Climate change – expecting the unexpected

The ever-evolving nature of climate change continues to surprise, affecting our ecosystems, economies, and daily lives in unforeseen ways.

Climate change is a prominent and increasingly volatile factor for many businesses relying on global supply chains and stable markets. Everything from deep freezes to colossal hurricanes can disrupt even the best-laid plans.

Let’s consider what’s ahead if the impacts of climate change—storms, increasing temperatures in both directions, flooding, and so on—intensify. 

Disruptive temperatures and water levels

Disruptions across the global supply chain have already begun to occur because of intense changes in rainfall and temperatures worldwide. For example, the Rhine River burst over its banks in early 2022 due to a glut of rainfall, temporarily shutting down Europe’s central commercial waterway and causing massive damage to local towns and infrastructure.

In April of that year, however, a subsequent drought brought the river levels so low that cargo ships had to lower their carrying capacity to avoid running aground. The shift between extremes made planning around the use of the waterway more difficult for anyone relying on that route for procurement.

The same can be said for temperature changes. An uncharacteristically intense freeze in Texas in 2022 put a huge amount of stress on the state’s energy grid and contributed to a semiconductor shortage in the US. That was on top of existing supply challenges caused by the COVID-19 pandemic.

As effects intensify, so do disruptions

According to a 2023 report by the United Nations Intergovernmental Panel on Climate Change, climate change impacts are trending upward. That could have long-term effects such as rising sea levels and permanently increased temperatures.

A report by Yale indicates that left unabated, climate change will lead to a 2 -6-foot rise in sea levels across the globe by 2100. Those changes will, in turn, impact ship deliveries, which account for 90 percent of the world’s freight.

A disaster’s impact on costs and production times can be dramatic. A blocked riverway due to low water levels or factory shutdowns due to widespread power outages can result in challenges that cost money to solve, much less solve quickly. 

One should also consider long-term impacts, not just short-term shocks caused by disasters. Raised sea levels, for example, will require investments from the owners of every port in the world to account for necessary infrastructure changes. Shifts in growing seasons, such as longer growing seasons or sudden frosts, will change how much of a given organic product is available for procurement each year and the resultant costs. 

Some impacts are less direct or obvious. A study published in March 2024 by the magazine Nature points to heatwaves impacting beer and coffee sales; the drinks are less popular amid rising temperatures. Those same heatwaves have placed immense stressors on suppliers in Africa and South America and threatened to disrupt production because of dangerously high temperatures during the workday.

In effect, climate change impacts will continue to destabilize established plans and analyses throughout the second half of the 21st century. Supply chains and markets will begin to behave in ways that are difficult to understand immediately, much less predict. Even as efforts are underway to mitigate some of these impacts, disasters, droughts, and other changes will continue to occur, meaning there isn’t a “return to normal” soon. 

A matter of “when,” not “if”

As climate change effects grow more pronounced and natural disasters become more common,
disruptions seem more and more like an eventuality, not an extenuating circumstance.

Even so, the issue presents questions about the benefits of attempting to plan around these
eventualities. As an example, consider the questions that can arise if a company decides to try
and protect itself against supply chain disruption. 

Should a company build two supply chains in case one is vulnerable to disruption? What is the cost of maintaining a second supply line, and how much of a benefit does that provide? This creates certainty for having an end-product to sell, of course, but can drive up costs dramatically for potentially little return on investment.

If no disasters occur in the short term, does standing up potentially redundant supply lines still make sense? How far out should a company plan for these secondary supply lines? What metrics will be used to determine the benefits and losses?

That’s just one branch of potential questioning on an entire tree of uncertainties and potential
shocks facing businesses operating under climate change. These are questions each company
will have to answer for itself, of course. But these questions have escalated from far off, “what if”
scenarios to immediate concerns thanks to the already-present effects of climate change. 

A company can be best prepared for these questions by beginning to think about potential
responses now, rather than when receiving news that a supply chain has been disrupted due to
a natural disaster.

Readiness can help smooth out instabilities and prepare a company to be agile and adaptive,
rather than caught on its back foot. 

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