Impact of Climate Change on Supply Chains
Supply chains facilitate a huge chunk of the global economic production. They support the world trade of goods and services worth almost $20 trillion ranging from computers to life-saving drugs. The products that we use have many components sourced from various parts of the world. Hence, due to their integral role in world trade, supply chains have been developed over time to deliver with maximum speed and efficiency.
However, the resilience of supply chains is now being questioned due to the COVID-19 pandemic as well as climate change. The pandemic has caused unforeseeable supply chain disruptions worldwide but it pales in comparison to the damage climate change can cause. Climate change increases the frequency and severity of extreme weather events which increase the chances of supply chain disruptions. No sector is immune to climate change. The drought in South America, wildfires in the United States, and the floods in China and Europe have already disrupted supplies of everything- from chocolate to lumber.
Climate change poses a serious threat to logistics. Critical transportation infrastructure such as roads, bridges and ports are highly susceptible to climate change. Extreme weather events also have a devastating impact on logistics. For example, frequent storms and rougher seas can damage the cargo as well as the ship itself, while rough weather can cause delays for trucks and railways.
A stable climate is crucial for agricultural production; rising temperatures wreak havoc on agricultural supply chains. The global agricultural economy is showing signs of strain due to accelerating climate change. Increasing temperatures and shifting weather patterns are causing serious issues for farmers. Crops now have to face longer droughts, increased flooding and higher temperatures. This creates a domino effect that severely impacts all industries, particularly the food and beverage industries.
Climate change also has indirect but devastating effects on supply chains. Scarce resources and the increasing frequency of natural disasters heightens tensions and have the potential to cause political unrest. This instability can disrupt cross-border transportation, which forms a significant part of all the international supply chains. The impact of climate will also drive countless small firms out of the logistics industry. The higher costs and reduced profitability will result in only a few large carriers remaining viable.
Disruptions in supply chains hinder growth. This is because supply chains involve numerous entities and are highly interlinked. A major disruption in a supply chain will not only adversely impact all the firms throughout the chain but will also cause widespread chaos in the supply chains it is interlinked with. It may not seem much but climate change directly affects what is available on the shelves in stores .The semiconductor shortage, which seemingly was precipitated due to the pandemic, is an excellent example of what can happen in a supply chain crisis. The heavy losses faced by the automobile industry due to this shortage are just a sliver of what is yet to come if climate change is not dealt with.