The Impact of Climate Disasters on the Supply Chain
Climate disasters continue to become alarmingly prevalent, causing approximately $313 billion in global economic loss last year.
The earth’s rising surface temperature is leading to extended periods of summer dryness, decreased winter precipitation, and parched vegetation. This, along with increased activity at the wildland-urban interface (WUI), has led to an increase in wildfire ignition rates. In addition to the devastating impacts on life and the environment, wildfires result in $63 billion to $287 billion in economic losses each year in the United States alone, per FEMA.
In 2022, catastrophic flooding as the result of record-breaking monsoon rains ravaged Pakistan, killing over 1,700 and leaving millions of people displaced. Supply chains were severely disrupted, causing hunger and food shortage concerns. Total damages surpassed $14.9 billion, while rehabilitation and reconstruction are estimated to cost at least $16.3 billion.
China experienced an unparalleled 11-week heat wave in 2022 that dried the Yangtze River so much that ships could no longer navigate to their destined ports. To ensure supplies reached their destinations, China diverted a great number of trucks to transport the ships’ cargo by land; some ships require over 500 trucks to carry the equivalent loads. As one can imagine, this drastically delayed supply chain operations.
Due to the increasing frequency of these climate disasters, it is pertinent for companies to have a solid understanding of how these catastrophes can affect their supply chain operations and the best practices for mitigating losses. Supply chain networks are extremely complex systems. They are commonly displayed as various sets of interconnected nodes and links that encompass vast areas; failure of just one node or link can severely impact operations and be very costly. Being proactive is the best way to combat incurring large economic losses from climate disasters disrupting the supply chain. Here are some strategies to mitigate supply chain risk from climate disasters:
- Creating backup plans for transporting assets is necessary. Alternate routes should be mapped out preemptively. Companies should also be thinking about what everyone else is doing. If an organization normally transports their goods via ship but must defer to using trucks, and everyone around them is doing the same, there may be a more efficient alternative transportation method.
- Understanding where parts are coming from, down to their raw materials, is important for being proactive and lessening losses. For example, parts may be manufactured in Taiwan, but the materials that make them up could originate from several other countries. Knowing the origins of parts and raw materials is a great first step to planning ahead.
- Planning for power grid failures is imperative in mitigating losses during times of disaster. Each part of the supply chain should be equipped with the knowledge of how to navigate and continue their operations, if possible, in the event of power grid failure.
- Companies must understand when to activate their contingency plans. Far too often, companies initiate their contingency plans too late and find themselves working retroactively, causing even more panic in an already stressful situation.
- Utilizing risk intelligence technology to help predict natural disasters and effectively assess risks is highly recommended.
Natural disasters and other climate related disruptions and their unpredictive nature can make it difficult to know when your supply chain may be impacted. However, understanding the source of your parts, down to the raw materials, and how one small event can have a butterfly effect, is the first step to implementing supply chain resiliency. Partnering with a connected distributor, like Converge, gives you the advantage of a global commodity team that has their pulse on the market to help you make better decisions, faster.
Contact Converge today to learn how the latest climate events have impacted your supply chain.