Written by Sophie Xu (Research Lead), Veena Raigaonkar (Research Lead), Aryahi Pachpande, & Esha Varchasvi
KEY POINTS:
The Los Angeles fires damaged or destroyed over 17,000 structures, making it one of the costliest wildfires in California history. Supply chains observed road closures and disruptions, and with the increasing frequency of climate change-related natural disasters, supply chains can manage and anticipate risk while providing aid and support to the citizens and communities they serve.
The supply chains of providing humanitarian aid, clean up and recovery efforts comes from the coordination and independent contributions of government departments, non-profits, and private sector companies, creating temporary jobs in the area.
Looking back at previous disasters, including Hurricane Katrina, construction commodities including lumber and steel observe higher capacity utilization during the recovery efforts. With the tariffs applied on its main importers Canada and Mexico, construction materials can foresee higher costs, of which will be ultimately absorbed by the end homeowner.
Introduction
On January 7 of 2025, a series of wildfires erupted across the Los Angeles area and caused heavy damage to the area, destroying thousands of structures and taking 29 lives. The largest two fires were (1) the Palisades Fire, which damaged or destroyed over 6,800 structures and coursed over 23,448 acres before containment, and (2) the Eaton Fire, which damaged or destroyed 10,491 structures and coursed over 14,021 acres before containment.
Background of Los Angeles Fires
California has a deep history of traumatic wildfires, with the earliest known California wildfire going as far back as 1889. On the other hand, the most destructive wildfires in California history were the wildfires of 2018, which burned almost 1.9 million acres. Wildfires in California are generally preceded by severe drought, dryness and high temperatures, and powerful winds. In the previous year’s October 2024 leading into January 2025, Los Angeles experienced only about 4% of its typical rainfall following a summer of record-breaking high temperatures. These conditions enabled the right conditions needed for the January fires to break out. The National Oceanic and Atmospheric Administration (NOAA) from the US Department of Commerce has stated that climate change, displayed through increased heat, drought, and atmospheric dryness, has been a key driver in the increased risk and extent of wildfires for the past couple decades (NOAA). The figure below displays the consistently increasing temperatures of California, provided by the World Resources Institute.
The California fires have had a serious impact on the supply chains involving the area. Additionally, ongoing supply chain issues have only been heightened for California in this crisis: labor unrest, layoffs and strikes, and prolonged work stoppages have impacted the supply of key materials such as lumber, steel, and concrete. Because of the rapid fluctuations in demand due to the disaster, materials are faced with significant backlogs and higher costs. The high demand and low supply of specialized labor (e.g. electricians, engineers) is also negatively impacting the supply chain, preventing a speedy reconstruction (SCW Magazine). Robert Peddicord, executive at CBRE Group, stated that reconstruction will not begin until two to three more years because of the necessity to remove waste and reestablish infrastructure first. Furthermore, businesses outside of the fire zone have been indirectly affected because of power outages, strain in infrastructure, and shifting material and service demand. Lisa Anderson, president of LMA Consulting Group, noted that a client in production faced a week-long power outage because of preventative shutdowns, negatively impacting production. Additionally, retail and local stores facing damage from the fire may also experience a loss in customers due to consumers shifting to more easily accessible stores and products. The shift in demand has forced retailers to attempt to adjust to the buying patterns of displaced people.
Other crucial supplies, like water, have also been seriously affected by the fires. The LA Times reported that the fire hydrants of Pacific Palisades had “little to no water flowing out” in time of crisis. A chief executive at the LA Department of Water and Power noted that due to the demand being 4 times the normal rate, the system was pushed to the extreme, resulting in lower water pressure. This issue further added to the disaster, as firefighters in the field could not access the necessary resources for diminishing the fires. The DWP’s water supply problems were likely due to severe under-investment for public infrastructure and public safety; three water tanks containing 1 million gallons each had to be supplied to appropriately treat the fires where fire hydrants failed to be sufficient. Such a severe spike in water demand has impacted the supply of water as a resource for those displaced by the fires. The January 2025 fires have impacted the supply chains of many sectors of business. Humanitarian aid efforts have become a significant contributor to the supply chain in being among the primary handlers of this disaster.
Humanitarian Aid from Government, Non-Profit, and Business
Government aid for the LA wildfires has been extensive, with California Governor Gavin Newsom issuing an executive order to improve disaster response and recovery efforts. The Employment Development Department allocated $20 million to support workers affected by job losses or reduced hours due to the fires, of which $10 million was designated for humanitarian aid and cleanup efforts. This created temporary jobs in impacted areas, while another $10 million focused on transitional employment, on-the-job training and other workforce services to support long-term recovery (Governor Newsom’s Executive Order). Additionally, according to the U.S. Department of Defense, the National Guard has been deployed to combat wildfires, with additional resources on standby to assist in containment and emergency response. Lastly, the U.S. Federal Emergency Management Agency (FEMA) has played a crucial role in coordinating aid, though some criticisms have been raised about the efficiency of private sector contributions (Supply Chain Management Review). Overall, these coordinated efforts highlight the critical role of government intervention in mitigating the effects of these wildfires through restoring infrastructure and ensuring a structured recovery process for affected communities.
Non-profit organizations have also been instrumental in aiding wildfire victims, providing both immediate relief and long-term recovery support. The American Red Cross has set up four emergency shelters, offering food, medical care, and essential supplies to displaced residents. Organizations like the Salvation Army and the Los Angeles Regional Food Bank have worked closely with government agencies and nonprofits to distribute food and essential resources to affected communities. (ABC News). Financial aid has been provided through funds such as the California Foundation’s Wildfire and Disaster Relief Fund and the Wildfire Recovery Fund, both aiming to offer direct support to impacted residents. These collective efforts have been critical in addressing both the immediate and long-term challenges posed by the wildfires.
Businesses such as Home Depot, Airbnb, Uber, and U-Haul are contributing resources and aid to support rebuilding efforts after the LA Wildfires. The Home Depot Foundation has donated $3 million dollars to nonprofit organizations as well as their Path to Pro efforts which aims to help fill the construction workers gap (Home Depot). Rebuilding efforts depend heavily on experienced labor, yet the construction industry faces a severe shortage, with an estimated 300,000 to 400,000 open, unfilled positions in 2023, a trend that has not yet changed (HBI).
Additionally, the increase in demand for rebuilding homes and business building structures will directly impact the supply chain for construction materials. $13 billions of those goods were imported from outside the U.S., meaning approximately 7% of all goods used in new residential construction originate from a foreign nation in 2023 (NAHB). With an increased demand for materials, Home Depot may experience a rise in sales, but reconstruction costs could also be affected by tariffs; particularly on Canadian lumber. The Home Depot currently sources 17.13% of the Company’s total wood purchases from Canada (The Home Depot). Projected tariff costs of a 25% increase on Canadian Lumber would be in addition to an effective 14.5% duty rate already in place, meaning that the overall effective Canadian lumber tariffs will rise to nearly 40% greatly affecting The Home Depot (NAHB).
Price gouging, where businesses raise their prices by more than 10% during and after an emergency, is illegal in California. To comply with this regulation, Airbnb prevents hosts from increasing prices beyond this threshold, displaying an error message instead. In response to the recent fires, Airbnb.org has committed to providing emergency housing for at least 25,000 people, accounting for about 12% of those affected. This initiative helps reduce pressure on the hospitality industry, preventing extreme price surges in hotels. Overall, Airbnb has donated over $26 million toward emergency housing efforts in Los Angeles (Airbnb).
Businesses specializing in transportation as a personal service have also contributed to the aid of people impacted by the fires. Uber offered free rides of up to $40 while Lyft offered two rides of up to $25 each ($50 total) for 500 riders total. Both companies noted that driver earnings will not be affected by these deals. Additionally, U-haul offered 30 days of free self-storage and U-Box container usage to residents who have been or will be impacted by the devastating wildfires. These initiatives have helped reduce bottlenecks and improve flow in the supply chain.
Transportation
The LA Wildfires have had a large impact on the supply chain of transportation. Essential goods such as medical supplies, food, perishable goods have huge delays in transportation. Specifically, the wildfires have played a large role in disruptions in road transportation, port congestion and air cargo movements.
The LA wildfires have had a large impact on the road transportation, resulting in highway closures and traffic congestion, air quality and visibility issues and increased delays. Major highways (I-210 and I-5) remained closed in key areas, disrupting logistic operations such as delivery trucks and freight service delays through longer transit times and higher fuel costs. Furthermore, according to the article How California Wildfires Impact Supply Chain from GoComet, smoke from the wildfires continue to cause visibility and air quality issues, further complicating trucking operations.
Additionally, ports and air cargo movements in the Los Angeles region continue to face severe congestion. Delays in unloading, limited dockworker availability and disruptions in road infrastructure led to a backlog of cargo. This causes an extended delay and raise operational costs for both parties importing and shipping (TLI). Air cargo movement has also taken a large toll from the Los Angeles International Airport (LAX). According to an article from Business Insider, about 500 flights were delayed and 13 canceled in January due to the poor visibility from smoke. Delays in air cargo movements from lack of available ground transportation and limited transport options create a larger backlog of goods. Overall, the wildfires have negatively impacted multiple aspects of transportation through road transport, port congestion and air cargo movement delays.
Looking Back on Previous Disasters
Hurricane Katrina was a large-scale disaster that significantly disrupted the supply chain. It caused severe disruptions in transportation, production, and inventory levels, leading to long-term economic impacts. While the recent California fires do not compare in scale, we can use historical data from Katrina to forecast potential effects on key economic indicators, including capacity utilization, the inventories-to-sales ratio, and 30-year fixed mortgage rates.
The graph compares capacity utilization in wood product manufacturing (blue line, left axis) with new single-family housing starts (red line, right axis) from 2004 to 2024, showing a strong correlation between the two. Capacity utilization peaked at 84% in January 2006, following Hurricane Katrina, before experiencing a sharp decline. During the 2008-2009 recession, which followed Katrina’s 2005 impact, wood product manufacturing capacity utilization dropped significantly from around 73% to a low of about 48% in 2009. Similarly, new privately-owned housing starts fell from peaks of approximately 1,800 thousand units in 2005-2006 to lows of about 400 thousand units in 2009. While not a direct causation, it suggests that as capacity utilization increases, housing starts to follow. Following the California wildfires, we may see an upward trend in capacity utilization as rebuilding efforts will need an increased demand for wood product manufacturing and new housing construction.
This graph illustrates the level of production for plywood and miscellaneous wood products from 2004 to 2025. After Hurricane Katrina, the industry saw a dramatic increase from an index of 126 in August 2005 to 139 in November 2005, before declining to 121 by November 2006. The housing crisis and Great Recession caused a big collapse in production, dropping to approximately 70 by 2009. As of January 2025, the production index is 96.17, showing that the wood products industry has unused capacity. This means the industry can handle increased housing construction or disaster rebuilding without causing material shortages or price surges. Since production has not returned to pre-2008 levels, it suggests lasting changes in the industry, such as more cautious production, different construction materials, or shifts in housing trends. Overall, the wood products industry is prepared to meet current building needs while staying flexible for future demand.
30-year fixed rate mortgage (This graph shows the 30-Year Fixed Rate Mortgage Average in the U.S. from 2004 to February 2025.)
During Hurricane Katrina in 2005, mortgage rates were around 6%, similar to current levels. While rebuilding after the fires will happen in a higher interest rate environment than in recent years, rates are still average by historical standards. Homeowners looking to rebuild will face higher borrowing costs compared to 2020-2021, but financing remains more affordable than during past high-rate periods.
Construction Materials Inventories/Sales Ratio (This graph shows the Inventories/Sales Ratio for lumber and construction materials from 2004 to December 2024.)
After Hurricane Katrina in 2005, the ratio increased from around 1.1, reaching 1.67 by 2009 during the housing crisis. As of December 2024, the ratio is 1.73, one of the highest in the dataset. This suggests that wholesalers have more inventory than sales, possibly due to weaker demand. While disasters like Katrina don’t always cause immediate spikes, they contribute to long-term economic shifts. The data shows that major disasters like Katrina don't necessarily cause immediate impacts on these metrics but rather contribute to broader economic trends.
Forecasting Recovery and Current Events
California is known for its dry climates and annual wildfires; however, the magnitude and impact of the Los Angeles fires are the reason behind its news headlines. More than 12,000 homes were destroyed, and estimated total economic loss of nearly $50 billion, making this fire one of the most destructive in California history. To rebuild these homes, social media has shared various customization strategies, such as 5-foot buffers around the home, thermal treated wood for resistance, and tempered glass, Spanish clay tiles, and concrete planters. Due to the location susceptibility of future natural disasters, rebuilding cities like Los Angeles demand specialized construction labor, building materials and customer home appliances that are tailored to withstand the heat and conditions of fire. Despite the various suggestions for more tariff-safe materials such as aluminum, sheep’s wool, and magnesium board, the reality is that there will still be the option of contracts that utilize the cheapest materials on the markets, in which case may refer to the most used construction materials such as lumber and steel, to support the rebuilding efforts.
Even if building materials and labor could be sourced locally from California, regional, or national manufacturers, the housing industry cannot ignore its dependence on imports and immigrant workers. In the last five years, construction materials made up 25% non-containerized goods (excluding liquid build and roll-on/roll-off cargo) imported through the Los Angeles and Long Beach ports. The top importers for steel for the United States in 2023, for example, include Canada and Mexico at 6.25 million metric tons (24.4% of imported steel mill products) 3.8 million metric tons (14.85%) respectively. Furthermore, Canada is the dominant supplier of lumber imports into the United States, at about 28.2 million dollars in 2021. In addition, 40% of the California Construction Labor Force were immigrant workers. Although President Trump has agreed to pause tariffs on Canada and Mexico until April 2nd, there are many other steps that construction, manufacturing, and logistics companies involved upstream and downstream in the rebuilding efforts must address prior to the process. If the 25% tariffs were to proceed nonetheless, the current 14.54% tariff on lumber, for example, would raise to nearly 40%.
Due to the upcoming World Cup in 2026 and 2028 Olympics, California lawmakers are pushing for earlier start dates of projects, and accelerating the cleanup and rebuilding process. Nevertheless, while builders within the supply chain and labor force may not immediately note any shortages or increasing costs, as there will be insurance negotiations, permitting approvals, prior to project initializations, they can expect to sooner or later compete for engineering and architectural resources, which will inevitably be absorbed by the future homeowners.
Conclusion
With multiple natural disasters and wide-scale destruction that occurred in highly populated locations within the past year, mourned citizen deaths, humanitarian aid from various parties, and the political and economic state of the United States, Los Angeles is a prime example of one of the many costly events that supply chains may face. As extreme weather events continue to occur and increase in frequency, supply chains must continuously be mindful of managing the risk that comes with these catastrophes, and respond responsibly, cost-effectively, and most importantly, ethically with a duty to its customers. It is more important than ever to reflect on the past actions and efforts that supported recoveries, the current states of the economic, political, and environmental spaces, and make sure that supply chains have contingency plans and next steps ready for forecasted circumstances.