In the US 40 years ago, a billion-dollar extreme weather event occurred every four months. According to supply chain analytics company, Everstream, its 2024 Risk Report demonstrates that these billion-dollar events are now every three weeks.
Each extreme weather event makes the global supply chain less and less reliable, resulting in disruptions, which mean longer delivery times, higher costs and lower output.
Hurricanes, which originate in the Atlantic basin, for example, are becoming stronger and more frequent, wreaking havoc on container ships and closing ports, but their effects can be felt in other segments of the industry as well.
Hurricane-force winds, as well as flooding, inevitably leads to road and rail closures, hindering the movement of goods in and out. Often damage and debris left behind can limit access to ports via ships, trucks and trains.
Damage to warehouses, distribution centres and other infrastructure can disrupt storage and fulfilment operations, leading to delays. Then there are the widespread power outages that can occur, affecting the entire length of the supply chain.
“As temperatures and extreme weather events around the world continue to rise, businesses can no longer ignore the impact of climate change on their operations and suppliers,” said Everstream Analytics Chief Meteorologist, Jon Davis.
According to a report by Economist Impact, and supported by global logistics company, DP World, disruptions caused by extreme weather events are set to remain a key risk in 2024 and 2025. In fact, the economic risks of climate change to global trade are predicted to sit around $81 billion USD.
According to the authors of the report, more than 99 per cent of its surveyed executives stated their supply chain is impacted by climate change. Predominantly, disruptions are felt in delivery as both downstream and upstream transportation is impacted.
For instance, Hurricane Ian, which struck the Caribbean and the US in September 2022, resulted in a 75 per cent drop in shipments and saw an increase in shipping time by 2.5 days.
Ports, which handle about 80 per cent of global trade, face significant disruptions due to extreme weather, leading to costly downtime and widespread economic consequences. Major events such as Hurricane Katrina in 2005 shut down the Port of New Orleans for nearly four months, causing global grain shortages and spiking commodity prices.
In 2023, tropical cyclones caused 117 days of port downtime globally. As climate change intensifies, these ripple effects are projected to worsen.
Meanwhile, according to the same study, weather is the cause of 23 per cent of all road delays in the US and costs trucking companies annually between $2 billion and $3.5 billion USD.
The ripple effects of a localised weather event can be, and often are, global. Following Hurricane Helene last September, which was the deadliest US mainland hurricane since Katrina in 2005, heathcare company Premier Inc. release survey data that showed more than 86 per cent of US healthcare providers experienced IV fluid shortages.
Simply put, one storm can cause disruptions on the other side of the globe.
In its recent global risk report, Insurance company, Allianz, uses Taiwan as a case study due to its role in global supply chains and its susceptibility to tropical cyclones.
Taiwan experiences three to four typhoons annually, with its mountainous terrain intensifying the impacts through severe rainfall, flooding and landslides. As the producer of more than 60 per cent of the world’s microchips, disruptions in Taiwan due to cyclones have long-lasting effects on global supply chains.
Estimates suggest that cumulative external economic damages from TC-induced shocks could range from $84.7 billion to $94.6 billion USD by 2050. China, Taiwan’s largest trading partner, faces the highest potential losses, followed by the US, Japan and South Korea. The primary sectors affected are computers, electronics and optical equipment.
Economists are concerned that logistics and transport companies are not taking the weather risk as seriously as they should. Less than a fifth of executives ranked global warming and extreme weather patterns as a key reason for pessimism for global trade for 2024 and 2025, losing out to other key factors such as inflation and geopolitics, according to Economist Impact.
The increasing frequency and intensity of extreme weather events should, experts say, underscore the need for adaptability within the supply chain.
Everstream’s analysts say the best way to minimise extreme weather risk is by closely monitoring routes and shipments enroute for approaching disruption.
“When in the planning phase, leverage predictive weather forecasts and disruptions alerts along with predictive ETAs,” it said in its report.
Others however say changes need to be made sooner than that.
According to supply chain industry expert Bart De Muynck, companies need to conduct risk assessments and implement strategies to help prepare for disruptions. Solutions can include diversifying supplier networks and developing contingency plans. They should also consider investing in technology like AI and predictive analytics, to help anticipate events.
“Fostering strong relationships and open communication with suppliers, logistics providers and other stakeholders can facilitate collaboration and problem-solving during disruptions,” he wrote in an opinion piece this year. “Embracing sustainable practices, such as reducing carbon emissions and optimising resource utilisation, can help mitigate the impact of climate change on supply chains in the long run.”
While adaptation helps reduce the impacts of extreme events, it is not enough on its own. In athe report by Allianz, into the global economic effects of cyclone, limiting global warming to 1.5°C can significantly reduce the severity of tropical cyclones, thereby safeguarding economic stability. “Key for effective climate-change mitigation is high carbon pricing that accurately reflects the true economic damage of carbon emissions and incentivises emission reductions,” the report states. “Accounting for tropical cyclone damages would increase carbon pricing by +44 per cent in cyclone-prone countries and by +22 per cent globally.”
European extreme weather
The US, with its supply chain disrupting hurricanes, is not the only jurisdiction where extreme weather is causing havoc on the industry.
The frequency of extreme weather events in Europe has risen by 48 per cent over the past two years. This has caused a spike in food supply disruptions according to research from Inverto, a subsidiary of Boston Consulting Group.
From 2021 to 2023, the number of extreme weather events in Europe increased from 11,442 to 16,956 recorded events. They include large hailstorms, heavy rain or snowfall, damaging lightning strikes, droughts caused by hot weather and tornadoes.
“As extreme weather events increase in frequency and intensity, there will be more disruption to food supply chains,” said Katharina Erfort, principal at Inverto. “It is therefore essential that businesses learn lessons from recent events and adopt robust measures to prepare for future disruptions.”
The effects of drought – Panama Canal
Waterways have always been crucial for transport as they are an inexpensive and environmentally friendly way of transporting heavy or bulk goods. Seasonal and temporary low water levels in rivers and lakes are not a new phenomenon, but times are changing for inland freshwater connections.
Last year was the sixth warmest year since global records began in 1880, according to the National Oceanic and Atmospheric Administration’s annual global climate report. In other words, the 10 warmest years ever have all been recorded since 2010.
As an example, the Panama Canal is experiencing its worst drought since records began in 1950 and as a result, draft height restrictions and daily vessel transit limits are continuing to grow. More restrictions inevitably mean longer wait times with concerns that some large tanker carriers may begin to avoid the Panama Canal altogether, rerouting via the Suez Canal or around the Cape of Good Hope.
Dropping water levels in Gatún Lake forced Panama Canal authorities to pose restrictions on the number of ships that can pass the canal, Low rainfall during the 2023 rainy season (May-December) has contributed to extremely low water levels in Lake Gatun despite above-average water levels in the lake at the beginning of the year.
According to global study organisation, World Weather Attribution, rainfall in Panama is strongly influenced by the El Niño Southern Oscillation, with large storms and extremely heavy precipitation tending to occur in the negative phase (La Niña years) and the positive phase (El Niño years such as 2023-24) typically associated with late onset and early end of the rainy season, and lower precipitation throughout.
The biggest impact of the drought on canal operations was the decrease in the FY24 deep-draught transits, which totalled 9,944 some 21 per cent lower than FY23 due to the water-saving measures temporarily adopted last year.
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