SUPPLY CHAIN
DISRUPTION
According to a report by the European Commission, “climate change related events, affecting societies all over the world, are one of the most important factors influencing the efficiency of the present economic networks.” [1] At the same time, the actions of supply chain managers determine levels of hydrocarbon emissions to a significant degree. According to Kevin O’Marah, who covers global trade for Forbes, supply chain executives make the decisions to “cut down the trees, cook the chemicals, weld the steel and dispatch the trucks that emit much of the carbon causing global warming.” [2]
Therefore, those who are in charge of streamlining delivery networks are in the driver’s seat—their operational efficiency can work in favor of carbon drawdown, which in turn will reduce climate-related disruptions to their supply chains. One example of a forward-looking coalition within the industry is the Sustainable Shipping Initiative, which has established benchmarks for designing fuel-efficient cargo ships, streamlining supply chains, and improving safety and accountability within a horizon of the year 2040.
Climate-related extreme weather events, such as hurricanes, monsoons and drought, have been increasingly disrupting the flow of raw materials and processed goods throughout the world economy. These events compound the problem when they cause flooding, desertification, and wildfires.
Supply chains are vulnerable to weather and climate at three levels: suppliers, infrastructures, and consumers. Suppliers include any operation involving extraction of raw materials or production of intermediate components; infrastructures encompass delivery networks employed by suppliers, as well as those that provide electricity and water; price increases resulting from upstream climate disruption are then passed on to consumers. [3]
Agricultural commodities are most at risk because of their geographic concentration of production. Rice has both a high concentration of production and risk of production disruption from climate change. Wheat, though also a concentrated commodity, stands to experience less disruption because of its average production distribution and the relatively low magnitude of impacts on producing regions. Still, in an example of how less vulnerable sectors can nonetheless encounter major disruption, drought and resultant wildfires in Russia in 2010 caused $15 billion in losses, mostly to the wheat crop. [4]
Commodities such as petroleum, metal ores, and natural gas are not as susceptible as a crop such as rice, since their production is widespread. Yet particular regions are vulnerable, such as the U.S. Southeast, where eight of the country’s ten largest oil refineries operate on the coasts of Texas and Louisiana. [5] In the summer of 2017, Hurricane Harvey’s damage to the Gulf Coast affected nearly one third of U.S. oil refineries, and sent the price of oil to a two-year high. [6]
[1] http://publications.jrc.ec.europa.eu/repository/bitstream/JRC93420/lb-na-26994-en-n%20.pdf
[3] http://publications.jrc.ec.europa.eu/repository/bitstream/JRC93420/lb-na-26994-en-n%20.pdf
[5] https://en.wikipedia.org/wiki/Petroleum_refining_in_the_United_States
[6] https://www.ft.com/content/0ba86722-8ddd-11e7-9084-d0c17942ba93
Below is an assessment made by BSR and Kering on how supply chain disruption is taking effect in the fashion industry.
