Bloomberg BusinessWeek | February 2013
In the wake of Fukushima, Sandy, and Nemo—not to mention North Korean nuclear tests—disaster is a growth business
On a mild and drizzly morning, a display of goods intended to meet every practical challenge that the Apocalypse might offer had been spread across 30,000 square feet of the cavernous New Orleans Morial Convention Center. Samples of gourmet self-heating rations and drink pouches that could purify puddle water via reverse osmosis competed for attention near a booth that touted a product called Powdersafe, designed specifically to handle your anthrax-letter-disposal needs. There were inflatable radio masts, triage tents, and decontamination showers. There were paperback-size solar panels ($160), portable seawater desalination units ($75,000), and a tricked-out 18-wheeler called the THOR Shield that functions as a rolling 911 dispatcher (for lease). Two Swedes proudly showed off a $45,000 field toilet—the EcoJohn—with its own incinerator. In all, some 200 private-sector vendors had jammed the trade show floor for January’s 2013 International Disaster Conference & Expo (IDCE) looking to book orders from small-town first-responders and state emergency agencies, and on up to FEMA, the Federal Emergency Management Agency, and its parent, the Department of Homeland Security (DHS), the biggest fish for disaster-preparedness and -response entrepreneurs.
In September 2005, when the surge of Hurricane Katrina breached the levees of New Orleans and submerged 80 percent of the city, the Morial became an improvised shelter for about 14,000 refugees. Some of the most harrowing images of Katrina were recorded here: elderly people suffering in the heat, dead bodies covered with sheets on the sidewalks. Like the Superdome, the Morial became a symbol of the government’s abysmal response to the flood. With damages estimated at $108 billion, Katrina remains the costliest disaster in U.S. history. So it was either deeply ironic or only too appropriate that the Morial had been transformed into a commercial showcase for companies that make concealed roof hatches for escaping flooded houses or heat-sealable body bags for mass-casualty events.
The IDCE’s three days of speeches and panel discussions left no category of threat unaddressed. Earthquakes, tornadoes, hurricanes, tsunamis, terror attacks, cyber warfare, chemical leaks, train derailments, wildfires, floods, and nuclear meltdowns were all considered. The 2,000 attendees—mostly American—had come to share wisdom born of painful experience, and, like all good conventioneers, to get their hands on some swag. Emergency managers from big-box stores and hospital chains roamed the aisles with uniformed National Guardsmen, Coast Guard officers, and staff from not-for-profits such as the Red Cross, everyone stopping to chat and pick up logo-emblazoned pens, baseball caps, and stress balls. No one was working this foot traffic harder than Adam Eckstein.
Eckstein, a 47-year-old from Boca Raton, Fla., was born to sell. His last job was pitching satellite phones. Now his thing is sandless sandbags. In 2011, he became the exclusive U.S. dealer for FloodSax, based in the U.K. He also sells FloodSax in Panama, Colombia, and, soon, he hopes, Canada. And for the second year in a row, he ponied up several thousand dollars for some prime IDCE real estate near the main stage. While passersby contemplated the notion of a sandbag that contains no sand, Eckstein quickly launched into a product demonstration.
He pulled one of the flat FloodSax from a vacuum-sealed packet. Placing it in a large basin, he theatrically poured gallon jugs of water over it. Over three minutes, a small crowd gathered as the object expanded to many times its original size, absorbing five gallons of water. Eckstein picked it up to prove that no water dripped out. It now weighed over 40 pounds, stackable and moldable into an impervious barricade. “FloodSax,” Eckstein said, pausing for emphasis, “are a world-beating product.”
In 2011, Eckstein had been at the National Hurricane Conference in Atlanta when Craig Fugate, the director of FEMA, walked by. Fugate’s agency has a nearly $6 billion annual budget and sets the agenda for scores of state and municipal agencies. Eckstein says Fugate appraised his sandless sandbag and pronounced it “a game-changing product.”
“Can I quote you saying that?” Eckstein asked eagerly.
“Absolutely not,” Fugate replied. Despite all the courting that goes on, federal law prohibits agencies like FEMA from endorsing specific products. All the same, it left Eckstein hopeful that this year he might score a contract with FEMA or one of its subsidiaries.
Disasters—natural and manmade—are a growth industry. The British reinsurer Aon Benfield (AON) estimates that global disasters in 2012 cost $200 billion—topped by Hurricane Sandy ($65 billion) and last summer’s Midwest drought ($35 billion). The average loss over the past decade has been $187 billion yearly. (In 2011, when the Japanese earthquake and tsunami struck, total damages hit $350 billion.) Many analysts predict that climate change and development in high-risk zones will only increase those costs as sea levels rise and weather becomes more extreme. So there’s plenty of incentive to prevent and reduce losses, and a massive opportunity for those with ideas of how to go about doing so.
Because the dollar amounts are so large, the agendas get politicized fast—witness the partisan bickering and delays before Congress passed the $60.2 billion Sandy relief aid bill in late January. Of that amount, some $48 billion will be split among many local and federal agencies to repair physical damage from the storm, from destroyed beaches to the New York subways to tens of thousands of homes covered by National Flood Insurance. The remaining $12 billion is earmarked for “mitigation,” investments in planning and infrastructure that would, as the Obama administration’s funding request put it, “build a more resilient nation prepared to face both current and future challenges, including a changing climate.”
If their budget requests are granted, a slew of federal agencies stand to receive billions for mitigation: $610 million for Environmental Protection Agency grants; $460 million for the National Oceanic and Atmospheric Administration; $400 million for the Fish and Wildlife Service; $3.85 billion for the Army Corps of Engineers. There are also countless private entities—hospitals, factories, universities—that are planning those same infrastructure-hardening investments for themselves, from moving vulnerable backup generators out of floodable basements to stocking up on emergency rations.
Along with saving lives and protecting property, it’s these budgets that drew all the vendors to the IDCE. Not everyone had their pitch down cold. In his booth, Mike Mocerino, a 24-year-old engineer, excitedly showed off his Darley Stinger. The Stinger is a camera-equipped remote-controlled quadrocopter that can provide an aerial view of a disaster area or search-and-rescue operation. The battery life maxed out at 25 minutes, which made the $17,000 price tag seem steep. Mocerino countered: “It’s hard to find a drone for under $50,000.”
When the 4 o’clock happy hour began, a group of National Guard guys started egging him on to fly the Stinger around the convention hall. Acquiescing, Mocerino told everyone to stand back, raising his pant leg to show the nasty scar he got the last time he came too close to its blades, saying, “It got me pretty good.” As the drone whirred and rose overhead, an emergency manager holding a beer in each fist looked on approvingly. “You should get hold of the Bigfoot people! The sasquatch hunters!”
Eckstein appreciated Mocerino’s style, though he noted that some products had a better shot at commercial success than others. He’s an old hand at trade shows, and as we walked the expo floor he checked out his competition, which included everything from giant water-filled tubes to bucket-loader attachments that can fill 5,000 sandbags a day. He generally tried to be polite, but he sneered when we passed a booth where a sodden burlap bag sat split open in a bucket of water. “That’s a dollar-store knockoff,” he said. “There’s no other bag like ours out there.” FloodSax’s international patent helps, he says, but there’s always somebody trying to copy the technology, cutting open the expanded bag to find how the “special sauce” within actually works.
FloodSax were invented by a British inventor named Richard Bailey. They were originally known as BlastSax, when the British military had commissioned a more portable alternative to sandbags for their bomb-disposal technicians. The bags contain a superabsorbent plant-based polymer. FloodSax, he noted, can be easily stored and deployed at a moment’s notice. “Sandbags aren’t something people tend to think about until they really need them,” says Eckstein. And when an emergency looms, they can be nearly impossible to acquire. Eckstein’s New York distributor, Scott Rogener, said that the demand for regular sandbags, which his contracting company also sells, was so high as Hurricane Sandy approached, that the price spiked to $5 each. If they were available at all, that is.
FloodSax aren’t cheap, either: A case of 20 goes for $269.95, though Eckstein argues it’s a small price to pay for peace of mind. For now, FloodSax are manufactured only in the U.K., although production will begin in the U.S. later this year. The privately held company declined to reveal its revenue.
Eckstein has a network of 15 regional distributors and sells to anyone he can: chain stores, homeowners, hospitals, local governments. He’s strict about price gouging; any distributor caught going above his MSRP is off the sales team. “One thing that repulses me,” he said, “is when someone’s trying to profit more off a situation.” All the same, Sandy had been a boon to his business. “After the fact, a lot of budgets open up a lot more for emergency preparedness,” he allowed. Rogener was more blunt. “Oct. 31 was the best commercial we ever had.”
The disaster industry is filled with people who have passed through the revolving door between public and private life. During his IDCE keynote address, Tom Ridge, the former Pennsylvania governor and first-ever secretary of the Department of Homeland Security, declared that public-private collaboration on disasters is “an absolute imperative.” The way to achieve a better partnership, he said, was for the private sector to see the public sector “not as bureaucrats,” and the public side to see private enterprise “not just as somebody trying to sell you something but as partners.”
Having left the government in 2005, Ridge was at least partly referring to himself as a willing partner. Ridge is now president and chief executive officer of Ridge Global, a strategic consulting firm that provides governments and corporations with “executive guidance and thought leadership” around security issues, providing access to an “unmatched network of former officials, technical advisors, and business leaders.” Ridge Global’s client list is a closely held secret, although it is known to have worked with the government of Albania.
In his speech, Ridge sketched a world where manmade and natural threats are becoming far more complex, “whether you embrace climate change or not.” (In office, Ridge asked for further study of global warming’s impact on Pennsylvania.) The effects of Fukushima and Sandy were far-reaching. Even the 2011 floods in Thailand disrupted global supply chains in a world that is “more interdependent today than it’s ever been.” This was made more problematic, Ridge explained, because American corporations don’t see “resiliency” as a high enough priority. Resiliency—the ability for an entity to recover quickly from a catastrophic event—is the watchword in crisis management these days. And resiliency is what Ridge Global sells its clients.
Another IDCE speaker was Thad Allen, the gravelly voiced former Coast Guard Commandant who had overseen the response to the Deepwater Horizon oil spill. He described his response when BP’s (BP) then-CEO Tony Hayward begged him to turn off the underwater cameras broadcasting images of the leak worldwide. Allen refused, contending that maintaining credibility required transparency. Now Allen, like Ridge, has landed in the private sector, where such openness does not always carry the same cachet.
In 2010, Allen retired and joined Booz Allen Hamilton, the government intelligence contractor and management consultancy, which conducts about $4 billion in business with the U.S. government annually. “Being in the private sector now, it’s even more important, at least in my view, that we have a more doctrinal approach … for the two to interact,” Allen said. The goal is to achieve what Allen calls a “unity of effort” by all players in a disaster response.
Toward that end, Allen had recently co-chaired New York Governor Andrew Cuomo’s post-Sandy commission, advising the government on ways “to improve the planning, training, and resource commitment that must occur before the next major weather event.” Billions of mitigation tax dollars will be directed toward those goals, many of which will likely be met by private contractors like Booz Allen Hamilton. It’s clear that some sort of unity of effort between government and industry can be achieved. It’s less clear if that’s always in the public interest.
If there was ever a stigma attached to profiting from disaster preparedness, it’s on the wane. At the show, Jeb Lacey, a 31-year-old emergency management coordinator from Victoria, Tex., joked that a friend had “gone over to the dark side.” Asked to explain, he said: “People over the years have viewed crossing over to the private sector as kind of selling out. You used to do this because you wanted to help people, now you’re doing it for money? That attitude, I think it’s going away.”
The revolving door has produced some of the rising stars in the field. Mark Cooper, formerly the Louisiana governor’s director of Homeland Security, is now in charge of emergency management for Wal-Mart Stores’ (WMT) more than 4,000 locations. And Bryan Koon, who formerly held that very position at Walmart, is now the emergency management director of Florida.
For Tim Cole, a “private-sector liaison” for FEMA based in Texas, it was obvious, as his boss Craig Fugate was fond of pointing out, that the vast private infrastructure that fed, clothed, and hydrated 300 million Americans every day had a crucial role to play in response and recovery. He said that for many years government planners “did not capitalize on this capability that was out here. Who are the best logisticians in the world? Walmart. A bad thing happens, and we all need to come together and make progress here—why are we leaving all the talent out?”
On the final morning of the conference, the National Weather Service put out a tornado and coastal flood warning for southern Louisiana. Eckstein, back in his FloodSax booth, was unfazed. The previous year, when he was at the Texas Emergency Management Conference in Dallas, tornadoes struck nearby. “CNN had pictures of 18-wheelers looking like Tonka trucks, just flying through the air,” said Eckstein. Conference attendees didn’t miss a beat, converting the show floor into an ad hoc command center.
The rain had not stopped by mid-afternoon, and several companies began striking their booths. Heat-sealable body bags were folded up, and the air whooshed from collapsing triage tents. Eckstein shook his head at the early quitters. “At some shows, they come around with a golf cart and say, ‘You’re not gonna be here next year if you don’t start putting it back up.’ ” For his part, Eckstein was still holding out for a substantial order and winnowing his leads. “Some people want to get 100 business cards, and if they get 50 they aren’t happy,” he said. “But I would rather make 10 calls than 100, if they’re quality leads.”
One recent lead seemed particularly good, a card just handed to Eckstein by Shelley Napier, a regional emergency manager from Manitoba. Canada has been experiencing more frequent floods. “She came over to me, she wants to order 5 million bags,” said Eckstein, beaming. “I swear to God.” He had a far-off look. “This is gonna make my day, week, year, retirement!”
When we spoke a month later, Eckstein was happy to report that he did get a call from Napier and planned to fly to Manitoba in March. And he was close to a deal with Walgreens that was in the works during the conference, though Walgreens hadn’t sent a rep to New Orleans. There were 894 Walgreens stores affected by Sandy; 13 were wiped out. (They’re on the verge of buying seven containers of FloodSax, 704 cases per container, at about $200 a case. That’s nearly a million-dollar sale.)
At the show, Eckstein was already confident that FloodSax had a big year ahead, and though no one would actually wish for it, there was a sense that the U.S. was overdue for a major hurricane, despite the destruction of Sandy.
“Since 2005 there’s been no Category 3 or higher,” Eckstein said. “Florida hasn’t been hit in seven years.”
“Shhhhhhhhh!” whispered Rogener, looking skyward.