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Assessments of Economic Loss Due to the Deepwater Horizon Disaster

Assessments of economic loss due to the Deepwater Horizon disaster must account for the impact of Hurricane Katrina and the unique structure of the commercial fishing industry

As of July 14th 2010, approximately 110,000 claims for damages due to the Deepwater Horizon disaster have been filed with BP. BP has paid out $183 million to these claimants.1 Claimants include individuals and businesses that have experienced loss of profits and earnings capacity, and government entities that have experienced lost revenue and increased costs of service provision. In addition to these claims, a large number of lawsuits—including many class action lawsuits—have been filed against BP, Transocean, and other allegedly responsible parties. The resolution of these claims and lawsuits will hinge on the determination of economic damages. In these and similar cases, reliable calculations depend critically on the ability to accurately measure many contributing factors, and on assumptions about what would have happened had the disaster not occurred.

The Deepwater Horizon disaster hit just as the Gulf Coast was set to recover from Katrina and a deep recession

There have been conflicting reports about the current state of the tourism industry
along the Gulf Coast. Although news stories have focused on the decline in reservations and increase in cancellations by vacationers since the April disaster, a recent hotel industry report indicates that occupancy rates and revenue per available room increased substantially in New Orleans between May 2009 and May 2010.2

Through May, the tourism industry in New Orleans and along the Gulf Coast had rebounded more over the past year than in other parts of the U.S. However, increases in revenue and occupancy rates have appeared strong in New Orleans because 2009 is an unusually low benchmark against which to evaluate the hotel and tourism industries. The severe recession that arrived in late 2008 while the tourism industry was still recovering from Hurricane Katrina made 2009 an especially weak year for tourism in New Orleans and portions of the Gulf Coast. The economic environment of the Gulf Coast at the beginning of May 2010 therefore complicates the calculation of economic damages from the Deepwater Horizon disaster on the tourism industry.

Hotel and restaurant workers have been laid off in anticipation of a decline in tourism

The outlook for the remainder of 2010 is much less optimistic. Data from the Louisiana Workforce Commission indicate that expectations of future declines in tourism are having an immediate impact on the local economy. These data confirm that hotel and restaurant employees in Louisiana have been especially hard hit by the Deepwater Horizon disaster. New unemployment insurance claims filed by workers previously employed in the Accommodations and Food Service Industry, which includes hotels, casinos, restaurants and bars, surged by 33.0% since early May. By contrast, new jobless claims filed by workers from other industries in Louisiana increased by about 10.6% over the same time period.

New unemployment insurance claims filed by workers previously employed in the Accommodations and Food Service Industry, surged by 33.0% since early May. By contrast, new jobless claims filed by workers from other industries in Louisiana increased by about 10.6% over the same time period. Shrimp landings in May 2010 were down 65% in Louisiana and 75% in Mississippi while they were up almost 4.5% in other parts of the Gulf of Mexico, relative to average levels for May from 2006 to 2009, according to the National Oceanic and Atmospheric Administration.

Small commercial fishing businesses have suffered major losses
The commercial fishing industry along a portion of the Gulf Coast has been hard- hit as well, but the extent of the immediate damage to this industry is not easily gauged by conventional jobs reports. There are over 11,000 commercial fishermen in Louisiana alone, but over 80% of workers in commercial fishing are self-employed, small business owners, or work in a family-run business. These categories of workers are not typically included in monthly employment reports or weekly unemployment insurance claims reports. As a consequence, the wage, employment and jobless figures reported by Federal and state agencies will not necessarily provide an accurate assessment of the immediate impact of the oil spill on employment and incomes in the commercial fishing industry. The best indicator of the immediate impact of the Deepwater Horizon disaster on commercial fishing may be the sharp decline in production in the Northern Gulf of Mexico. Shrimp landings3 in May 2010 were down 65% in Louisiana and 75% in Mississippi while they were up almost 4.5% in other parts of the Gulf of Mexico, relative to average levels for May from 2006 to 2009, according to the National Oceanic and Atmospheric Administration.

Accurate damage calculations require a careful analysis

An accurate assessment of the economic damages from the Deepwater Horizon disaster must incorporate the economic environment of a Gulf Coast region that is still recovering from Hurricane Katrina and a deep economic recession. Calculation of damages must also consider the unique organization of the commercial fishing industry which relies much more heavily on small and family run businesses than almost any other sector of the economy. Failure to account for these factors in damage calculations will lead to inaccurate and disparate estimates of economic losses and impede the resolution of these disputes.

1 Claims statistics are taken from BP’s Claims Process website
(http://www.bp.com/sectiongenericarticle.do?categoryId=9034722&contentId=7064398) on July 14, 2010.

2 See “Oil spill takes toll on tourism on Gulf Coast”, USA Today, June 25, 2010, and a press release from Smith Travel Research Inc., “U.S. Results for May 2010”, on June 22, 2010 stating that New Orleans had the second largest occupancy rate increase and the largest increase in both Average Daily Rate and Revenue per Available Room, relative to May 2009, among the top 25 hotel markets in the U.S. during May of 2010.
3 Shrimp landings are the portion of the shrimp catch that is put ashore and is probably the best measure of production by shrimpers.