As hurricane season draws to a close and the northern hemisphere prepares for a winter likely to feature the return of snowstorms in the US, now seems like a good time to discuss the effect of extreme weather on the supply chain.
In recent weeks we have seen the disruption caused by Hurricanes Irma and Harvey to all logistics companies, whether transporting oil and gas or consumer goods. Hurricane Irma cut off the market for bunker fuel in Florida, a hub for demand from Europe and the US. These kinds of effects can last a long time. After Hurricane Harvey, Port Houston only opened for business earlier this month and vessel movements remained restricted – although the port’s cargo facilities were not heavily damaged, the shipping channel needed to be surveyed for debris. JOC.com is predicting that the impact of Hurricane Harvey on rates and capacity could last until January 2018.
The time to think of climate change, and the extreme weather that comes with it, as something to worry about on another day is over
While natural disasters in the US are hitting the headlines, extreme weather is happening all over the globe and the effect of any one event can be global. Other examples include flooding in Thailand in 2011, a heat wave and drought in Russia in 2010 and Hurricane Katrina in 2005. In 2015 the top five natural disasters were estimated to have cost $33 billion of damage to businesses. If, as chaos theory states, a butterfly flapping its wings in New Mexico can cause a hurricane in China, that hurricane itself can also have a thousand different consequences.
The time to think of climate change, and the extreme weather that comes with it, as something to worry about on another day is over. It is providing a serious test of the resiliency of supply chains – any weaknesses or problems are amplified 10-fold.
So how do intermodal tank operators learn to live with business-not-as-usual? A survey by EWENT (Extreme Weather impacts on European Networks of Transport) showed that business people in transport and logistics “relied too heavily on government assistance” and had not carried out proper risk tolerance appraisal or taken decisions on the best strategies to employ. It seems like too many logistics companies prefer to focus on other parts of the business rather than doing the necessary preparation.
The key words in any response to the increasing occurrence of extreme weather are adapt and innovate. There is even a new field of study called adaptive logistics, which focuses on preparing transport systems for climate change. Away from academia, intermodal tank operators and logistics companies should look to take the following steps to make sure they can thrive, even in extreme weather:
While this may seem obvious, risk management procedures need to be put in place to ensure that any disaster can be dealt with. Any business involved in logistics needs to be aware of where key suppliers and customers are, review the impacts of extreme weather events and make sure their contingency planning is up to date.
Again, this may sound obvious, but it is vital to monitor weather conditions and forecasts and work them into short term planning so that, for example, the possibility of snowstorms blocking road and rail is properly factored into each shipment.
If they haven’t already, operators should get on top of their data. Monitoring how extreme weather events can affect their systems and processes is vital and that involves collecting the right data and then analysing it to determine best practices.
Investors may punish businesses that are seen as having been slow to address weather-related supply chain risks. Tank container operators and other businesses in this industry need to educate shareholders or investors to ensure they understand the efforts that they are making to address this risk.
Extreme weather affects all parts of a supply chain and the burden needs to be shared. A strong relationship in which the costs of unexpected events are shared will pay off in the long run – strong partnerships are forged in adversity. Risk management can be integrated into supplier incentives – for example with reports on energy and climate risk management being a requirement for reaching compensation goals.
Broaden Your Perspective
Rather than addressing one risk at a time, operators should also look at the risks from strikes, cargo crime and human rights issues.
Some of the best innovations in business have arisen out of unforeseen events. Logistics companies need to make sure they are in a position to adapt and innovate rapidly to ensure they can deal flexibly with the challenges that are coming, rather than having to scramble desperately to deal with the next crisis. For example, they could look to use alternative routes or modes of transport – the focus should be on keeping products moving rather than sticking to plan A. These innovations can boost a company’s reputation and its bottom line at the same time.
There is no magic solution to the challenges thrown up by extreme weather events. But following the steps above will ensure that tank operators and other logistics companies are less vulnerable when the worst does happen.