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Katrina rippling through economy

Consumers and firms face higher prices, logistics problems

From gas stations to grocery stores, farms to factories, the force of Hurricane Katrina is rippling through the economy, confronting consumers and businesses with higher prices and logistical dilemmas, even thousands of miles from the Gulf Coast.

Unlike most natural disasters, Katrina is that rare economic event — sweeping and devastating enough to damage commerce well beyond its region, affecting the price, supply and markets for goods critical to business and counted on in daily life.

The problems start with energy, and they are potentially enormous. The virtual shutdown of a region that is a nexus for oil production, refining and importation poses the most serious economic risks. It is already punishing consumers at the gasoline pump, and causing long-term worries for businesses including financially shaky airlines, trucking companies and steel producers.

But the cost of Katrina may soon be felt in myriad other ways.

For consumers, it could mean higher prices for a cup of coffee or a pound of bananas in coming months. For farmers in the Midwest, weeks away from the annual harvests of corn and soybeans, Katrina threatens to create bottlenecks for the huge amount of U.S. grain earmarked for overseas buyers.

And for a host of businesses — from retailers to tire producers — it raises troubling questions and creates headache-inducing challenges. Will consumers, paying substantially more for gasoline, rethink other purchases? Will producers be able to get quick access to the raw materials they need to make those goods?

They are economic quandaries never raised by disasters like Florida's Hurricane Andrew, or the San Francisco earthquake.

"Andrew was just really south Florida and it really didn't have the impact" on the nation's commerce, said John Silvia, chief economist with Wachovia Corp. "But this is different. It really is far more significant than that."

So different, in fact, that economists aren't quite sure what to compare it to. They see some parallels to the 9/11 terrorist attacks in Katrina's economic reach but don't see it triggering the kind of emotional uncertainty that hung over the economy for months afterward.

Many analysts have already pared forecasts for the rest of the year as a result of Katrina, predicting that growth will slow.

Trying to gauge its consequences is particularly difficult because we still don't know exactly how much damage has been done by Katrina to ports, refineries and other economic keystones, and how long it will take to bring them back.

But Katrina's damage will be magnified every day the problems unleashed by the hurricane go unresolved, experts say.

That is most obvious in energy. The Gulf's fuel industry is such a complicated puzzle that the absence of certain pieces, and the difficulty of reconfiguration could draw out the situation for months.

The interstate pipelines that carry gasoline, jet fuel and heating oil are starting to pump again. But refineries that make those products are still down. The damage to offshore oil rigs in the Gulf appears contained. But the pipes that carry the crude oil back to shore are still off-line and have to be inspected.

"The question becomes, well, where do you get the product to fill the pipeline," said Jay Wilson, a spokesman for fuel supplier and retailer Amerada Hess Corp. "The system was basically running full out before the storm to supply the market and now we've lost nearly 10 percent of the (U.S.) refining capacity."

How the rising fuel prices will play out in the larger economy is unclear. At truck line Yellow Corp. the higher costs get passed directly to customers as adjustable fuel surcharges that have been in place for nearly a decade. But those costs must eventually be borne by somebody, either the client whose goods are getting shipped or the customer who will buy them, said Bill Zollars, the company's chief executive.

Energy is just one of the question marks for farmers. But they have plenty more to worry about. About 20 percent of U.S. corn is sold overseas, and almost 40 percent of U.S. soybeans. The vast majority goes moves down the Mississippi River in barges so it can be shipped out of New Orleans.

With that port closed, hundreds of barges are backed up on the river.

Some of the crop will likely be diverted away from the river and to rail, but that will add substantial costs. Meanwhile, farmers have begun to worry that the big grain companies with contracts to supply overseas buyers will turn elsewhere, perhaps to China or South America, for a ready supply, said Terry Francl, an economist with the American Farm Bureau.

Meanwhile, consumers may soon begin to pay for Katrina in other ways.

Take coffee. New Orleans is the nation's second-largest port for incoming coffee shipments. But redirecting those shipments doesn't solve all the problems, because the city is also a major coffee production center.

About a quarter of the entire U.S. stock of unprocessed coffee is stored in New Orleans. More than half of the Folger's and Millstone brand coffees sold by Procter & Gamble Co. are made at two plants in New Orleans.

"It's going to take another day or two to really understand what's going on there, what are options are, what the challenges might be and how we'll adjust to those challenges," said Doug Shelton, a spokesman for P&G.

Similar uncertainty surrounds other goods whose trade is centered on the Gulf. New Orleans is a leading port for incoming shipments of imported steel, plywood, and natural rubber. The businesses that depend on those products are working to figure out an alternative, but it is not an easy challenge.

That explains the 12-hour shifts logged since this past weekend by dockworkers at Morehead City, N.C. — the nation's No. 2 port for shipments of natural rubber.

"New Orleans was No. 1 — not just with a bullet but with a cannonball," said Susan Clizbe of the North Carolina State Port Authority.

Without New Orleans, though, the rubber — most of it bound for tire producers — must go somewhere. So workers in North Carolina have been rushing to clear warehouses, making room for a ship scheduled to arrive on Tuesday from southeast Asia.

The damage done by Katrina will be partially offset in some ways. Government aid and insurance payments will flow into the region, leading to a surge in rebuilding. Business groups that had planned conventions in New Orleans have already begun shifting them to other cities. Tourists who had planned to go to the casinos on Mississippi's coast, may decide instead to head to Las Vegas.

But those shifts will have the most impact on the regional economy. Meanwhile, the ripples throughout the national economy could create challenges, and hard choices for businesses and consumers for months to come.

"This," said Zollars of Yellow Corp., "is kind of uncharted territory for all of us."