Risks from climate change

To establish a risk management plan requires Supply Chain professionals to initially identify the range of potential events that could be a risk to business transactions. Climate Change is now an additional high risk situation that contains many individual risks for businesses.

An earlier blogpost noted that as the world adapts to climate change, changes will be required to supply chains. However, when considering climate change risks, not every potential incident is a sudden event such as an extreme forest fire; it is more likely to be a more long-term combination of events. In agriculture a drought, then fire, then flood. Or in industries, cumulative events such as those currently experienced in maritime transport and container handling.

An added influence to the climate change risks is that of transition. This is the speed at which technologies and lifestyles transition from the current to the new and the important cutover period when societies become reliant (without interruptions) on the new. The timing of transitions in an economy requires planning, which many governments have not published. Forecasting climate change risks therefore will contain many a ‘maybe’.

Transport supply changes

The current interruptions to supply chains, while serious, are likely to self-correct over 2022, as consumers in developed countries reduce their expenditure on goods (many imported) and increase the consumption of services. This view could change if new COVID variants result in future lockdowns.

The longer term effect of the pandemic on container shipping is likely to be the increased dominance of a few shipping companies in the global container trade. The five largest companies currently account for about 65 percent of container capacity and this could increase to about 80 percent before 2030. They are also likely to further invest in port facilities, to have more control of on-shore container movements.

Across developed countries, the increased demand for B2C services, combined with vehicle and driver availability shortages have caused disruptions in eCommerce supply chains. Disruptions that continue for a long period, typically increase costs for shippers, including transport rates, wages and overheads. When the disruption eases, some of the added costs decrease, but not all. As costs to provide ‘free’ delivery in eCommerce have increased, it provides the scenario for a reduction and eventual elimination of this offer.

Materials supply changes

The impacts of climate change are already being experienced – forest wildfires, drought and water shortages, more intense and common weather events (hurricanes, cyclones and typhoons). These place stress on the affected supply chains shippers and their logistics service providers. Various consultancies and economic advice firms have consider the future availability of materials that may directly affect your organisation or your suppliers:

Soft commodities: The supply of agricultural products can be influenced by prolonged droughts (reduced irrigation), fires, storms and floods:

Grains: wheat, barley, corn, rice, sorghum, soy, sugar etc.

Plantations: tea, coffee, cocoa, vineyards (grapes) rubber, palm oil; nuts etc.

Proteins: beef, mutton & lamb, pork, chicken, fish etc. About 70 percent of all agricultural emissions is from the production of meat from cattle and sheep. Unless the problems can be solved, this requires a change in international diets toward plant based products and a reduction in the consumption of animal meats by about 50 percent by 2050

Forestry: Plantation and forest timber/lumber. The the increased likelihood of fires in timber producing areas and the demand for planting trees as carbon offsets by business could reduce the supply of timber for construction. Deforestation needs to be eliminated by 2030, requiring increased security for trees.

The supply of agricultural crops can be affected by the supply of inputs. An example is fertilisers, with the price and availability of nitrogen directly linked to the global price (and therefore availability) of gas, the supply of which must be reduced. Also the availability of replacement parts for farm machinery in rural and remote locations.

To reduce the methane gas released as waste organic material decomposes, waste from agriculture and food systems must be reduced by at least 50 percent by 2050. It also reduces the emissions associated with growing, transport and refrigeration of the food that is wasted.

Hard commodities from extractive processes: The supply can be affected by cyclones at ports and flooding in the mining areas. Examples are iron ore from north west Australia and rare earths from southern China.

Manufactured products:

• Computer chips produced in North Asia are likely to experience increased typhoon (also called hurricanes and cyclones) events that could disrupt supply for several months
• When fully operational, ‘green steel’, produced using hydrogen made using renewable energy, is likely to be in short supply against demand. Companies that export steel based products will not want to pay the tax in import countries for embedded carbon in products.
• Packaging sells many products. It will continue to be used, but single use plastics will be phased out and the use of recycled paper, cardboard and plastics increased
• Electric road transport: internal combustion engines (ICE) will be phased out from the mid-2030s. Timing to re-purpose petrol service stations from serving fossil fuels that will continue to be used, but in decreasing quantities. Delivery vehicles likely to be electric, with increased night-time operating hours
• Household efficiency – re-design new housing to meet future needs and re-furbish existing housing stock. Increased demand for energy saving items: electric heating and cooling, insulation, solar panels and batteries, double glazed glass etc.
• Electricity networks will experience increasing demand, with timing of the replacement from fossil fuel energy with renewable energy (or nuclear). Changing the electricity grid from a centralised to a decentralised network will cause demand for network equipment from many countries.

This list is not complete, but it provides an indication of changes that could occur. For your organisation, research is required to identify whether materials for production and products for resale are likely to be affected by disruptions to supply, caused by climate change. This is in addition to the other risks that your supply chains could experience.