Harvard Case - Hurricane Sandy: Supply, Demand and Appropriate Responses to the Gas Shortage
"Hurricane Sandy: Supply, Demand and Appropriate Responses to the Gas Shortage" Harvard business case study is written by Morten Olsen, Emily McBride. It deals with the challenges in the field of Economics. The case study is 4 page(s) long and it was first published on : Mar 11, 2016
At Fern Fort University, we recommend a multi-pronged approach to address the gas shortage following Hurricane Sandy, focusing on supply chain restoration, demand management, and strategic partnerships. This strategy aims to balance the immediate need for fuel with long-term resilience and sustainability in the face of future disruptions.
2. Background
Hurricane Sandy, a powerful storm that ravaged the East Coast in 2012, caused widespread damage, including significant disruption to the gasoline supply chain. The storm's impact on infrastructure, coupled with panic buying, led to severe shortages and price gouging. This case study focuses on the challenges faced by gas station owners, government agencies, and the public in the aftermath of the hurricane.
The main protagonists are:
- Gas station owners: Facing empty tanks and frustrated customers, they struggle to replenish their supplies and navigate the volatile market.
- Government agencies: Responsible for ensuring public safety and maintaining order, they grapple with the complexities of price control, fuel allocation, and disaster relief.
- The public: Reliant on gasoline for transportation and essential services, they experience anxiety, inconvenience, and economic hardship due to the shortage.
3. Analysis of the Case Study
This case study can be analyzed through the lens of supply and demand economics, strategic planning, and government policy and regulation.
Supply and Demand:
- Supply: The storm damaged infrastructure, including refineries, pipelines, and distribution networks, significantly reducing the supply of gasoline.
- Demand: Panic buying and hoarding exacerbated the shortage, creating an artificial spike in demand.
- Price: The imbalance between supply and demand led to price gouging, with some stations charging exorbitant prices.
Strategic Planning:
- Short-term: Gas station owners needed immediate solutions to replenish their supplies, including sourcing fuel from alternative markets and negotiating with suppliers.
- Long-term: The event highlighted the need for robust disaster preparedness plans, including backup fuel reserves, alternative transportation options, and improved communication networks.
Government Policy and Regulation:
- Price control: The government implemented price controls to prevent exploitation, but this created unintended consequences, like shortages and black markets.
- Fuel allocation: The government prioritized fuel distribution to essential services, but this sparked debate about fairness and equity.
- Infrastructure resilience: The event highlighted the need for investments in resilient infrastructure, including storm-resistant pipelines and alternative energy sources.
4. Recommendations
Immediate Response:
- Prioritize supply chain restoration:
- Government: Facilitate the reopening of damaged infrastructure, expedite permits for fuel transportation, and provide financial assistance to affected businesses.
- Gas station owners: Collaborate with suppliers to secure fuel from alternative sources, utilize existing fuel reserves, and prioritize distribution to essential services.
- Implement demand management strategies:
- Government: Encourage fuel conservation through public awareness campaigns, implement temporary fuel rationing measures, and enforce price gouging laws.
- Gas station owners: Limit fuel sales per customer, prioritize essential services, and communicate transparently with customers about supply availability.
- Establish strategic partnerships:
- Government: Collaborate with private companies, non-profit organizations, and neighboring states to share resources and expertise.
- Gas station owners: Partner with other businesses in their communities to offer alternative transportation options, like ride-sharing services or public transit.
Long-Term Solutions:
- Enhance infrastructure resilience:
- Government: Invest in storm-resistant infrastructure, including pipelines, refineries, and distribution networks. Promote the development of alternative energy sources, like solar and wind power.
- Improve disaster preparedness:
- Government: Develop comprehensive disaster response plans, including fuel allocation protocols, communication networks, and public awareness campaigns.
- Gas station owners: Establish emergency fuel reserves, develop alternative supply chains, and invest in backup power generators.
- Promote fuel efficiency:
- Government: Implement policies that encourage fuel-efficient vehicles and alternative transportation options.
- Gas station owners: Offer discounts for fuel-efficient vehicles, promote public transit and ride-sharing services, and invest in electric vehicle charging infrastructure.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with the government's responsibility to ensure public safety and economic stability, and with the gas station owners' goal of maintaining business operations and serving their customers.
- External customers and internal clients: The recommendations address the needs of both the public, who require access to fuel, and the gas station owners, who need to replenish their supplies and maintain profitability.
- Competitors: The recommendations promote collaboration and information sharing among gas station owners, fostering a sense of community and mitigating the negative effects of competition.
- Attractiveness: The recommendations are attractive due to their potential to mitigate the economic and social costs of future disruptions, enhance infrastructure resilience, and promote long-term sustainability.
6. Conclusion
By implementing a multi-pronged approach that balances immediate response with long-term solutions, stakeholders can effectively address the challenges posed by future disruptions to the gasoline supply chain. This approach will ensure the availability of fuel, protect consumers from price gouging, and promote the development of a more resilient and sustainable energy infrastructure.
7. Discussion
Alternatives:
- Price controls: While price controls can prevent exploitation, they can also lead to shortages and black markets.
- Fuel rationing: Rationing can ensure equitable distribution, but it can be difficult to implement and enforce.
- Government-owned fuel reserves: This option can provide a reliable source of fuel during emergencies, but it can be expensive to maintain and may lead to government bureaucracy.
Risks and Key Assumptions:
- Implementation challenges: Implementing the recommendations requires coordination and cooperation among various stakeholders, which can be challenging.
- Political considerations: Political pressure and public opinion can influence policy decisions and implementation.
- Economic impact: The recommendations may have unintended economic consequences, such as increased fuel prices or job losses.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Supply chain restoration | Addresses the immediate shortage | Requires government intervention and coordination |
| Demand management | Reduces demand pressure | May be unpopular with consumers |
| Strategic partnerships | Leverages resources and expertise | Requires trust and coordination |
| Infrastructure resilience | Prevents future disruptions | Requires significant investment |
| Disaster preparedness | Improves response capabilities | Requires ongoing planning and training |
| Fuel efficiency | Reduces reliance on fossil fuels | Requires policy changes and consumer adoption |
8. Next Steps
- Immediate: Establish a task force to coordinate the response effort, including government agencies, gas station owners, and industry experts.
- Short-term: Implement demand management strategies, prioritize fuel distribution to essential services, and secure fuel from alternative sources.
- Long-term: Develop comprehensive disaster preparedness plans, invest in infrastructure resilience, and promote fuel efficiency.
By taking these steps, stakeholders can mitigate the impact of future disruptions, ensure the availability of fuel, and promote a more sustainable and resilient energy future.
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Case Description
The Hurricane Sandy case focuses on understanding how markets work, supply and demand, market equilibrium and the role of prices as a coordination mechanism. To this end, we use the aftermath of the hurricane that hit New York and New Jersey in 2012, and in particular the gas shortages that caused long lines and frayed tempers. Hurricane Sandy interrupted gas supplies, resulting in many stations around the city shutting down when their supply ran out. New Yorkers became increasingly desperate to get hold of gas for a variety of reasons: to commute to work, to visit relatives in other areas of town or to power generators for those who had lost power. New York and New Jersey both have laws prohibiting price gouging, but as the shortage stretched on gas was being sold on Craigslist at many times its prehurricane price. Essentially, the government response to the gas shortage created a black market. Once the situation was resolved and prices had returned to normal, the two states began issuing fines to gas stations and hotels that had overcharged customers during the crisis, and Craigslist was subpoenaed for further information. Yet, from an economic point of view, the shortage was a clear-cut case of supply problems. With that in mind, perhaps the government, rather than everyday citizens, should have acted differently.
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