Ask anyone in supply chain – the past few years have been particularly active for natural disasters and major weather events. Globally, natural disasters caused $160 billion in damage in 2018 according to a report by German insurance company Munich RE. In the U.S. alone, the annual average number of billion-dollar disasters over the past three years has been more than double the long-term average, as reported by NOAA’s National Centers for Environmental Information. If you work in transportation or logistics, you are undoubtedly aware of the supply chain challenges faced in the aftermath of such events. This year has already seen its share of severe weather and disasters, and it doesn’t take a meteorologist to predict that these events will continue to happen. In any season, it’s wise to have a plan of action to mitigate risk in the wake of a storm.
Natural disasters send a ripple effect across supply chains as a whole, not just the affected areas.
When storms or disasters happen, there is often a large-scale government response to get needed help to affected areas, and this leads to them buying capacity within the trucking space to move food, water, and ice.
These critical efforts significantly disrupt typical freight flows in the United States, which was evident after Hurricane Harvey in Houston in 2017. After Harvey, capacity was pulled away from the Chicago market, 1,100 miles away from the impact area, and this led to a significant jump in rates and tightening in capacity.
What our team has learned from natural disasters is that the resulting tight capacity and increased rates can severely disrupt seasonal freight flows for months. It takes time for the trucking industry to reset the ordinary capacity levels and flows that existed before the weather event. While this change has an impact on rates, it can also influence other supply chain decisions where transportation rates play a major role. For example, determining where to produce goods, place new distribution centers, or service customers from long-term.
How shippers can prepare, minimize impact, and mitigate cost
While most transportation leaders would say the greatest challenge following extreme weather events is the impact to short-term rates and budgets, a perhaps greater risk not to overlook is physical assets. The potential impact of natural disasters on production facilities and warehouses, for example, can be significant. Shippers are wise to assess this risk and determine if changes are needed to protect physical assets.
Having a backup plan is extremely important when dealing with a natural disaster. Shippers with physical assets in high-risk areas should build in flexibility as to how product is serviced to customers. Mitigation plans for the possibility of a facility going offline are also invaluable when faced with the situation.
For example, imagine you have a production facility in a hurricane-prone state like Florida and another in Georgia that makes the same product. Create a structure and plan to serve from the Georgia facility when Florida is impacted by weather. This may mean setting up routing plans with a few carriers to have ready. Even if there isn’t a great cost advantage, getting product to customers on time has value.
The value of technology and network in reducing supply chain friction
When a natural disaster happens, it’s important to quickly execute a plan of action. Here’s where being part of a strong ecosystem with proven technology lends speed and efficiency to help minimize impact. For example:
- A network that provides context to the disruption in freight flows, rate impact, and benchmarking
- The ability to tactically flag impacted shipments that may have incurred short-term incremental costs associated with dealing with a severe weather event, due to:
- Holding product waiting to be delivered.
- Increased detention charges.
- Product returns or reconsignments.
In addition, shippers can recover from severe weather more efficiently by following these tips practiced by our managed transportation group. Dedicate resources to staying up-to-date on local, regional, and national weather events. When an event with potential for negative impact is identified, assess at-risk shipments and determine if adjustments should be made to shipping patterns to beat or wait out significant weather. This can happen days in advance of a forecasted event. Some examples of proactive measures include:
- Recommending overtime pay and extended shipping hours in order to load shipments ahead of storms.
- Identifying potentially impacted shipments and communicating with shippers’ customer service teams to assess if orders can wait until after a storm has passed.
- Keeping all stakeholders up to date with carrier operations and potential ETAs of shipments, especially when adjustments to current operations cannot be made.
With flooding, wildfires, storms and other severe weather happening more often of late, it’s essential for shippers to stay ahead and be prepared.
Matt Anderson is Director, Logistics as a Service at BluJay Solutions