The Impact of the Oil Spill on Distributors

No doubt about it, the BP oil spill in the Gulf of Mexico is a tragedy. The impact will be seen for years. But there is one constant in my discussions with distributors on the topic this week: No one knows for sure what will happen next, how severe the ripple effect will be on the economy, and what the lasting effects on the oil and gas and other local industries will be.

Right now, the most immediate and obvious impact has been on the seafood industry. In fact, just last week one of the largest U.S. suppliers of half-shell Gulf oysters to grocery stores and restaurants closed its doors in New Orleans. AmeriPure Oysters leaders are hoping the closure is temporary, but they have already lost customers to other processors in other parts of the country. The company in normal times ships 8 million pounds of oysters a year, according to this article.

Here's a video, courtesy of the Louisiana Seafood Promotion and Marketing Board, featuring Gary Bauer, owner of Pontchartrain Blue Crabs, a crab processing plant in Slidell, LA. He talks about the impact on his plant's operations and the uncertainty of the future:

It's a chain reaction – from the fishermen, to the seafood processors, to the restaurants, and so on. Tourism (and all industries related to tourism) has been hurt along the Gulf Coast, and on top of that, the six-month deepwater drilling moratorium announced in May has many worried local economies will be hurt further. (Update: A U.S. district court judge ruled in favor of ending the moratorium this week, but the White House plans to appeal.)

Right now, the long-term impact is a big unknown for distributors operating in the region. Lee Eagan, president and CEO of Oliver H. Van Horn Co., New Orleans, LA, says that his company has not seen much impact positive or negative yet from the oil spill on a direct sales basis. But he has deep concerns over the overall impact on the economy. "The whole Gulf Coast is affected," Eagan says.

Gases, welding supplies and safety product distributor Gas and Supply Co., Baton Rouge, LA, No. 29 on MDM's list of top industrial distributors, told MDM that the impact of the oil spill and the moratorium if it stays in place may not have a strong negative effect on business based on what it has heard from its customers in the oil & gas industry so far.

Gas and Supply told MDM it may actually see an increase in business in some areas due to demand for service and repair work related to ships coming in from the oil-drenched Gulf; in addition, there may be an increase in service and repair work related to customers' wanting to upgrade their rigs in light of the BP disaster. The distributor has also sold some safety equipment and supplies to customers or contractors working for BP and other companies in the cleanup effort.

Drilling may increase in other areas through the country and the world to compensate for a decline in the Gulf due to the moratorium, the distributor said. Gas and Supply told MDM: "If drilling rigs and work boats move to other parts of the world such as Brazil or Africa, some of the work to outfit the rigs or build the boats would continue in the yards of existing U.S. customers. However, most of the rigs utilized in the deep water have not been produced in the U.S. In most cases the crews for these rigs or support vehicles would come from the local country and therefore the MRO, safety and other products supplied by Gas and Supply and other suppliers would be lost."

Some additional links on the impact from other publications:
Tourism along the Gulf Coast
Seafood Distributor Feels Impact

A more in-depth look at the impact will appear in the July 10 issue of MDM Premium.