How Natural Disaster Affects Supply Chains

There was over two feet of rain and an estimated $18 billion in damages as Tropical Storm Florence pummeled the Carolinas and other parts of the Atlantic. There were 691,000 customers without power and water had closed parts of Interstate 95. As Florence pushed on in the United States, Typhoon Mangkhut hit the Philippines that Saturday and then China on Sunday, causing an estimated cost impact on Hong Kong’s gross domestic products of $627 million per day. Although devastating, these side-by-side catastrophic events are seemingly becoming a norm.

The last two decades have brought about increasingly destructive natural disasters. From Hurricanes Katrina and Sandy to the eruption of Eyjafjallajokull volcano in Iceland to the earthquake and tsunami in Japan. Along with widespread devastation to their physical surroundings, each of these natural disasters has impacted business operations in many cases on a global scale.

Over the years, climate changes are happening at a faster pace than originally anticipated. This has resulted in rising sea levels, which coincides with more severe storms, temperature swings, and volatile precipitation. Because of this, we have seen and will likely continue to see more intense weather that will have greater destructive potential, according to the National Oceanic and Atmospheric Administration (NOAA).

In this blog, we’ll go over the economic and supply chain impacts that result from these events and how you can best prepare your supply chain.

Impacts on the economy and supply chains

Severe weather has exponential impacts on our global economy. According to Aon Benfield’s 2016 Global Climate Catastrophe Report, the world saw $210 billion (USD) in economic losses because of 315 separate natural disasters. That’s 21 percent above the 16-year average of $174 billion (USD).

In 2017, Hurricane Harvey victims saw over 178,000 homes lost, $669 million in damages of public property, around a quarter million vehicle losses, $200 million in Texas crop in livestock losses…and the list goes on.

Additionally, businesses saw significant and expensive losses due to flooding, electrical outage, and employees’ inability to get to work, all causing temporary disruption of the flow of goods and services.

But the impacts of natural disasters reach far beyond the local damages of affected areas. When these natural events happen, numerous businesses find their supply chains shook.

The Tohoku Earthquake and Tsunami in Japan and the Thailand Floods in 2011 are both examples of natural disasters that had a much wider indirect economic effect. Both disasters caused severe disruption to global technology supply chains.

After the Thai floods, there was a global shortage of computer hard drives that sent consumer prices skyrocketing until factories were able to get back up and running. When the 2011 tsunami struck, several major car manufacturers were forced to shut down production at factories throughout Europe and the U.S. due to a lack of available parts from factories in Japan, setting off a supply chain reaction that impacted multiple suppliers of parts throughout the wider global economy.

Snowstorms are also a culprit of transportation delays and supply chain worries. If weather conditions drop below a certain temperature truck engines will not start, quickly accumulating snow may mean railroads might not be able to clear the tracks fast enough and snow and ice can make it impossible for planes to travel safely. All causing disrupted supply chains across the country.

Preparing your supply chain

With the increase of natural disasters, ensuring that your business is prepared for the potential disruption is very important. Disaster planning needs to consider not just the direct impact to your infrastructure, but how the after-effects of events far away from your base of operations could affect your supply chain and markets.

Create a disaster preparedness plan

Have a plan ready that outlines what to do in case of emergencies and natural disasters. This plan should take into consideration all types of weather and natural disaster your area is most susceptible to, and perhaps some that would particularly be considered unlikely. Snow in Florida? Probably not, but hey, with climate change you never know. Also, be sure to ask companies you partner with for their disaster plans to ensure alignment with risk management.

Monitor for threat

Supply chain risk management works best when companies have the earliest possible notice of potential disruptive impacts. Keeping up with potential weather, running a data analysis, and running simulations across your supply chain to identify pressure points where natural disasters would most likely impact your operations are all ways to keep up with your disaster preparedness plan.

Be transparent and flexible

Many natural disasters may be impossible to predict (earthquakes, wild fires, etc.) so disruption may be inevitable. Be open with members of your team and companies you partner with about how weather or natural disaster may affect capacity and your company’s supply chain. Additionally, think about substitute work spaces and methods of transport for your goods.

It’s never too early to revisit your risk management and disaster preparedness plans. As we all know, disaster can strike at any moment. At Trinity, we work with a network of over 70,000+ carriers and we’re always looking at the state of the industry and communicating with our customers.