Spill's Effects Linger for Gulf Coast Entrepreneurs
BP may have stopped the oil flow, but the region's small businesses say it will be a long time before things return to normal.
When BP successfully placed a temporary cap on the Deepwater Horizon well on July 15, some saw it as a sign that the disaster was over. After more than 85 days and 200 million gallons of oil spilled into the Gulf of Mexico, the company had finally stopped the flow. While it was a critical turning point, Gulf Coast entrepreneurs and small businesses say it could still be a long time before things return to normal.
Untold amounts of oil are still in the gulf, the offshore drilling moratorium is still in place and scientists have yet to completely understand or predict the long-term effects. The flow of black oil has put many businesses in the red and, for many, the end of the story has yet to be written.
Long-Lasting Economic Impacts
By the time the well was temporarily capped, many entrepreneurs had already suffered irreparable damage to their businesses. The closure of fishing waters, pollution of beaches and damage to the coast's reputation have impacted industries across the board.
Estimates vary considerably. But according to an analysis of 25 natural and manmade disasters by Oxford Economics, the effects of the oil spill on travel alone to the coast could cost the region more than $22 billion and last more than three years.
The disaster couldn't have come at a worse time for Stephen Quinn in Fairhope, Ala.
A self-taught fabricator and welder, Quinn started Blackfyn Customs in 2007 to fabricate tops, towers and platforms for boats. His business has shown steady growth and, in the first quarter of 2010, revenue was up 300 percent compared with the first quarter of 2009. In April, just days before the Deepwater Horizon exploded and sunk, Blackfyn had turned a corner and made its first profit.
All that crashed to a halt less than four weeks later when the oil caused the closure of many fishing waters in the area. Blackfyn has not received a new order since May 7; and as Quinn worked though his backlog of work, things continued to deteriorate. In July, Blackfyn did not earn a single dollar.
"Our plan right now is that we'll likely be shut down and out of business by the end of August. I just don't want to ruin my and my wife's personal credit," Quinn says.
Quinn started the BP claims process on May 3, but he has little faith it will keep him afloat. Long delays coupled with being bounced from adjuster to adjuster mean that his payments from BP typically are 60 days behind. For example, he received his June payment in August. Quinn and his wife had to abandon the lease on the home they rented and, once he closes the business, he's certain he'll have no more claim against BP.
"I'm just trying to figure out how I am going to close all of this down, how I'm going to get rid of stuff and what I'm going to do with it," Quinn says.
The ripple effects of the spill can even be felt 270 miles north in Birmingham, Ala., where the disaster has been a huge blow to Southern Skin Divers Supply. The company built its reputation and business by offering scuba trips almost every weekend to the Gulf Coast. The ease of access to diving destinations at Gulf Shores means divers can dive cheaply and frequently with minimal travel. But with diving prospects hindered on the coast--either due to oil or to the perception of oil--students have been reluctant to sign up for classes. And that hampers the entire business, says Southern Skin Divers Supply President Forrest Phillips.
"Why would someone want to take classes and buy $2,000 worth of dive gear and spend a month getting certified if they don't think they're going to be able to dive that often?” he says.
Most of the company's profit comes from the retail end. The training and classes get them in the water and the trips keep them diving, but the large retail selection of diving supplies and gear is where the company earns the bulk of its profit. With dwindling interest from new students and the threat of being stuck with unsold products, Phillips has cut back significantly on inventory. That risks alienating the company's existing clientele, which comes to Southern Skin Divers Supply precisely because of its wide selection.
In early May, when Phillips realized the spill would likely impact diving on the Gulf Coast, he booked a number of international trips to keep some of the clientele coming through the door.
"It gives people a reason to come in and maybe buy a little something here and there. But it doesn't get any students, and that's what we need. It will keep our wheels turning, but it's not profitable,” Phillips says.
Whether tourists and visitors are diving, dining or simply sprawling out on the beaches, many Gulf Coast businesses and entrepreneurs are dependent upon them. Michael Hecht, president of New Orleans regional economic alliance GNO Inc., is most concerned about the impact on the area's brand and reputation. Hecht has heard stories of double-digit cancellations in flights to New Orleans and some talk of conventions canceling because of concerns over air quality. All that affects everything from restaurants and hotels to tour operators, caterers and the entrepreneurs who provide the backbone of the tourism industry.
"We're a region that is so dependent upon tourism and our image. One of our biggest concerns is brand damage. What's going to happen once the cameras stop rolling and BP leaves?" Hecht wonders.
Nicky Alfonso, a commercial fisherman from Delacroix, La., is a case in point. He saw his entire business wiped away when federal authorities shut down his fishing grounds in May. Alfonso was able to weather the storm because he has cash reserves in case of bad times and, unlike many fisherman, he isn't dedicated to a single species. Alfonso fishes for crabs, shrimp and oysters, which means he can fish essentially year-round.
With the white shrimp season slated to start on Aug. 16, he's feeling more confident about his future. While he's not worried about the current harvest of shrimp that were already in the marshes before the oil spill, he's concerned about future shrimp seasons and what's going on with oil beneath the surface. The biggest problem fishermen like Alfonso face is whether or not the public will quickly go back to eating seafood.
"The future of selling seafood is now up in the air. We have to show the public that our seafood is not bad," Alfonso says. "It's just Mad Cow disease. When that happened, people avoided meat for a while. I don't know how long it's going to take for us to build up the confidence in the public."
Manmade Disaster to 'Manmade Catastrophe'
While the spill has sent a wave of economic impacts throughout the Gulf Coast, many Louisiana businesses say the federally imposed drilling moratorium is a double whammy. The six-month suspension on deepwater drilling is scheduled to expire Nov. 30, but it has already hampered hundreds of Louisiana entrepreneurs and small businesses that serve the oil industry.
Joseph Mason, a professor of finance at Louisiana State University, testified before the Senate Small Business Committee on July 27 that the Gulf Coast stands to lose $2.1 billion in economic activity. That translates to a loss of more than 8,000 jobs and almost $500 million in wages. But Mason said small businesses are the ones that will feel the brunt of the storm.
Virtually every small business in Port Fourchon, La., is being hit by the moratorium. Ronnie Landry is vice president of operations for Hydro Carbon Flow Specialist, a minority-owned company that provides discharge systems, cutting boxes, tanks and vacuum systems to offshore rigs. The company's business has slowed to a trickle as deepwater rig operators have shut down or relocated. And even in the shallow-water operations, Landry said the federal regulators have been slow to issue permits. And when companies aren't drilling, they don't need Landry's services.
"When you go from $150,000 to $200,000 a week down to $30,000 a week, it's not about anything other than survival. We had two rigs that for nine years were [bringing in] $2,000 per day and, in the blink of an eye, it was gone. The losses add up," Landry says.
Hydro Carbon Flow Specialist has had to lay off 12 of its 44 employees. Landry said the company is trying to avoid laying off salespeople because it may never be able to get them back.
"We're just hoping that by keeping our sales force out there interacting with customers, we can go back out there and not miss a beat [if and when the moratorium is lifted]," Landry says.
The effects of the moratorium also extend to ancillary services and businesses that support the industry and its workers. Everything from restaurants and hotels to trucking companies have been hit, and some impacts are occurring in the most unlikely places. Bobby Pitre, owner of Southern Sting Tattoo Parlor in Larose, La., saw his business decline by 50 percent once the moratorium went into effect. With a majority of the local population employed in the oil industry and people uncertain about their future, tattoos just haven't been a big priority for many people. Pitre, who garnered national attention from the spill-related murals he hung on his building, said that business picked up a little in early August but is still down by 30 percent.
"Tattoo money is extra spending money for most people. They didn't know what they were going to have to do. People just didn't want to spend money,” Pitre says.
Further north in New Orleans, Hecht, the head of the regional economic alliance, says that while the ecological impacts of the oil spill are bound to affect tourism for years, he's far more concerned about the effects of the ban on drilling. Hecht puts estimates as high as 24,000 lost jobs and a loss of more than $700 million in state tax revenue.
"[The moratorium] has the potential to take an ecological catastrophe and turn it into an economic calamity," Hecht says.
Surviving and Finding Opportunity in Disaster
While there's a hard road ahead, business leaders say that Gulf Coast businesses will adapt and survive. This is, after all, a region that has done a tremendous job of rebuilding and reinventing itself in the five years since Hurricane Katrina. Much of that was due not to the federal government but to the creativity, perseverance and determination of entrepreneurial locals.
New Orleans-based Snee Chemical is a wholesale chemical supply company that serves distributors along the Gulf Coast. With the majority of its clients in the marine industry, the company took a 50 percent hit in May compared to its May 2009 numbers, says President and co-owner Mitchell Mark. While it hasn't come close to replacing the lost business, Mark said the company was able to make up some revenue by obtaining new products and shifting some attention to the oil response.
"We started selling more supplies for the spill response, but it took a while to [get into those markets]," Mark says. "The week after the well exploded, I quickly realized we were going to have to figure out how to replace lost business."
Just as Snee Chemical started to move product for the oil response, BP capped the well. Now, Mark said, Snee is simply focusing on getting back to its core business and preparing for when normalcy returns. Having faced uncertainty and disaster during Hurricane Katrina, many small businesses and entrepreneurs on the coast know how to deal with calamity, Mark says. He runs his business with little debt and has disaster business plans and models not only to deal with but to expect disaster.
"It becomes a mind-set of dealing with whatever is thrown at you. You have to be willing to reshape your business model and go after whatever is out there. It really tests your business model, but I think we'll be just fine,” Mark says.
Elsewhere, some entrepreneurs have even capitalized on the spill. DeeAnn Sparhawk is co-founder and co-owner of Cool Pouch, a company that sells a trademarked product that helps keep you cool by packing ice in a towel. Although based in Knoxville, Tenn., Sparhawk saw an opportunity when she heard about cleanup workers battling heat-related illnesses on the Gulf Coast. After making little progress going through BP, she took matters into her own hands in the middle of May and drove down to the coast to hand out 500 Cool Pouches over a three-day period.
The venture cost Cool Pouch little more than $2,500 in giveaway and travel expenses, but it netted big results. The company was featured in Knoxville media and the publicity that ensued from having its product around the Gulf Coast produced a surge in sales.
"Our business has increased dramatically since this. I would say that our sales are up about 100 percent from last year. It was a win-win situation because we were able to help people and demonstrate how our product worked," Sparhawk says.
Craig Guillot is a writer in New Orleans.