Working With The Weather
Mark Twain once quipped, "Everyone talks about the weather, but nobody does anything about it."
Businesses are trying to get ahead of the weather by using long-term forecasts to make strategic decisions that go directly to the bottom line.
"Companies can take advantageous positions in energy futures and commodities or take out additional insurance and reallocate inventory as needed based on seasonal projections," says Michael Schlacter, chief meteorologist at Weather 2000, a long-range forecaster in New York. "The weather can change things in unexpected ways. A prolonged drought, for example, can affect an e-retailer because the price of cardboard boxes used to ship orders is likely to rise."
And then there's Katrina, which seemed to change everything. Hurricane Katrina slammed into the Gulf Coast in August 2005, killing about 1,800 people and causing an estimated $81 billion in damage. Insurance companies need to know what the prospects are for a storm season when writing policies. Last year was expected to be severe, but no major storms struck the United States.
This underscores the difficulty in making long-range forecasts, even with satellite shots and computer analysis of ocean temperatures, snow pack and the track of the jet stream.
"There's definitely a lot we don't yet understand," says Schlacter. "Climate researchers realize there are dozens of 'light switches' and looking at the variables in conjunction is the best way to get a decent handle on how things might pan out."
Schlacter says many people make a basic mistake of assuming that if they're not hammered in November and December, the winter will be mild. He advised his clients that autumn and early winter would be mild this year in the Northeast, but late January through March would likely bring severe weather. That's valuable information when betting on oil futures.
Dave Unnewehr, assistant vice president for policy development and research at the American Insurance Association in Washington, says the industry uses long-term forecasts to better assess risk and to set rates.
“Long-range forecasting and catastrophe modeling are vital to the industry,” he says. “In some states, there are 60 to 80 insurers competing for business and they all use the information differently. If you think you have better information than your competitor, you can take on more or less risk and adjust your rates accordingly.”
The recent flow of arctic air south, the strongest push in about 50 years, created this week's blizzard conditions in the Midwest and an ice storm in the Northeast and Mid-Atlantic states.
Much of the weather is linked to ocean temperatures. El Nino, Spanish for the male child, refers to a warm, weak current appearing each year at about Christmas along the coast of Ecuador and Peru. Typically, it lasts several weeks to a month or more. But about every three to seven years, El Nino may last for many months with significant weather consequences. El Nino can force the jet stream north, creating drier than normal weather in the North, warm weather across high plains to the Northeast and soggy weather in the South. This last happened in the winter of 1997-1998 and is important information for utilities, farmers and commodity traders if known in advance.
Some expected that a weak El Nino would produce a pale version of the familiar weather pattern. But five years ago, it produced the coldest winter in Boston in 63 years, the coldest winter in Baltimore in 40 years and eight colder-than-normal months in New York, Schlacter says.
There are no secrets to long-range forecasting, but the details of methods used aren't discussed for competitive reasons. The key is in interpreting the generally common pool of data. Those who make the long-term projections also keep their client list hush-hush.
"Each company wants to have an edge on its competitors," says Jill Hasling, director of the Weather Research Center in Houston. "Information about the weather may give you an advantage so no one shares the details."
In the short-run, news of an approaching storm benefits retailers as people flock to grocery stores to stock up on the basics and crowd into home centers such as Home Depot and Lowe's to buy snow shovels, batteries and flashlights. But if the storm is too big, it harms retailers because many people stay home for several days. In either case, it's a good bet that Internet traffic spikes, which presumably benefits online retailers
Meanwhile, The House Subcommittee on Energy and Air Quality cancelled Wednesday's hearing on "Climate Change: Are Greenhouse Gas Emissions from Human Activities Contributing to Warming of the Planet?" due to winter weather.