This year’s El Niño might be the biggest one yet. Here’s what can we learn from the most extreme to date, which impacted supply chains from 1997 to 1998.
El Niño is not a storm system. It’s an abnormal warming of the waters in the eastern Pacific Ocean, typically occurring every two to seven years. That warming changes atmospheric pressure across the Pacific and weakens trade winds, which in turn affect weather patterns. A strong El Niño can cause drought in Australia, Southeast Asia, and South America—while inundating North America with rain.
It has been forecasted that a super El Niño will occur this year, comparable to the devastating El Niño winter of 1997-1998. That storm was considered one of the more extreme events in North America, and it’s estimated that more than US $2.8B worth of property was lost in only an eight-month period. It also triggered a severe drought in Hawaii which damaged crops and depleted water supplies.
Prices for fresh produce doubled and, in some cases, tripled.
Global trade was severely impacted, with frequent congestions and delays.
Global ports increased shipping costs due to high risks.
Natural gas and oil companies were not able to produce their expected yield for that year.
Approximately US $650 to 700M worth of agricultural loss was reported.
Factories in Southeast Asia were forced to stop production during extreme droughts.
Similarly, mining operations in Southeast Asia and Argentina were halted during the droughts, as mines run on hydroelectric power.
There were a few positives: Milder weather in the Northeastern US led to fewer lives lost during winter storms.
Predicting the outcomes of this year’s El Niño is difficult, even seeing the effects of the last extreme system. Experts in the field have cautioned that no two El Niños are the same. Even if the conditions seem similar, scientists have yet to develop a completely accurate weather prediction system.
So where does that leave experts? Mostly reporting likelihoods and probabilities. We know that chaos will unfold—we just don’t know how or when.
Technology has advanced to the point where companies can see disruptions in their supply chain with enough time to act. But their supply chains must be flexible enough to handle major disruptions, and that involves developing contingency plans. What is most important is maintaining strong communication with suppliers, particularly those that deal with raw materials and component parts—these face the highest risk during droughts and storms.
Understanding your supply chain fully will help you make better, faster decisions when something comes up. In cases like El Niño, predictions only go so far. It’s real-time information—and the ability to act on it—that will get you out of the storm.
By Amy Clark - October 15, 2015
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