April 4, 2018 resilience360.com resilience360@dhl.com
2 DHL RESILIENCE360 SPECIAL REPORT With a death toll of 112 and a total estimated cost of USD 90 billion, Hurricane Maria ranks third in the list of costliest weather disaster on record for the U.S. Puerto Rico s main airports, including Luis Munoz Marin International Airport, are fully operational with scheduled domestic and international flights. Some air freight routes to Europe, such as Aguadilla-Amsterdam, are still experiencing limited capacity All ports of Puerto Rico are operating at normal capacity with no delays on outbound transport and with small backlog on the inbound The fragility of the power grid remains a concern for many manufacturers in the territory. Generators considered optional before Maria are now a necessity Reports indicate that most of Puerto Rico s important life science and healthcare industry has bounced back after Hurricane Maria halted production at dozens of factories As Puerto Rico continues to slowly recover from Hurricane Maria, life science and healthcare companies must enhance their mitigations efforts ahead of the 2018 Atlantic hurricane season
3 DHL RESILIENCE360 SPECIAL REPORT Last year, Puerto Rico was affected by two record-breaking hurricanes. On September 6, 2017, Hurricane Irma passed along the north of Puerto Rico, killing at least four people, causing hundreds of others to be left homeless and leaving more than 1 million residents without power. Governor Ricardo Rosselló declared the islands of Culebra and Vieques disaster areas, and several hospitals and factories operated on generator power only for several days. Fourteen days after Hurricane Irma skirted the north coast of Puerto Rico, the island was hit by another powerful storm. On Wednesday, September 20, 2017, Hurricane Maria made landfall near the town of Yabucoa, Puerto Rico around 6:15 a.m. EDT as a Category 4 hurricane with maximum sustained winds of 155 mph. Hurricane Maria was the first Category 4 storm to hit the island since 1928 and it brought rain rates of 5 to 7 inches per hour. Some regions such as Caguas and Cidra dealt with 30 inches of rain in one day, equal to the amount that Houston received over three days during Hurricane Harvey. Hurricane Maria battered Puerto Rico for more than six hours causing significant damage to the territory s communication, electricity and critical transportation infrastructure. One week after the hurricane, 95% of the island was without power, less than half the population had tap water, and 95% of the island had no cell phone service. Flooding severely disrupted public transportation operations and prompted a significant number of highway and road closures throughout the island. Ports, airports, roads and manufacturing facilities experienced significant operational disruptions due to the storm. As the assessment efforts began, local media reported that thousands of businesses were closed or had limited operations including the pharmaceutical manufacturing industry, which was an important point of concern as pharmaceutical products made in Puerto Rico account for nearly 10% of all drugs consumed by mainland U.S. Puerto Rico s agricultural sector was also devastated by the hurricane, with near total destruction of the sector s infrastructure and loss of almost 80% of planted crops. Soon after landfall, President Trump signed a major disaster declaration for Puerto Rico to provide federal assistance with the storm response and recovery efforts. On September 26, 2017, the US federal government announced that it would cover 100% of the costs associated with debris removal and various emergency protective measures in Puerto Rico for the first 180 days of the response mission. Even with the support of the U.S. federal government, Puerto Rico s road to recovery has been rocky. The damage assessment and restoration processes were hampered first because of blocked roads and other logistical challenges, then because different organizations wanted to perform their own assessments and recovery plans. San Juan may be on the rebound in terms of access to critical services and infrastructure, but some parts of the island are still suffering in the aftermath of Hurricane Maria. Thousands of rural residents are still without electricity and entire neighborhoods in towns like Maunabo and Corozal have no running water. As of April 2, 2018, the official death toll of Hurricane Maria is 112, and the estimated total damages by the storm reached USD 90 billion, which represents 87% of Puerto Rico s GDP.
4 DHL RESILIENCE360 SPECIAL REPORT Air Freight Soon after Hurricane Maria hit Puerto Rico, operations at San Juan s International Airport (IATA: SJU) were significantly limited due to a widespread power outage. Most Puerto Rico-bound air freight shipments were kept at the last in-transit airport and hundreds of passengers remained stranded in the airport for days. Records from the Federal Aviation Administration show that commercial airline services resumed in San Juan on September 25, 2017 with only a few commercial passenger flights. However, as recovery efforts ramped up, FEMA required that SJU gave priority to arriving military flights carrying humanitarian aid, which further increased inbound air freight backlog at SJU. According to Aerostar Airport Holdings, passenger traffic level at SJU has been 30% below last year s during the first quarter of 2018. Moreover, since the beginning of the year, two power outage incidents have reportedly affected operations at SJU. On February 12, 2018, a fire that unfolded at the Monancillo's power plant caused a power outage across San Juan, halting operations at SJU for approximately two hours. Similarly, on March 1, 2018, another power outage at a nearby power plant affected operations at SJU. Although back-up generators quickly brought power back on, some delays were reported throughout the day. As of April 2, 2018, SJU is fully operational with scheduled domestic and international flights. Other Puerto Rico airports that are operational and offering full passenger and freight services include: the Mercedita Airport (Ponce); the Jose Aponte de la Torre Airport (Ceiba); the Fernando Luis Ribas Dominicci Airport (Isla Grande) and the Antonio Rivera Rodriguez Airport (Vieques). Additionally, according to Puerto Rico Tourism Company (PRTC), all major carriers to and from Puerto Rico are now operating, including: Allegiant Air, American Airlines, Air Century, Air Sunshine, Air Flamenco, Avianca, Condor, Copa Airlines, Cap Air, Delta Air Lines, Frontier Airlines, JetBlue Airways, Liat, Pawa Dominicana, Seaborne Airlines, Southwest Airlines, Spirit Airlines, Sun Territory Airlines, United Airlines, Vieques Air Link and Volaris. In contrast, the Rafael Hernandez Airport in Aguadilla (IATA: BQN) is still experiencing limited outbound freight capacity on its Puerto Rico-Amsterdam route due to limited number of flights. Before Hurricane Maria, three major airlines offered freight services from BQN to Europe; as of April 3, 2018 however, only one major airline is reportedly flying this route. Due to a limited outbound capacity, some freight forwarders are still struggling to secure airfreight space as rates have reportedly increased between 15% and 20% since October of last year for goods shipped out from Puerto Rico to Europe. Although flights between BQN and Amsterdam are expected to restart sometime in May or June, no official date has been given by KLM and Emirates regarding when services will resume. To meet some of the demand for Puerto Rico-Europe airfreight, Iberia has expressed their intent to increase their capacity by 24% on its flights to Madrid during the upcoming months.
5 DHL RESILIENCE360 SPECIAL REPORT Ocean Freight During the weeks after the hurricane, port congestion and lack of inbound capacity was a major issue at the territory s main ports. During the days prior to the storm, many companies tried to ship their products as quickly as possible out of the territory, which generated some port congestion. The lack of emergency materials on the island, combined with the strong demand for pharmaceutical products on the mainland and the fact that materials from the mainland had to be flown or barged to Puerto Rico, caused further delays to ocean freight. On September 28, 2017, the US administration waived the Jones Act in an effort to get fuel and emergency supplies more quickly to the island, which is still dependent on diesel to generate most of its power. Inbound sea freight experienced congestion because priority was given to humanitarian aid and materials to repair the electrical grid in the island. Reopening of the territory s ports was a top priority for relief and reconstruction efforts, with some vessels carrying humanitarian relief and commercial cargo to the Port of San Juan. The government of Puerto Rico reported that 78% of the territory s ports were open one week after the hurricane, with 100% of ports operating at full capacity one month after the storm. As of April 3, 2018, all seaports in the territory have fully reopened, and are operating without restrictions. Ocean freight is operating at normal capacity, with zero or close to zero outbound backlog and minor inbound backlog. Road Freight One week after Hurricane Maria hit Puerto Rico, government officials reported that 18 bridges, 6 primary roads, 6 secondary roads, and more than 14 tertiary roads were closed to main transit. To facilitate the distribution of material aid, the government of Puerto Rico made reopening the island s main roads a priority. Initial efforts focused on building temporary roads and bridges to reconnect different parts of the territory. Five days after the Hurricane, FEMA reported that 392 miles of Puerto Rico s 5,073 miles of roads (or 7.7%) were open, allowing for passage through the outer ring of the island. On November 2, 2017, official reports showed that 2,932 miles of Puerto Rico's 5,073 miles of roads (or 57.8%) were open.
6 DHL RESILIENCE360 SPECIAL REPORT On March 3, 2018, Puerto Rico s road infrastructure was once again hit by a natural disaster as huge waves of nearly 30 feet (9 meters) high from a U.S. winter storm slammed into the north part of the island. During this event, authorities evacuated dozens of families and closed roads in Aguada, Arecibo, Barceloneta, Cataño, Dorado, Loíza, Manatí, San Juan, Toa Baja, Vega Alta y Vega Baja. Although, the swell was the largest to hit Puerto Rico in more than a decade, and it generated waves bigger than those produced by Hurricane Maria, roads were just temporarily closed, and no long-lasting damages were reported. Puerto Rico is steadily rebuilding its road infrastructure, including work to repair or replace temporary roads and bridges. On March 13, 2018, a third-party logistics provider reported transporting to Puerto Rico multiple bridges in sections for roadway reconstruction in Utuado. One of the lingering issues in the island, however, is the large number of traffic lights that were destroyed by Hurricane Maria that have not been reinstalled yet. Recent reports indicate that some of San Juan s busiest roads still lack working traffic lights, generating congestion, especially during rush hours.
7 DHL RESILIENCE360 SPECIAL REPORT Power Outages Hurricane Maria completely destroyed Puerto Rico s power grid, leaving all 3.4 million residents without electricity for months. The storm destroyed at least 80% of Puerto Rico s 2,400 miles of transmission lines and 30,000 miles of distribution lines. Similarly, communication networks were crippled across the island in the aftermath of the hurricane. 95% of cell networks were down with 48 of the island's 78 counties networks being completely inoperable. 85% of above-ground phone and internet cables were also knocked out. As recovery efforts are underway in Puerto Rico, the territory has suffered a series of blackouts that highlight how fragile the island's electrical system remains. On November 9 and November 15, 2017, two major blackouts affected the capital of San Juan and nearby cities and towns along the island's north coast. These new blackout sank power generation across the island from 40% to 18%, which was a major blow to the island s recovery after Hurricane Maria. On January 4, 2018, thousands of people were once again without power at multiple locations in San Juan after a technical fault occurred at a substation in the Santurce area. Areas impacted by the outage included Isla Grande, Covadonga, and Puerta de Tierra, among others. On February 12, local reports indicated that parts of San Juan reported a two-hour outage from a fire that unfolded at the Monancillo's power plant. On March 1, 2018, domestic sources reported that approximately 970,000 customers were without power in the San Juan metro area. Service was disrupted in Bayamón, San Juan, Guaynabo, Juncos, Caguas, Toa Alta, Carolina, Trujillo Alto, Toa Baja and San Lorenzo due to a fault in the San Juan, Palo Seco, and Aguirre power plants. As of March 28, 2018, recovery crews already have restored power to 93.55% of customers or approximately 1.37 million out of 1.47 million customers. While significant progress has been made to restore power, Puerto Rico s national grid is still in a very fragile condition. In its latest official report, Puerto Rico s Electric Power Authority (PREPA) expects the entire island to have power by the end of May, 8 months after the Maria destroyed two-thirds of the island s power distribution system and just as the 2018 Atlantic hurricane season is about to start.
8 DHL RESILIENCE360 SPECIAL REPORT Between now and June 2018, PREPA expects to have some planned power outages as part of the electrical grid reconstruction efforts. These efforts are taking longer than initially estimated mainly because power infrastructure on the island has been in disrepair for many years. According to the US Army Corps of Engineers, while the average age of a power plant in the US, and elsewhere around world, is about 15 years, the average age in Puerto Rico is 44 years. Additionally, the government is taking a more preventive approach to the reconstruction of Puerto Rico s critical infrastructure. For example, the US federal government and the government of Puerto Rico are using the recovery efforts to integrate more sustainable models of renewable energy along with repairing the existing diesel and gas-powered plants. FEMA is also pushing more secured power lines and transmission towers as well as higher quality standards and certifications. Fuel Supply Many gas stations in municipalities outside of San Juan sustained critical damages and remained closed for weeks after Hurricane Maria. Although, Puerto Rico reportedly had fuel supply to last for weeks, distribution was impeded in the aftermath of the hurricane, largely due to obstructed roadways and infrastructure damages which prevented supply trucks from getting to their destinations. This situation was exacerbated by the increased demand for fuel from businesses and individuals to operate electricity generators. As recovery efforts continued, fuel supply has progressively been restored throughout the island. One month after the hurricane, 78% of gas stations in Puerto Rico were operating at normal capacity, while as of April 2, 2018, this figure has reached 88%.
9 DHL RESILIENCE360 SPECIAL REPORT Initial reports from the US Food and Drug Administration in the aftermath of Hurricane Maria led to concerns about the potential for shortages of critical life-saving drugs needed by patients on and off the island. Many pharmaceutical companies reported that its facilities in Puerto Rico were running on independent power generation and were operational right after the storm, with teams working diligently to restore normal operations. Over the last six months, pharmaceutical plants in Puerto Rico have gradually resumed production in basically all of their plants. Three weeks after the hurricane, many pharmaceutical companies faced obstacles in returning to normal production levels due to power shortages and difficulty in obtaining materials used in the manufacturing process. According to a report by Reuters, many companies have production lines running at 20% to 80% and thus not manufacturing at full capacity. In October 11, 2017 a Fortune 500 American health care company, which manufactures saline and dextrose products, reported that it lost multiple production days after Hurricane Maria and that it has established a system for allocating the products to hospitals according to their previous purchases. As of March 22, 2018, some hospitals in the U.S. are still reporting shortages of small-volume presentations of saline bags, water, amino acids and dextrose solutions stemming from Hurricane Maria's destruction in Puerto Rico that damaged a number of the island's manufacturing plants.
10 DHL RESILIENCE360 SPECIAL REPORT Resilience360 customers in the life and science and healthcare industry should keep abreast of the latest developments by monitoring the recovery process in Puerto Rico. As the 2018 hurricane season looms for Puerto Rico s coastal lines, businesses should consider implementing the flowing mitigation measures: Creating supply chain transparencies: Companies may consider creating transparencies in their supply chain by creating a mapping of their transportation and product flows, to acquire more visibility on where some of the locations and lanes are operating, and understand the interdependencies of the network entities. Initiating supply chain risk assessments: Knowing specifically what part of your supply chain is more at risk is the first step in any risk mitigation process. Using risk exposure scores to identify risk-prone locations and eventually undertaking a risk assessment study will allow companies to know where to operate and to prioritize mitigation efforts for risky locations more effectively. Pre-positioning of emergency materials: Hurricanes, while devastating, typically are forecast in advance and give companies time to plan. While pre-positioning is a profound challenge for an island, companies can monitor events in real-time to understand threats to their supply chains and use this to initiate efforts to minimize disruptive threats to their product flows. Storing fuel reserves: Hurricane Maria has highlighted the importance of fuel management in the life sciences and healthcare supply chains. Companies in this sector may want to consider installing or expanding fuel storage infrastructure for emergency or back-up generators in preparation for future inclement weather. Diversifying manufacturing locations: Finally, it is important for life sciences and healthcare companies to mitigate operational risk by diversifying their supplier and manufacturing locations, which will reduce the probability of complete production failure. DHL Resilience360 is an innovative, cloud-based platform that helps companies to visualize, track and protect their business operations. The solution facilitates intuitive supply chain visualization, tracks shipments and ETAs across different transport modes and enables near real-time monitoring of incidents capable of disrupting supply chains. DHL Resilience360 easily integrates with business systems and helps companies keep track of risk in combination with their business performance indicators. It enables companies to better ensure business continuity, building risk profiles based on over 30 risk databases, and identifying critical hotspots using heat-maps to mitigate risks and to turn potential disruptions into a competitive advantage.