The pandemic was only a warm-up — climate change is disrupting the global supply chain.
The recent record-setting heat across Europe sent shockwaves throughout the world, as persistent extreme temperatures pushed people and emergency systems up to (and beyond) their breaking points. With wildfires breaking out in areas that have never seen them before, a sense of urgency hangs in the air as thickly as the smell of smoke. Once again, supply chain managers are on high alert, as they scramble to take actions to help mitigate the havoc that has already been wrought, and prepare for the climate related emergencies to come. In this blog we’ll talk about the climate emergency and the steps supply chain leaders can take to prepare for a continuation of unprecedented disruption.
A World on Fire
In mid July, major cities across Europe set all-time records for high temperatures. These aren’t cities like Las Vegas or Phoenix, prepared-for and accustomed to three digit temperatures, but now they’re experiencing them nonetheless: London reached 104.5 degrees Fahrenheit; Paris saw 108.7°F; Madrid experienced at least five straight “torrid nights” where temperatures never dropped below 78.4°F.
Weathermap makers once again had to improvise to accommodate their color schemes to new extremes, with most maps marking new records, and looking on the whole like aerial images of volcano lava:
One of the features of this summer’s extreme events has been how widespread they are. The high temperatures are not isolated to one area of the world, nor are they located solely in areas historically exposed to these kinds of extremes. Following on the European heatwave, one-third of the US population was under heat advisories and excessive heat warnings as well. More than 80% of the US population (around 265 million Americans) saw a high above 90 degrees over the seven day period. The US weather map was also a cauldron of deep reds, purples, and browns, as greenhouse gases continue to trap ever more heat.
Extreme Heat, Extreme Costs
In addition to being life threatening, extreme heat of this kind also leads to significant economic costs — and supply chain disruptions result. A study last year by European scientists reported that on average, heat waves in Europe decreased total GDP by up to 0.5% over the last decade — up to 2x the impact from the previous decade. The number one reason cited: extreme heat’s adverse effects on productivity. We might expect that those effects will be even greater through the period of extreme heat Europe and the US have weathered so far this summer.
Supply Chain Disruptions: Widespread and Severe
The stories of collateral damage to the supply chain are as diverse and frightening as the many startling weather events that have been chronicled so far this summer.
For just one foreboding example: the Rhine River in Germany, a major supply artery for Europe, may soon become impassible. The current 77 centimeter (30 inches) water level at the bottleneck, called Kaub, is the lowest seasonally since at least 2007. If it drops a further 37 centimeters or more, it will become economically unfeasible for barges carrying commodities to sail past this point — this according to Joerg Belz, a representative for Germany’s Federal Institute for Hydrology.
As you’ve heard, massive wildfires have also broken out throughout Europe, accompanying the heat in southern France, parts of Spain, and Portugal — and they’ve lead to mass evacuations and abandoned factories. The association of Italian Agriculture said that each fire costs Italians more than $25,000 per acre to extinguish the fire and rebuild. Wheat production in Italy could drop 15% this year because of increases in drought and production costs
Simply moving from place to place has become a trial for many: rail service, the lifeblood of human commerce in the UK, was cut back for Monday and Tuesday during the worst of the heatwave. Meanwhile, at Luton Airport, about 30 miles north of London, flights were suspended due to damage on the runways due to excessive heat. Actual physical systems breaking down catastrophically like this, creates new complexities for climate crisis planning.
“The most ominous thing any expert ever said to me about supply chains is that the pandemic was just a dress rehearsal for future disruptions, many of which will happen because of war and climate change. It’s happening already.” -Christopher Mims, Technology Columnist, The Wall Street Journal
…And More Disruption to Come
The honest reality is that supply chains will face more disruptions in the coming years than in any previous period of time. Multiple, uncontrolled and uncontrollable variables are adding more volatility to a system already under considerable strain.
Extreme weather events — and extreme weather patterns — will continue to increase in frequency and severity. For now, it seems that Europe is most susceptible to disruption form increasing temperatures. And this dire situation is still evolving: it was just two years ago that UK forecasters developed downside scenarios that had London hitting 40 degrees celsius by 2050. Those “extreme” scenarios came to fruition only two years later. We don’t know exactly what’s to come, but we do know it’s getting worse.
Political volatility is clearly part of the mix as well, and for now, making things much worse. Due to Russia’s invasion of Ukraine, much of Europe is at risk for severe energy shortages. On-going conflict with China – and a potential catastrophe with Taiwan – also adds uncertainty to the picture.
Effects of Climate Change on Supply Chain
We’d caution against placing too much confidence in the improving conditions we’ve seen over the last few quarters. Relaxed demand, particularly in industries most impacted by rising prices like housing or low-margin consumer goods; and increasing supply, with more maritime vessels coming online and offering some relief from mass resignations — may offer a brief return to the status quo. But supply chain managers need to be using any respite we can achieve to up-level operations in preparation for the climate-fueled demands to come. We expect an increasing frequency of for short-notice, high-impact disruptions, with more of the cascading changes and unpredictable consequences of the kind we saw with the ongoing pandemic.
Preparing for Supply Chain Issues
With all of these forces coinciding and building upon one another, now is unquestionably the time to prepare for the changes to come. And by “prepare” we mean to take actions, as soon as possible. Here are a few steps we would consider to be upgraded to an “urgent” status:
Get supply chain a seat at the table. This “first action” will actually help facilitate all the others: make sure supply chain has a seat at the leadership table. Your CSCO should report directly to the CEO, and help ensure that designing for supply chain becomes a prioritized, well-understood, and top-of-mind company value. This means you need a communication plan to bring the volatility of the current situation to life — for leadership, managers, and rank and file workers.
Go upstream. With supply chain issues and challenges better understood, you can take steps to assure that supply chain volatility is taken into account upstream in the product lifecycle: as suggested, this means all the way into the design phase.
Assess current / developing vulnerabilities. You’ll want your supply chain leaders and teams to get a clear grasp on current supply chain vulnerabilities — where you’re single sourced, relying on high-risk regions, have a newly unreliable partner, and so on. Then you can work to address these issues as quickly as possible.
Encourage innovation. Uplevel your supply chain with better technology. Get proactive with real-time information and end-to-end visibility. You can dramatically improve productivity and decrease risk with workflow and automation — and that’s improvement you will likely be leaning on, very soon.
Think in terms of years, not quarters. This is a new, long-term cycle that we’re in. Don’t prioritize making this quarter’s numbers at the expense of winning market share over the next decade. Don’t take the quick but high-risk deals. Build relationships with reliable, long-term partners
Unprecedented Challenge is Here To Stay
One popular tweet that has made the rounds expresses a fondness and longing for “precedented times.” This is an emotion people are feeling all over the world, and those of us who work in supply chain have been, and will continue to feel this longing for some time to come.
But short respites in demand shouldn’t mislead anyone: the challenges ahead will be continuous, and in many ways, impossible to fully anticipate. This is why the steps we’ve laid out for preparation are so broad in scope, and also why the strategic aim is so high. Whatever our previous pace of iterative improvement has been, it’s time for supply chain leaders to up their readiness dramatically.
If you’d like to read even more recommendations, we refer you to The Most Important Lessons for Supply Chain Executives. We’ll stay on this beat as well, and you’ll be able to see our latest and best recommendations right here in this blog space. Whatever may come in the weeks, months and years ahead, we’ll be covering and analyzing those supply chain managers who show the imagination and facility to best respond and serve their customers.