain, so they need to be prepared for the aftermath. The supply chain is like a line of dominos — each piece is interconnected, so anticipating the chain of events and strategically addressing weak links is crucial to maintaining stability and risk mitigation.
Q: What about the human supply chain?
A: The biggest impact will be on the displacement of the over 100,000 people who have to move from their homes. Some will decide to leave California for good, as insurance and rebuilding costs will be too much to bear. People who do come back and rebuild will have deep emotional scars that need to be addressed. It may be similar to PTSD that we need to recognize and address. This requires our health care system to be ready to help such a diaspora. Many people may have lost jobs, as their workplace may have been destroyed, and that may cause a rise in unemployment. As we connect the dots, the magnitude of economic and human impact becomes staggering.
Q: Would LA displacement impact the housing market in Arizona?
A: Two areas we need to watch carefully — first, displaced residents from California and speculators coming into the Arizona housing market and creating supply issues in an already tight housing market. Second, we need to be aware of insurance companies using California fires as an excuse to raise insurance rates for Valley homeowners.
The Arizona government needs to carefully monitor these factors and take corrective action to mitigate these issues for local homeowners.
Another factor we need to keep in mind is that post fires, LA construction demand may resulting in a sucking sound that takes away construction workers from the Arizona market to California. This could create inflationary pressure on the housing market in Arizona due to labor shortage.
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