Last year, 2023, was the planet’s warmest year on record by a substantial margin. We’ve talked in previous blog posts about how weather-related disasters and severe weather events are only going to become more frequent and extreme as time goes on, and experts say that pattern will likely continue throughout this year.
One of the primary reasons for that conclusion is the presence of the El Niño and La Niña climate patterns. Although both patterns are natural fluctuations, they have a substantial effect on rainfall throughout the globe, representing two opposite extremes.
However, heightened drought conditions aren’t the only event that global supply chains will have to prepare for. As we transition out of the El Niño pattern, and likely transition into the La Niña pattern, we will discuss what kind of weather you can expect in the coming months and how you can prepare your supply chain for potential disruptions.
What Are El Niño and La Niña?
A primary factor in 2023 being the warmest year on record was the presence of the El Niño pattern. During years when El Niño occurs, water temperatures in the Eastern Pacific Ocean become warmer than normal and large amounts of heat get released into the atmosphere. Combine this with fossil fuel emissions that trap heat, and it results in intense heat waves and other potentially catastrophic weather events throughout the globe.
The reason is due to the warmer waters causing the Pacific jet stream to move south of its neutral position. When this happens, it changes where the storms go and impacts certain areas of the world differently.
Within the United States, El Niño patterns typically result in wetter seasons and increased rainfall while La Niña patterns tend to result in drier seasons that can exacerbate drought conditions. For instance, the Southern United States and Mexico tend to experience more heavy rainfall, while other regions such as Australia, Southern Asia and parts of Africa are more prone to drought.
La Niña patterns, meanwhile, have the opposite effect. La Niña events increase the strength of trade winds in the Eastern Pacific Ocean, which causes warm waters to be pushed to Asia while colder water gets pushed to North and South America. This pushes the jet stream north and increases the likelihood of heavy rain and colder winters in the Northern U.S. and Canda, as well as the likelihood of drought and warmer winters in the Southern U.S.
Impacts on Global Supply Chains
A number of experts have stated that, because global climate change is increasing the strength and frequency of weather events, the effects of El Niño and La Niña could become even more severe. This certainly was the case in 2023.
El Niño Impacts
In addition to being the warmest year on record, the 2023-24 El Niño also ranked as one of the top five strongest on record. This led to increasingly extreme weather events throughout the world, with Latin American and Caribbean countries being hit the hardest.
From a global supply chain perspective, the most obvious effects of El Niño can be seen in the ongoing droughts in Central America. These droughts caused water levels in the Panama Canal to decrease to historic lows and significantly impacted global trade as a result. The canal handles about six percent of global maritime trade and is primarily used by the United States, China and Japan, but the significantly lowered water levels led to restrictions on the number of ships authorized for transit.
While these restrictions are slowly being lifted, shippers throughout the world have had to find ways to adjust to Panama’s efforts to conserve water in the canal. Many ship owners have had to find alternate routes or carry less cargo to get their ships through. In August 2023, the restrictions backed up 160 vessels and delayed ships by as much as three weeks while spot shipping prices increased as much as 36 percent.
What to Expect From La Niña
While experts predict that the current El Niño pattern will end in the coming months, they also note that there is a high probability that it will be replaced by a La Niña pattern later in the year. This is a welcome sign for the Panama Canal, as increased rainfall would cause water levels to stabilize.
However, because these weather patterns impact certain areas of the world differently, expect other regions to experience more severe weather. If the La Niña pattern does form, it will increase the likelihood of stronger hurricanes forming in the Atlantic Ocean, meaning that the Eastern portion of the United States could see more dangerous storms make landfall. The Southwest portion of the U.S. could also see worsening drought conditions in later months.
This would lead to a domino effect across the entire U.S. supply chain. If the country sees an increase in drought conditions and severe storms, we can expect the costs of domestic shipping and consumer goods to increase while events like road closures, damaged bridges and more cause delays and bottlenecks.
How Importers and Exporters Can Prepare
Obviously, there is no way to prevent these weather events. However, advanced technologies have made it easier to predict if and when they’ll occur. Because there is a high probability that a La Niña pattern will form before the end of 2024, now is the best time to start preparing your business for potential supply chain disruptions. Some helpful actions you can take include:
- Utilizing advanced technology: The National Hurricane Center and other companies use AI or machine learning techniques to provide the most up-to-date hurricane and tropical storm forecasts. Use these resources to get real-time information and to help your business plan ahead for possible disruptions.
- Develop contingency plans: Speaking of planning ahead, your business should develop strategies and plans of action for severe weather events if you haven’t already. Make sure your business has emergency communication channels and that you evaluate your insurance coverage. If possible, you should also look to diversify your supplier and customer base and make plans for alternative routes and storage facilities, if necessary.
- Communicate with partners and employees: Proper communication is critical for navigating and mitigating potential delays in freight shipping and delivery. Communicating with your partners and your employees allows you to get the most updated information on timetables, allowing your business to minimize delays and increase transparency, which can help improve your reputation among customers and partners.
- Ensure your financial health and flexibility: Severe weather events can lead to delays in payment on your invoices. If you’re worried about how supply chain disruptions may impact your financial stability, talk to one of the dedicated representatives at RTS International. Our experienced team can help ensure your business increases its working capital quickly with our funding solutions.
