How climate change is disrupting global supply chains

This article was originally published by Yale e360. You can read it here.

The COVID pandemic is rightly responsible for the global supply chain disruptions of the last two year. Experts and scholars agree that climate change is a much more serious threat to supply chain stability and is already being felt.

Austin Becker, a University of Rhode Island scholar who studies climate change and maritime infrastructure resilience, stated that the pandemic was “a temporary problem.” “Climate change is a slow-moving crisis that is going to last a very, very long time, and it’s going to require some fundamental changes,” said Becker. “Every coastal community, every coastal transportation network is going to face some risks from this, and we’re not going to have nearly enough resources to make all the investments that are required.”

Of all of climate change’s threats to supply chains, sea level rise lurks as potentially the biggest. But, even though sea level rise is already threatening ports and other infrastructure along the coast, supply chain disruptions resulting from hurricanes, floods and other extreme weather are shaking up the global economy. A sampling of these disruptions from just last year suggests the variety and magnitude of climate change’s threats:

• The Texas freeze in February 2021 caused the worst involuntary energy blackout in U.S. history. Three major semiconductor plants had to close due to a pandemic-triggered global shortage of semiconductors. This also slowed down the production of microchip dependent cars. Three days of disruptions to railroads caused the closures of major railroads. These closed heavily used supply chains between Texas and Pacific Northwest.⁠
• Heavy rainfall and snowmelt in February 2021 caused some banks of the Rhine River, Europe’s most important commercial waterway, to begin to burst, triggering a halt in river shipping for several days. Then, in April, water levels on the Rhine, facing a long-term drought, dropped so low that cargo ships were forced to load no more than half their usual capacity to avoid running aground. According to a report by a, Rhine-based manufacturers have faced a reduction in shipping capacity that has caused disruptions in both outbound and inbound product delivery flows. Report May 2021Everstream Analytics tracks supply-chain trends.
• Late July flooding in central China disrupted supply chains of commodities like coal, pigs, and peanuts. This led to the closure of a Nissan automobile factory. SAIC Motor, the country’s largest automaker, announced that these disruptions caused what Reuters called a “short-term impact on logistics” at its giant plant in Zhengzhou, capable of producing 600,000 cars a year.
• Hurricane Ida, fifth-costliest hurricane in U.S. History, struck the Gulf of Mexico Coast in August. It damaged vital industrial facilities that produce a variety of products including plastics and pharmaceuticals. There was also a diversion of trucks to be used in relief efforts.
• Fires in British Columbia from late June through early October triggered by an unprecedented heat wave comprised the third-worst wildfire season in the province’s history and closed a transportation choke point at Fraser Canyon that idled thousands of rail cars and stranded their contents. In November, heavy flooding was caused in British Columbia by an atmospheric river. This “once-in a century” rainfall caused severe flooding. The floods severed crucial railroad and highway links to Canada’s largest port and forced a regional oil pipeline to close. The loss of the rail network caused provincial lumber companies to reduce their production, leading to price increases and shortages in lumber, paper pulp, as well as other wood products, in the United States.
• In December, a typhoon caused what TechWireAsia called “arguably the worst flooding in history in various parts” of Malaysia, and severely damaged Klang, Southeast Asia’s second-largest port. That created a break in the semiconductor supply chain, because semiconductors from Taiwan, by far the world’s largest manufacturer of advanced microchips, are routinely shipped to Klang for packaging at Malaysian factories before being transported to U.S. companies and consumers. The global shortage of semiconductors was caused by the packaging failure, which led to some U.S. auto manufacturers having to cease operations.

Christopher Mims, a Wall Street Journal technology columnist who wrote “The Malaysian node in the global Supply Chain that hardly anybody was aware of turned out not to be critical,” Christopher Mims.Arriving Today: From Factory to Front Door — Why Everything Has Changed About How and What We BuyIn an interview, he stated that he was happy to share his thoughts. “It shows how a bottleneck anywhere along the supply chain could interfere with the availability critical goods.”

Scientists believe that these climate-related disruptions will only get worse as the world heats. In addition, ports, rail lines, highways and other transportation and supply infrastructure will be threatened by increases in sea level of an estimated 2 to 6 feet — and perhaps more — by 2100. Around 90 percent of the world’s freight moves by ship and, according to Becker, inundations eventually will threaten most of the world’s 2,738 coastal ports, whose wharves generally lie just a few feet to 15 feet above sea level. However, most port managers still feel the threat is remote. Future sea level rise is so unpredictable and solutions so difficult to find, that very few port managers have taken any action to combat it and only a small fraction have attempted to assess the threat.

As the ripple effects of what are likely to be ever-increasing and intensifying climate-related disruptions spread through the global economy, price increases and shortages of all kinds of goods— from agricultural commodities to cutting-edge electronics— are probable consequences, Mims said. The leap in the cost of shipping a container across the Pacific Ocean as a result of the pandemic — from $2,000 to $15,000 or $20,000 — may suggest what’s in store.

Experts say there are three ways port authorities can deal with rising sea levels.

A 2020 paper in Maritime Policy and Management claimed that if current climate science proves correct, “global supply chain will be massively disturbed, beyond what can possibly be adapted to while maintaining existing systems.” The paper states that supply chain managers need to accept that economic disruption is inevitable by the end century and should embrace practices that support rebuilding.

However, not all experts believe that supply chains are extremely vulnerable to climate change. “I don’t lie awake at night thinking about what will happen to supply chains because of climate,” said Yossi Sheffi, director of the Massachusetts Institute of Technology’s Center for Transportation and Logistics and the author of numerous books about supply chains. “I think supply chain disruptions are often local and short-term. And supply chains are so redundant, there are many ways around them.”

Supply chains are, in essence a string of potential bottlenecks. Each stopping point is a node in a tree-like system that conveys raw materials from the system’s farthest tendrils to sub-assemblers along its roots to manufacturers, who are the system’s trunk. Mims stated that smartphones have hundreds of components, whose raw materials are brought from all parts of the world. The total mileage would “probably reach to and beyond the moon”. These supply chains are so complicated and opaque that smartphone manufacturers don’t even know the identity of all their suppliers — getting all of them to adapt to climate change would mark a colossal achievement. Each node represents a vulnerability that could cause damage up and down the chain, and even beyond.

Particularly vulnerable are seaports. Experts say that port authorities have three options to deal with rising sea levels. None of them are adequate. They can choose to retreat to inland locations that have river links to the oceans. However, these sites are scarce and expensive. They can build expensive sea walls around ports. However they must constantly be raised to keep up the rising ocean. They also divert floodwater from areas near the coast that are not protected by the dikes.

Finally, port officials can raise the minimum height of all port infrastructure by at least two meters to ensure that it can continue to function in the event of sea level rise. Becker said that the rate at which the sea level rises is uncertain makes it difficult to determine a cost-effective height. And raising wharves and other port infrastructure would still leave unprotected ports’ vital ground transportation links — railroads and highways — and, for that matter, the residents of adjoining cities.

In a 2016 paper in Global Environmental Change, Becker and four colleagues concluded that raising 221 of the world’s most active seaports by 6.5 feet would require 436 million cubic meters of construction materials, an amount large enough to create global shortages of some commodities. The estimated amount of cement — 49 million metric tons — alone would cost $60 billion in 2022 dollars. Another study that Becker co-authored in 2017 found that elevating the infrastructure of the 100 biggest U.S. seaports by 6.5 feet would cost $57 billion to $78 billion in 2012 dollars (equivalent to $69 billion to $103 billion in current dollars), and would require “704 million cubic meters of dredged fill … four times more than all material dredged by the Army Corps of Engineers in 2012.”

“We’re a rich country,” Becker said, “and we’re not going to have nearly enough resources to make all the required investments. So among ports there’s going to be winners and losers. I don’t know that we’re well-equipped for that.”

The federal government does not offer any guidance regarding how to incorporate sea level rise projections in U.S. port design.

Seaport managers have been unable to address the threat due to the long-term nature and cost of proposed solutions. Becker’s 2020 study in Journal of Waterway, Port, Coastal and Ocean Engineering revealed that only 29 per cent of 85 U.S. maritime engineering engineers responded to a survey. Only 29 percent of them had a sea rise plan or planning document, and even fewer had actually implemented one. The federal government does not offer any guidance on how to incorporate sea level rise projections in port design. The study found that engineers are left to make decisions based on inconsistent information and guidance. “This leaves engineers to make subjective choices and leads to engineers and clients disregarding.” [sea level change]More often

In response to the threat of increasing supply chain disruption, manufacturers are considering enlarging their inventories or developing “dual supply chains” — supply chains that deliver the same goods via two routes, so that if one breaks down, the other will prevent shortages. Both solutions would increase production costs and contradict the “just in time”, which relies on strong supply chains to eliminate the need to keep large parts inventories in stock. American companies could cut down their supply chains by shifting production facilities back into the U.S. or to a nearby country. But in many cases they would be removing the factories from the cluster of suppliers that grew up around their factories in countries like China or Vietnam.

On top of all this, there’s a built-in inertia in supply chain management. “[Long-term]In an interview, Dale Rogers from Arizona State University stated that strategy and logistics are different. “Logisticians are always trying execute the strategy, but not necessarily developing it. They’re trying to figure out how to make something happen now, and climate change is a long-term problem.”