Posts tagged "El Nino"

Hurricane Patricia: The First Supply Chain Event Definitively Connected to El Niño

October 26, 2015 Posted by Supply Chain Event Monitoring 0 thoughts on “Hurricane Patricia: The First Supply Chain Event Definitively Connected to El Niño”

Author: Wayne Caccamo

hurricane-patricia-factory-sitesHurricane Patricia – the strongest hurricane ever recorded in the western hemisphere – made landfall on the Pacific coast of Mexico on Friday, October 23rd, around 6:15 p.m. local time. The supply chain event impact, while still being assessed, clearly can be characterized as minor, especially when compared to relatively recent historic extreme weather events such as Hurricane’s Katrina and Sandy and other “acts of god’ such as the Japan Earthquake and Tsunami and the Thailand floods of 2011. It is nevertheless significant as it represents the first weather event with the potential to impact supply chains that can be definitively linked to the El Niño weather pattern.

Several events running up to Patricia have been postulated to be linked to El Niño. These include Typhoon Soudelor (August), Hurricane Etau in Japan (September), Typhoon Dujuan in Taiwan and Eastern China (September), and even the air quality crisis in Singapore and Malaysia (September) caused by Indonesia forest fires associated with El Niño induced drought conditions. However, based on the consensus of scientists and climatologists (including those at NASA and Stanford University), the connection between Hurricane Patricia and El Niño is not in the realm of conjecture, but rather reality.

We have been warning our clients and the broader supply chain management professional community for months to take proactive mitigation actions in preparation for the impending El Niño. In a recent impact analysis white paper entitled El Niño: A Test of CPO Leadership and Your Supply Chain Resiliency Culture, we argued that El Niño is unique in that it is perhaps the only supply chain disruption phenomenon in which the general timing and geographic location of the potential impact is known well in advance, providing a unique opportunity to plan and prepare. It concludes that if executive leadership is blindsided by El Niño, they have no one else to blame but themselves.

The good news is that it’s not too late to get started. We are only in the first inning of a nine inning ball game. There is no more time to waste, but it is not too late to identify your areas of geographic exposure to El Nino driven extreme drought and precipitation conditions. The next step is to map suppliers, sites and parts at risk, and then proactively quantify and prioritize mitigation opportunities based on revenue-at-risk.

Although fears of a major catastrophe did not materialize, as there were no immediate reports of any deaths or damages to major infrastructure, the potential for supply chain impact from Hurricane Patricia for companies with significant supplier exposure in the western coast of Mexico (specifically the states of Nayarit, Colima, and Jalisco), was daunting. The Pacific coast of Mexico is home to numerous automotive, high tech, life sciences, and other industrial manufacturing facilities, as well as port and freight operations. Key companies in the region include Flextronics, America Movil, Mexichem, Grupo Mexico, Pacific Coast Energy and Minerals LLC, and Ciudad Industrial Morelia. But, in the end supply chain impact appears limited to minor work operation disruptions from localized wind damage, floods, and mudslides impeding workforce transportation and the flow of goods in-and-out of southwestern Mexico.

According to experts, the favorable outcome can be attributed to two factors: preparation and luck. As reported in the Sunday New York Times (“Mexico Exhales After Surviving A Giant Storm,” by Azam Ahmed and Paulina Villegas, October 15, 2015), the Mexican authorities learned some hard lessons from inadequate responses to earlier responses. Mexico now has a national emergency response system that coordinates with authorities at the local level. Federal and local officials were effective in proactively moving people out of harm’s way, and after the storm responded quickly to clear roadways and begin to restore power and communication lines. Despite the effective planning, the impact still had the potential for devastating if not for a lucky break. The path of the storm passed between two major cities, Puerto Vallarta and Manzanillo, but hit neither directly. It then quickly dissipated 12 hours after touching ground when it veered into a mountainous region.

The key take-away from the Hurricane Patria experience is that luck, or hope if you prefer, is not a strategy. Enterprises should follow the lead of the Mexican government and invest in proactive risk mitigation plans and post-event emergency response preparedness. Hurricane Patricia represents perhaps your final wake-up call. For those who prepare, global supply chain disruption events are viewed not as threats but as opportunities to gain competitive advantage.

Plan for El Niño’s Impact to Panama Canal Operations to Continue

October 7, 2015 Posted by Supply Chain Event Monitoring, Supply Chain Risk Management, Supply Chain Visibility 0 thoughts on “Plan for El Niño’s Impact to Panama Canal Operations to Continue”

Author: Natalia Kosk

Image courtesy AccuWeather Inc.

While weather conditions for vessels operating in the Panama Canal recently improved, it may still be too soon to predict the final supply chains impacts which companies that depend on the canal face as a result of El Niño.

Based on recent El Niño-related weather developments in the Pacific Ocean, some reports indicate that this El Niño could rank as the strongest on record. Companies with operations in the Panama Canal may consider proactive measures to prevent supply chain disruptions and delays throughout the duration of El Niño, set to last until early Spring 2016.1

The El Niño weather pattern, characterized by warmer temperature changes in the Pacific Ocean near the equator, led to drought conditions in some regions. In Panama, drought conditions already affected 70% of the country2 causing Panama's government to issue a 60-day state of emergency in early August. Specifically, widespread drought and substantially low water levels of Gatun and Alhajuela Lakes—a primary source of water for the Panama canal—are affecting its operations.

Shipping Restrictions

Imposed restrictions on ships with drafts (i.e., depth in water) greater than 11.89 meters (39 feet) went into effect roughly a month ago on Sept. 8. To comply, vessels would need to lighten cargo loads or companies may need to reroute ships along other paths if their vessel drafts are not reduced.

Additionally, while the Panama Canal Authority initially anticipated further draft restrictions on Sept. 16, the organization recently released an update that such restrictions would be postponed. According to the update, “Vessels arriving after Sept. 8 with drafts over the limit of 11.89 meters may be allowed to transit the waterway depending on the water level of Gatun Lake at the actual time of transit.3” Up to 18.5% of ships are impacted by the initial draft restrictions.

Potential Supply Chain Impacts

Supply chain managers should plan for the following potential impacts:

  • Delays in the availability of products, parts and raw materials. This could impact time-to-market and revenue. Because of the extensive traffic in the canal, delays could amount to 20-30 hours on average, according to the WGBH Educational Foundation.
  • Increased costs as product shortages drive up prices of direct and substitute materials
  • Hidden sub-tier impacts to your supply chain or its related industries (i.e., impacts in one industry can impact other interdependent industries). For example, many chemicals and raw materials are derived from agricultural products (e.g., palm oil) and fish (fish meal) that are used in life sciences and even the high-tech industry. Panama has a significant agriculture and fishing industry that has already been impacted by shipping restrictions. This could lead to increased costs and decreased product availability.

Businesses that depend on the Panama Canal to for inbound and outbound logistics may consider:

  • Monitoring updates related to the current drought and draft restrictions.
  • Creating what-if scenarios to assess potential impacts on inventory, shipments or product availability.
  • Identifying alternative sourcing or shipping lanes in the event of backup inventory consumption or product/part disruptions or sever delays.

Resilinc will continue to monitor this situation closely. For early notification and analysis of supply chain events, consider subscribing to our EventWatch services.

The El Niño Supply Chain Impact Heats Up

September 29, 2015 Posted by Supply Chain Event Monitoring, Supply Chain Risk Management 0 thoughts on “The El Niño Supply Chain Impact Heats Up”

Author: Wayne Caccamo

Factory-fireIntroduction: We recently published our El Niño Supply Chain Impact Analysis entitled El Niño: A Test of CPO Leadership and Your Supply Chain Resiliency Culture. Even our creative supply chain impact analysis experts didn’t anticipate forest fires and resulting air quality issues as one of the impacts to consider. The geographic scope of the impact (i.e. across country borders), is another surprising revelation. Here’s what’s going on in Southeast Asia right now and some takeaways for enterprises that have a manufacturing presence in the region.

Singapore Enveloped in Haze Brought by Indonesian Forest Fires

According to Bloomberg, thick smog has enveloped Singapore on Thursday yet again, pushing the air quality closer to the hazardous range. The land and forest fires in Indonesia's neighboring island of Sumatra blown in by southerly winds choked the island. The Pollutant Standards Index rose to 319 at 6:00 p.m. in South Singapore today where a reading between 201-300 is classified as very unhealthy and above 300, hazardous. Widespread haze is also persistent in Southern and Central Sumatra as per International Business Times.

According to AFP, 2,081 fire hotspots were recorded in the worst-affected region of Indonesia's Kalimantan and 290 in Sumatra on Thursday. Five people have died since the haze became critical over the month and more than 500,000 people across the archipelago have suffered respiratory problems. Hundreds of schools in Kalimantan and South Sumatra have been closed for a month, as per The Australian. According to International Business Times, pollution Standards Index level hit 1,400 in some parts of Central Kalimantan on Tuesday. The National Environment Agency (NEA) has advised citizens in Singapore to avoid outdoor activities since the haze situation is expected to worsen.

The same fire has also impacted air quality in Malaysia, with large parts of the country shrouded in smoky, haze smog. Malaysian authorities ordered school closures in Kuala Lumpur and neighboring states, as well as distributed free face masks, while the Marine and Aviation sectors have been advised to go on High Alert due to the worsening visibility. 

Fires as a Source of Potential Supply Chain Risk Are Not Unique to the Region 

This phenomenon is not completely new to the region. The 2013 Southeast Asian haze was a haze crisis during June and July 2013 that affected several countries in Southeast Asia, including Brunei, Indonesia, Malaysia, Thailand, as well as Singapore. The haze period was caused by large-scale burning in many parts of Sumatra and Borneo. Satellite imagery from NASA's Terra and Aqua satellites showed that the haze was mainly due to smoke from fires burning in Riau province, Indonesia. 

The 2013 Southeast Asian haze was notable for causing record high levels of pollution in Singapore and several parts of Malaysia. The 3-hour Pollution Standards Index in Singapore reached a record high of 401 on 21 June 2013, surpassing the previous record of 226 set during the 1997 South East Asian Haze. On 23 June, the Air Pollution Index (API) in Muar, Johor spiked to 746 at 7 a.m. which was almost 2.5 times above the minimum range of the Hazardous level thus resulting in the declaration of emergency in Muar and Ledang (which was afterwards lifted on 25 June in the morning), leaving the towns in virtual shutdown.

El Niño Induced Droughts in the Region Are Creating Additional Supply Challenges

The drought conditions tied to El Niño in Indonesia that precipitated and worsened the effects of the fires are not just a problem for neighboring Singapore. It should come as no surprise that Indonesia says some of its southern regions are experiencing drought because of El Niño. Some areas of the country have not had rain for six months. Wells in Wonigiri, in central Java, have run dry after nearly half a year without rain. Farmers have been hit hard, with monsoon rains expected to start two months later than usual due to El Niño.  Nearly 100,000 hectares of rice harvest have failed already. Farmers are now depending on financial support from the government for food, including basic necessities, like drinking water.

Key Takeaways and Recommendations

  • Air quality is not just a general health concern but can have a direct impact on factory production as laborers stay home to protect themselves or to care for children home as a result of school closings. Understand the factory locations in the effected regions of Singapore and Malaysia.
  • Specific industries that could be impacted by disrupted suppliers in the region include: food & agriculture, automotive, high tech, and industrial manufacturing. Note: The agriculture industry is an upstream supplier of raw materials (such as palm oil) used in life sciences and even high tech. See blog post: Update: The Potential Impact of El Niño on Industry Supply Chains
  • Drought-induced air quality issues resulting from forest fires is obviously one of many impacts (and the least obvious), but it should be put into the broader perspective of potential impacts and prioritized appropriately for proactive mitigation and emergency response preparedness.  Our El Niño Supply Chain Impact Analysis entitled El Niño: A Test of CPO Leadership and Your Supply Chain Resiliency Culture is a great place to start.

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