How Will Climate Change Affect Global Supply Chains?

How Will Climate Change Affect Global Supply Chains?

The world relies on global supply chains, but these networks are prone to disruption. Disease outbreaks, worker shortages, technological issues, and more can all cause substantial delays and expenses, but one factor is more threatening to supply chains than any other. Logistics professionals today must consider the impact of climate change.

Carbon dioxide in the atmosphere is increasing more than 250 times faster than in the last Ice Age, mostly due to human activity. That’s led to rising temperatures, glacial ice loss, sea-level rise, extreme weather events, and more. As climate change worsens, these factors will grow more severe.

Here’s how that could affect global supply chains.

Declining Supplies

One of the most disruptive effects climate change will have on supply chains is on the supply side. Rapidly warming oceans and increasingly extreme weather have already started to affect multiple industries, decreasing their output. As this trend continues, supply chains will have fewer and fewer reliable sources for some products.

For example, New York’s registered lobster landings decreased by 97.7% between 1996 and 2014, thanks to warmer oceans. Similarly, droughts have hampered agricultural production, with products like rice and coffee seeing dramatically smaller harvests. Supply chains will have an increasingly difficult time finding sufficient sources to meet demand as this problem grows.

Extreme weather events could reduce global supplies even faster. Wildfires in North American forests are a severe threat to the lumber industry, and they’ll become more frequent as climate change worsens. Hurricanes, flooding, and similar events will have a similar effect on oceanic and seaside industries.

Workplace Disruptions

Climate change also poses a threat to the workplaces that sustain global supply chains. The most straightforward way this would happen is through temperature-related worker exhaustion and illness. Every increase of 1° Celsius could reduce worker productivity by 1-3% for those outside or without air conditioning.

While those percentages seem small, they could add up to the equivalent of 80 million job losses by 2030. That would result in global losses of $2.4 trillion. Rising sea levels and extreme weather would also displace many workers, making it difficult for some warehouses and other facilities to maintain adequate staffing levels.

These facilities themselves could face physical damage as well. Inclement weather events like tornadoes, hurricanes, floods, and fires have all become more frequent and severe amid climate change. As those trends continue, the workplaces that supply chains rely on could see increased physical damage, disrupting workflows and lowering output.

Over time, some entire facilities could become unusable. If sea levels rise by just 1 meter, 80 airports could be underwater, limiting supply chains’ transportation options.

Transportation Risks

That leads to the next effect of climate change on global supply chains. Transporting parts and products across the world will become an increasingly challenging and even dangerous task. All of the previously mentioned severe weather events would delay transportation at best and endanger employees at worst.

Many of climate change’s effects on transportation aren’t dramatic but are still damaging. For example, climate change has increased the frequency and intensity of heavy rainfall. That alone can slow ground transportation, cause storms at sea, affect ocean transport, and delay flights, causing global disruptions.

Of course, the rising frequency of extreme weather events will also cause substantial transportation delays. Flooding will make ground transportation impossible in some areas until the waters subside and emergency responders clear the damage. Hurricanes and other storms will delay or reroute flights.

These delays will ripple throughout the supply chain and the industries that rely on it. Time-sensitive shipments could turn to waste in the face of slowed transport. Manufacturers will have to slow production in light of part shortages. Events like this already occur, and climate change makes them more common.

Rising Costs

Many of these factors will also contribute to rising operational costs throughout global supply chains. For example, as workplaces face rising worker shortages due to environmentally driven displacement, and suppliers decline, output will likely fall. As their output decreases and demand stays the same, they’ll have to raise costs to make up for it.

Supply shortages alone could have a tremendous impact on costs. The price of coffee futures nearly doubled in July 2021 as record droughts struck Brazil. Similar price hikes could affect the cost of items supply chain organizations need, like trucks, equipment parts, and fuel.

As extreme weather displaces employees, staffing costs may rise as well. Supply chains may have to offer higher wages to entice workers to remain in the area or move, raising their ongoing expenses. Some smaller companies may not be able to adapt in this way and face going out of business.

How Can Supply Chains Respond?

Climate change will undoubtedly have a tremendous negative impact on global supply chains. Many of these trends have already started to take shape. In the face of these threats, supply chain organizations must take steps to adapt to a changing world and lessen their environmental impact.

One of the most important changes is to decarbonize the supply chain. Switching to zero-emission vehicles would take a considerable amount of greenhouse gas emissions out of the equation, fighting climate change. With electric vehicles boasting ranges above 400 miles today, this option is becoming increasingly viable, too.

Switching to renewable energy in warehousing operations will further decarbonize supply chain operations. Logistics companies can encourage other businesses to follow suit by partnering with green manufacturing facilities, eliminating their third-party emissions as well.

Supply chains must also become more resilient to minimize disruptions from near-term environmental hazards. Distributed sourcing, asset and environmental monitoring, supplier due diligence, and creating formal disaster recovery plans can all help. Steps like this can cause a company to lose just 5% of its revenue amid a disaster, compared to 35% for an unprepared party.

None of these steps can happen in isolation. Supply chains are complex, interconnected networks, and climate change is similarly multifaceted. As logistics companies seek to improve their own operations, they must partner with other organizations for more cohesive, global action.

Climate Change Is a Serious Threat to Global Supply Chains

Climate change is the most significant threat facing global supply chains today. It’s already causing shortages and disruptions in some industries, and these challenges will only grow more frequent and severe if organizations don’t take action.

The threat of climate change is grave, but it’s not inevitable. If supply chain companies and their partners can embrace more sustainable operations, they can mitigate climate change and protect future operations. The world and the global economy will be better off for it.

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