Climate change is increasingly affecting global supply chains, production, trade and logistics. We have seen this in recent weeks – industrial activity in some Chinese provinces has been reduced due to high heat waves, and droughts in Europe have limited river transport. In counteracting climate change, the role of companies is important, which, when planning their operations and supply chains, should take into account climate risks and proactively take action in the field of ESG.
The crisis caused by the influence of mankind on global warming is becoming a reality. Its effects are more and more visible every year. Assessment of the risk related to climate change and its impact on supply chains should be an integral part of comprehensive enterprise resilience audits. Also the real estate industry, responsible for 40 percent. of global energy consumption, a third of waste production and almost half of global steel consumption can make a significant contribution to reducing the effects of this crisis. The first and most important step should be to raise awareness of the current and future climate risk and its impact on business operations, also at the management board level. Especially since the examples from the last weeks show the huge scale of the problem.
China is facing the heat:
Due to an unprecedented wave of summer heat in China in more than six decades, with temperatures in some provinces exceeding 40 degrees Celsius, some production plants have reduced their activities. Sichuan province is particularly affected by this problem, with a population of over 80 million. It is one of the key industrial centers for the automotive and electronics sectors. They produce significant amounts of lithium, which is a key component of electric car batteries. As most of the energy in Sichuan is produced using hydroelectric power plants, the limitations in water availability caused by the record heat make it necessary to provide electricity mainly to individual consumers. According to the ordinance issued in mid-August this year. by provincial authorities in 19 cities and prefectures, almost all production facilities were closed initially for five days and then for another five. Almost two weeks of production halt will translate into multi-million losses for producers and customers, and will also cause further delays in supply chains.
Europe is fighting drought:
Production limitations due to heatwaves and low rainfall are also a problem in Europe. The drought, which covers almost the entire continent, is described by scientists as the worst in 500 years. From a logistics and supply chain perspective, the disruptions most severely affected the barge transport capacity of the Rhine River, which runs through Germany and the Netherlands. It is one of the most important transport routes in Europe, used, among others, by for the transmission of coal of key importance for the German economy to power plants. Already in July, the water level in the Rhine had dropped to a level that made it impossible to transport goods on the river, and in August the problem has increased so that ships are unable to sail even when empty. The low water level does not only affect the Rhine, but covers the entire continent, making it difficult to transport e.g. On the Loire in France, the Danube in Serbia or the Po River in Italy.
The United States is gearing up for hurricanes:
Europe is struggling with drought as the people of the United States prepare for the next hurricane season. Heavy rainfall and flash floods threaten more than 10 million people in Arizona, New Mexico and western Texas, according to the U.S. meteorological services. Extreme weather phenomena, if they occur, will have a negative impact on the functioning of production plants and logistics centers.
It should be remembered that disruptions in supply chains may be caused not only by direct restrictions on operational activity, but also indirectly by the impact of weather events on transport infrastructure, including roads, railways, ports and airports. To reduce these phenomena, one strategy is to shorten supply chains. It is about locating production and sources of supply closer to the centers of demand. Reducing shipping distances will lower international freight costs and lower your carbon footprint.
Author: Przemysław Piętak, Director of Supply Chain Consulting at CBRE
