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Climate Change and the Supply Chain

Posted by Aila Abellanosa and Maricar Mojica | November 17, 2017

As climate change risks grow — rising sea levels, change in precipitation patterns, extreme droughts and heat waves, and intensification of hurricane events — global supply chains are vulnerable to major disruptions. In consideration of this new reality, there are some mitigative measures companies can take to make disasters less costly.

The year 2017 has been catastrophic in terms of natural disasters, particularly hurricanes; in August, Hurricane Harvey devastated parts of coastal Texas and prompted the shutdown of several ports and petrochemical complexes in the region. Typhoon Hato, on the other hand, destroyed structures and shut down several ports and financial hubs in Hong Kong, Macau, and southeastern China. In September, Hurricane Irma caused flooding and the closure of several logistics hubs in Florida, while Hurricane Maria brought strong winds that destroyed almost all facilities and knocked out electricity across Puerto Rico. Economists have cited how Irma and Harvey could have long-term repercussions on the American economy, while scientists have expressed concern about the rampant formation of Category 5 storms across the world. According to statistics, only 33 Category 5 hurricanes formed in the Atlantic since 1851; 11 of these formed within the last 14 years. Meteorologists have mentioned one common factor that contributed to the formation of these monster storms that have killed hundreds and destroyed thousands of structures: climate change.

Several companies and ports have pledged to address the phenomenon through the use of more environment-friendly materials, reducing emissions and investing in clean-air technologies, among others. For one, 1,200 companies around the world, including General Motors, Shell, Unilever, and Microsoft, have embraced the concept of carbon pricing; a value of one dollar is assigned for every ton of carbon dioxide that a company emits to the atmosphere. This would encourage companies to reduce their carbon footprint, as more emissions mean higher expenses. Pressure from investors who are also environmental activists also contribute to these corporate decisions. Apple is also one of the largest companies that are committed to fight climate change. They already had three solar farms in North Carolina and Nevada before they partnered with First Solar in 2015 to build another solar farm in California. The energy that they will receive will eventually be used to power Apple headquarters and stores within the state. They established the subsidiary Apple Energy in 2016 to sell their excess solar power.

Meanwhile, several ports in the USA, such as the Port of Long Beach and the Port of Los Angeles, have also enacted similar measures through building zero-emissions terminals and using alternative sources of energy for cargo handling.

In 2015, a total of 154 companies signed the American Business Act on Climate Pledge under the Obama administration which generally means they promise to commit to climate action and to support the Paris climate agreement - an agreement within United Nations in setting a global action plan to combat climate change starting in 2020. Though President Trump signed an executive order to undo the previous administration’s clean power plan earlier this year, clean energy can still compete with fossil fuel as its price continues to drop over the years.

Unpredictable weather events caused by climate change not only affects the transport of goods, but the availability of raw materials as well. One way to avoid shortage of certain materials for businesses is to source them from different regions and re-zone production facilities. Aside from checking the location where warehouses and factories should be built, companies should research whether the area has experienced flooding in the past. An insurance company actually provided a global flood map as a new strategic planning tool for risk management. Other companies also rely on real-time, supply chain-related news especially about weather events. This allows them to plan ahead and control (or contain) any situation that might affect their supply chain.