It’s been well documented that natural disasters have become more common and more intense than in previous decades. This is true both in the United States and around the world, as global climate shifts have resulted in a fivefold increase in weather-related disasters over the past 50 years. Due to worsening climate change, it’s likely that severe weather events such as floods, droughts, hurricanes, earthquakes, wildfires and more will only become more frequent and extreme.
From a global trade perspective, this is a major concern. Extreme weather events are capable of causing massive disruptions to international supply chains, which can lead to significant problems such as supply shortages and delivery delays. Now more than ever, it’s critical that importers and exporters worldwide prepare for these disasters and develop strategies to mitigate their impact on supply chains.
Below, we will go into more detail about the supply chain challenges that occur due to weather-related disasters, as well as how importers and exporters can properly plan for them.
How Do Natural Disasters Affect the International Supply Chain?
Our world is more connected than it has ever been thanks to the rise of globalization. As a result, most of us know what it’s like to feel the impact of a disrupted supply chain, even if the event causing the disruption is taking place thousands of miles away.
One such example is the drought experienced in China during 2022, when the country suffered the driest summer in 60 years. As a result of the drought, the Yangtze River, the largest river in Asia and the third largest in the world, experienced water levels that were more than 50 percent below normal.
Similar to other weather-related disasters, this event not only had devastating impacts on the local population, but it also created a domino effect that caused disruptions to supply chains around the world. In this instance, the Yangtze River’s low water levels greatly impacted China’s agricultural production and put significant pressure on an economy that relies heavily on hydropower.
This caused an increase in demand for electricity as a result, which led to factories in the area diverting their available electric power to residents. Some companies were forced to suspend operations and the production and shipping of goods such as food, cars, batteries, solar panels and more slowed dramatically. And with China accounting for nearly 30 percent of the world’s manufacturing output, consumers and businesses across the globe began to feel the effects.
While this is just one example, it shows how interconnected and fragile the international supply chain can be. It also shows how important it is for importers, exporters and other stakeholders to have plans in place for these events. Whether it’s expensive luxury goods like cars and electronics or basic essentials like food, water and medicine, these disasters cause a cascading effect that impacts everyone along the supply chain.
Supply Chain Disruption Planning for Importers and Exporters
During this event and similar climate- or weather-related disasters, exporters had to deal with goods shortages and delayed production schedules among other issues while importers struggled to meet consumer demand due to shipment delays. Further downstream, businesses experienced production slowdowns due to missing materials and consumers had to deal with significant price increases due to scarcity and demand for certain goods.
This demonstrates how weather and climate disasters have a significant financial impact along entire international supply chains. For importers and exporters, having these events take place during peak shipping season (which lasts from mid-August to the end of Autumn) can be especially devastating.
Within the United States, peak shipping season happens to fall during the time of year when weather-related disasters are most common. Unlike droughts, however, many weather events occur suddenly and can be difficult to predict in advance. To ensure you’re prepared, here are some tips for importers and exporters looking to mitigate the financial impact of natural disasters.
Assess risk and strategize contingency plans.
Importers and exporters should identify all of the emergency scenarios that could potentially cause a supply chain disruption, beyond just natural disasters. Businesses should understand the likelihood of these events occurring and how their ranging severity would impact their own supply chain, their customers and their finances.
Additionally, every business needs different contingency plans so that they’re prepared in case these emergency situations take place. These plans will ensure that you have strategies in place and a plan of action in the event of different natural disasters.
Some potential aspects of these contingency plans can include:
- Developing a crisis management team
- Establishing emergency communication channels
- Changing insurance coverages and payment methods
- Using alternate routes and storage facilities
- Engaging with alternative partners
- And more.
Diversify, communicate and collaborate.
Diversifying your operation can be incredibly beneficial for mitigating the impact of natural disasters. The primary benefit of having multiple suppliers and customers in different markets is that it helps ensure that businesses don’t need to rely on a single source. Additionally, it also helps them develop relationships and foster mutual support during times of crisis. These relationships also allow importers and exporters to gain insight and share ideas that could further strengthen their contingency plans.
Regardless of how many partners and stakeholders you have, however, make sure that all parties understand what each other’s plans are to mitigate the impact of an emergency event. Consistent communication is essential for avoiding or minimizing any delays in freight shipping or delivery. In the event of delays due to a natural disaster, make sure that you get up-to-date information and timetables as they become available and act with transparency when relaying both to stakeholders.
Consider legal and regulatory aspects.
For international importers and exporters, dealing with potentially complicated policies, laws and regulations can become even more difficult during a natural disaster. Supply chain disruptions on their own can cause negative financial effects. You don’t want to make those effects worse by adding unexpected costs from tariffs or from penalties due to compliance issues.
Regulations and customs procedures also change quite frequently. In addition to understanding current laws and regulations, businesses should also stay informed of any changes as they happen. This will help in avoiding both additional fines and additional delays that could further affect your finances.
Utilize the tools at your disposal.
The technology that importers and exporters use is critical to ensuring an effective response to a natural disaster or weather-related event. For instance, using advanced supply chain integration platforms will allow for full visibility and control from initial order to final payment. These platforms allow businesses to monitor and manage the flow of goods in real time and make adjustments when needed, which helps ensure full transparency throughout. Additionally, these platforms can also help importers and exporters with managing their finances during times of emergency.
Mitigating the impact of natural disasters can be a significant challenge, because you can never predict exactly when and where they will occur. However, through proper planning and consistent communication, importers and exporters can put themselves in the best position possible to weather the storm.
