Supply Chain’s Biggest Threat in 2024? Extreme Weather Disruption
The mass rerouting of container vessels away from the Red Sea illustrates how easily unforeseen events can upend supply chains. And the Middle East crisis is just one of many concerns that logistics executives should address in 2024.
Everstream Analytics named extreme weather patterns—and their impact on delivery times—as the top logistics disruptor to the current supply chain. The company’s latest report slapped a 100 percent “risk score” on weather worries—the highest across the five major risks it identified.
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According to the report, the U.S. experienced a billion-dollar weather event every four months in the 1980s, compared to every three weeks today. Domestically, logistics giants like Amazon, FedEx and UPS saw disruptions when Hurricane Idalia slammed into Florida in August.
And overseas, a months-long drought is behind the bloated backlog in the Panama Canal, where restrictions have limited traffic since the last summer.
“As we have just entered Panama’s typical dry season until early-to-mid April, the historically low water levels in the Panama Canal are likely to worsen, and freight rates are likely to continue increasing in 2024,” said Jena Santoro, senior manager of supply chain risk at Everstream Analytics.
Everstream said shippers must leverage predictive weather forecasts and disruptions alerts when planning, and look to predictive ETAs to better forecast delivery dates.
“The other alternative is switching modes or increasing the utilization of intermodal transport,” Santoro told Sourcing Journal. “Air freight has not yet seen a surge in demand or rates as a result of ocean disruptions, but is likely to see these changes the longer the ocean disruptions persist.”
ESG policy pressure
In its annual Risk Report, Everstream named disruption from growing environmental regulations as the second biggest supply chain risk with a score of 92 percent.
From 1972-2019, there was a 38-fold increase in environmental laws, the report said, pressuring governments and businesses to adopt net-zero emissions and energy policies.
Production stoppages and litigation due to environmental violations are particularly strong
in the U.S., where 41.7 percent of such incidents in 2023 occurred.
With protectionist policies in place, get to know your Tier 2 suppliers
With an 85 percent risk score, protectionist measures such as growing export controls and sanctions, particularly between the U.S. and China, could pose problems for the global supply chain.
This is why Everstream advises shippers to uncover potential sub-tier bottlenecks where sanctions can shut down a supply chain. This means checking for single-source suppliers at the Tier 2 level, where multiple Tier 1 suppliers depend on the same Tier 2 supplier.
“Multi-tier visibility into extended supply chain networks is even more critical now than ever before, given the era of trade tensions,” Santoro told Sourcing Journal. “It has always been a difficult task for multinational companies with global, fragmented supply chains with hundreds of category suppliers and contractors, and it typically becomes more challenging which each tier.”
Santoro said a 2023 Deloitte survey found that only 15 percent of chief procurement officers have visibility past Tier 1 suppliers.
Taiwan disruption would impact half of container ships
Taiwan tensions, which carried a 75 percent risk score, could include export restrictions to the country and blockades of the Taiwan Strait if China greenlights an invasion. Disruption in the Taiwan Strait would affect about half of all the world’s container ships, according to Everstream.
Any expected disruptions would be less severe than the current Red Sea situation, as vessels are unlikely to be targeted directly.
“Vessels could divert around the east of Taiwan in the Philippine Sea, adding only two-to-three days to the journey,” Santoro said. “Though the diversions could still cause delays and backlogs, especially in the case of the Taiwan Strait being blocked completely, it is unlikely comparable to the current Red Sea crisis where the available diversion can cost $1 million in fuel costs added to the roundtrip journey from Asia to northern Europe.”
The company advises supply chain managers to be mindful that Tier 1 supplier diversification may not carry over into Tier 2 since many Tier 1 suppliers could be sourcing from the same region or supplier.
Suppliers could run out of agricultural commodities
At No. 5 with a 72 percent risk score, commodity shortages of sugar, rubber, and rice will come to a head this year due to the culmination of factors, including high input prices, farm profitability concerns, and increasing protectionism and extreme weather events.
Everstream recommends companies fix prices whenever possible while building a multinational sourcing strategy per commodity, and then monitor the market for opportunities to drive down costs throughout the year.
