Global trade and supply chains are still recovering from the COVID-19 pandemic while simultaneously responding to the Russian invasion of Ukraine. However, these are only temporary setbacks compared to the looming threat of global warming and climate change. Rising temperatures, extreme weather, and logistics disruptions have become increasingly frequent, severe, and harder to predict. This year in particular, we’re seeing climate change’s impact on supply chains in Panama, Canada, and China.
Extreme weather events and supply chain disruptions
A storm surges in Panama
The Panama Canal is 82 km long and connects the Atlantic Ocean with the Pacific Ocean via the Isthmus of Panama. It is a strategically vital part of global supply chains handling approximately 6% of total world trade. In 2022, over 14,000 ships transited the canal.
The Panama Canal Authority (ACP) is responsible for the smooth operation and management of the canal. In the last few months, it has issued a series of increasingly restrictive shipping notices, which have altered transit requirements. These include a reduction in the maximum accepted draft of vessels from the normal 50 ft to 44 ft. There has also been a reduction in the daily capacity of the canal to an average of 32 vessels per day.
The ACP was forced to act due to a lack of rainfall, which led to drought conditions and decreasing water levels in the lakes that supply the canal. Climate change is likely responsible for this year-on-year drop in rainfall. It may also increase the likelihood of similar disruptions in the future.
The blockage of the Suez Canal in 2021 highlighted the vulnerability of global supply chains due to delays at strategic sites. Notably, the Suez Canal was only blocked for six days. Climate change may increasingly cause longer and longer delays at the Panama Canal at an unknown cost to the global economy.
A peak backlog of waiting ships surpassed 160. Despite improvements, the average wait time for non-booked vessels increased by up to 59% in August. On August 24th, the ACP announced that existing restrictions will likely remain in place for at least ten months.
Wildfires rage in Canada
Approximately 6,000 wildfires have occurred across Canada so far in 2023. These have impacted all provinces and territories, especially the Northwest Territories, British Columbia, Yukon, and Alberta. In turn, tens of thousands of people have been forced to evacuate. In addition to localized disruption, smoke from wildfires has caused air quality warnings affecting millions across Canada and the United States.
The wildfires have affected parts of the Canadian Prairies by destroying crops, fields, and equipment. They’ve also damaged an estimated 16.5 million hectares of land between January-September 2023. The prairies are responsible for up to 80% of all Canadian agricultural produce. Thus, these wildfires may cause significant issues for the production of cereals and global food supply chains.
Global food security is already under pressure. The Russian invasion of Ukraine has caused at least USD 34.25 billion in agricultural war losses. The World Food Programme (WFP) estimates a record 349 million people across 79 countries now face acute food insecurity. This represents an increase of 200 million people compared to before the COVID-19 pandemic.
In June 2023, the consumer price index (CPI) for food in Canada reached 184.8, an increase of 14 points compared to June 2022. Smoke may continue to reduce the activity of pollinating insects and sunlight intensity. This will lead to future reduced crop yields and increased food prices.
Climate change is increasingly causing warmer weather and dry conditions, thereby raising the risk of wildfires due to flammable vegetation. Rising temperatures also increase the likelihood of lightning storms, which are believed to cause the majority of wildfires. Climate modeling predicts an 80% increase in lightning strikes across Canada by the end of the century.
Flooding accelerates in China
The China Meteorological Administration (CMA) warned on February 6th that regional authorities must prepare for more frequent extremes of weather. The acceleration of global warming is increasingly destabilizing the environment. Flooding in Henan Province during May, the worst in a decade, caused widespread damage to wheat fields. It was followed in July by widespread flooding in northeast and southeast regions which has continued into September.
China also often experiences flooding during monsoon season between May and September. Typhoon Talim was the fourth typhoon of the 2023 season; it was also the first to make landfall in China, arriving in Guangdong Province on July 17th where it displaced 230,000 people and caused widespread flooding and damage.
Talim coincided with another environmental extreme as the highest temperature ever recorded in China was confirmed as 52.2C/126F in Xinjiang Province on July 16th. These events were quickly followed by Typhoon Doksuri, which made landfall in Fujian Province on July 28th and caused the evacuation of at least 416,000 people.
Doksuri killed at least 30 people and impacted 1.3 million people in the Beijing area. Heavy rains in the wake of the storm system damaged or destroyed 216,000 homes alongside 100 bridges. At least 15,000 hectares of farmland were also flooded.
This flooding compares to similar reports across Heilongjiang, Jilin, and Liaoning. These three provinces produce over one-fifth of China’s total grain output. The cities of Harbin and Shangzhi respectively report 90,000 and 42,000 hectares of damaged crops. This has led the Ministry of Agriculture and Rural Affairs to warn of a “severe impact” on agricultural production across the country. The impact on cereals production is likely to cause the inflation of food prices.
In the summer of 2011, government statistics recorded 6-8 floods per month. In July of 2022, this number increased to 130, followed by 82 in August 2022. While this can be partly explained by advancements in Chinese monitoring systems, global warming and climate change remain the major contributing factors.
Responding to the impact of climate change on supply chains
Climate change’s impact on supply chains is becoming more apparent by the day. Proactive cooperation between the transport and logistics industry, alongside partners in business and government, is vital to address growing supply chain risks.
Companies need long-term strategies and proactive approaches to their own specific set of challenges. However, the sheer complexity and scale of climate change problems can also hinder the momentum needed to make necessary changes. For example, sea level rises of between 2-6 ft are predicted by 2100, which will impact highways, railways, and some airports and ports. But the cost of elevating the 100 largest seaports in the United States alone is estimated at USD 69-103 billion.
This is all the more reason why businesses need adaptive strategies to improve key infrastructure and supply chain resilience. This will help them mitigate disruptions and ensure sustainability. Visibility solutions can also help companies stay ahead of climate risks while responding to the effects of climate change in real-time.
Reach out to learn more about how Overhaul can help you prepare for climate change’s impact on supply chains.
