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The Impact of Natural Disasters on Economy and Supply Chain — and How to Prepare for the Worst

Helen Carey, Melissa Epifano
12/1/2023 | 5 min read
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The Impact of Natural Disasters on Economy and Supply Chain — and How to Prepare for the Worst

Image Credit: Shutterstock/gorfrontier

Whether facing a hurricane, tsunami, or blizzard, any kind of natural disaster will inevitably disrupt global supply chains with postponed or paused deliveries, closed ports, canceled cargo flights, and unbalanced supply and demand. 

It is something countries and companies have to grapple with every day, and even with an immense amount of research, technology, and preparedness plans, natural disasters can still wreak havoc on communities.

Depending on the severity of the natural disaster and the preparedness surrounding it, some supply chains even come to a complete halt. This often creates a ripple effect around the world, affecting not just one economy, country, or area, but many. 

Businesses in the affected area may not be able to procure the supplies they need on time or may receive fewer shipments than normal. 

And this, of course, ultimately impacts the consumer as well. Recovery can be time-consuming, expensive, and arduous. Even when a natural disaster is predicted, economic damage and damage can still leave companies and people affected. There are some useful ways companies cope and innovative ideas that have been invented, especially in the wake of some of the most destructive disasters.

Examples of Recent Natural Disasters that Disrupted Global Supply Chains

Image Credit: Shutterstock /Jeff Pinette

Some of the most common natural disasters to affect countries around the world are earthquakes, wildfires, tsunamis and tidal waves, hurricanes, and floods. There are plenty more natural disasters but often remain more localized to one area, such as volcanic activity, cyclones or tornadoes, and blizzards.

That being said, predicting the future and full effect of a natural disaster is often difficult if not impossible, and what may seem like a lower-scale storm can develop into something that impacts several countries or the global supply chain. 

California Wildfires

Human-caused disasters (or those often started by humans) like wildfires can cause major economic losses and ruin the infrastructure of a location, in turn leading to affected communities and supply chains. 

The wildfires that happened in California in 2018 were due to extreme drought, dryness, and poorly maintained power lines. The aftermath was $150 billion worth of damage, a loss of life throughout the state, and severe damage to buildings and nature.

Like other natural disasters like this, it can take a while to recover fully, especially when communities, companies, and factories must fully rebuild. 

Japan Earthquake and Tsunami

The 2011 Tohoku earthquake and tsunami resulted in $210 billion in costs for Japan and affected supply chains across the globe. Unable to ship or receive needed parts, Toyota, G.M., and Nissan all temporarily shut down facilities in both the United States and Japan. Businesses reliant on the country’s Just-in-Time (JIT) deliveries were left in a lurch.

After the earthquake, research has found that not only were companies in the supply chain physically reeling from the effects, but those affected were hardest hit by the loss of suppliers and customers, too. 

This, of course, was partly due to Japan needing to rebuild, but overall led to a major shift of companies and countries shifting away from Japan as their main supplier for electronics and automotives.

Puerto Rico and Hurricane Maria

When Hurricane Maria hit Puerto Rico in September 2017, the supply chains of two of the island’s biggest industries — pharmaceuticals and medical devices — were ravaged by the severity of the severe storms.

Authorities were tasked with ensuring critical drugs and medical supplies didn’t reach dangerous shortages, and the effects spread to the United States as well, as the storm knocked out many of the facilities that make sterile saline bags in Puerto Rico. 

Hospitals were forced to ration saline, with patients thousands of miles away from the hurricane feeling the effects of the supply chain disruption. As the United Nations reported

Hurricane Florence’s Impact on the Supply Chain

As communities began to assess the aftermath of Hurricane Florence, supply chains struggled to catch up with the backlog of deliveries.

North Carolina’s Port of Morehead, which had to delay reopening for recovery efforts, and the Port of Wilmington resumed all commercial truck operations on Monday, Sept. 24 after employees returned to work on Thursday, Sept. 20. 

Both locations saw significant damage to warehouses and other buildings, and numerous empty containers were downed.

Road and rail connections were affected as well, with the biggest trucking disruption along Interstate 95 through the Carolinas. With the exception of one 9-mile stretch, flooding kept most of I-95 in North Carolina shut down.

Meanwhile, the FDA kept a close eye on medical supplies and devices and assisted pharmacies in checking for potential contamination of medical devices. Any contaminated devices, such as glucose meters and digital thermometers, would have posed serious safety and health risks.

Other industries that were impacted included the automotive, agriculture, textiles, and manufacturing sectors, as well as retail and North Carolina’s up-and-coming biotech industry.

Hurricane Sandy vs. New York

Hurricane Sandy touched down in New York on October 29, 2012, and exposed the surprising fragility of New York Harbor’s fuel supply chain. 

The storm impacted nearly every link in the chain; foreign oil tankers were blocked by water debris, refineries closed due to flooding, pipelines, and storage depots were halted due to power cuts, and tanker trucks were commandeered by emergency agencies. 

Lastly, power outages prevented the dispensing of fuel, and even for stations without outages, procuring scarce fuel was an uphill battle. 

Most companies were critically underprepared, but there were a few that took some proactive action. Fuel company Nustar with a terminal in Linden, New Jersey, raised barriers, or berms, around its tanks and elevated critical cables away from potential flooding areas.

However, most energy companies weren’t so prepared for the natural disaster and therefore weren’t so lucky. Reuters reported that Sandy’s surge led to water overflowing berms, even lifting partially full tanks off the ground, causing fuel spills. 

Coast Guard Commander Linda Sturgis told Reuters, "It takes considerable investment. Nobody thought, at the time, that they would need 15-foot berms.”

Developing a Supply Chain Disaster Preparedness Plan

Image Credit: Shutterstock /DC Studio

Climate change and other factors indicate that extreme weather events and other natural disasters are likely to happen more often. Although the ultimate impact of natural disasters is hard to predict in advance, businesses can take a few simple steps to ensure preparedness and speedy recovery.

Create a natural disaster impact response and recovery plan

Take time to develop well-thought-out, detailed guidelines and directions for team members, and be sure that everyone is on board and familiar with their duties. Look into backup suppliers, review the plan regularly to identify areas for improvements or adjustments, and discuss other factors that will impact disaster recovery.

Engage with suppliers and practice consistent supply chain risk management.

Find out if they have their own disaster response/preparedness plans in place, and what they entail. Creating a supplier scorecard can be helpful for analyzing risk levels and potential problems. This will guide you in determining which third parties are most useful for your business in the event of a disaster. 

Suppliers in developing countries may not have the resources to quickly resume work and cope after a disaster. Understanding the infrastructure of the factory and providing as much support as possible is essential. 

Understand the risks facing your organization’s reputation. 

In the event of a natural disaster, how will your business fare in the public eye? Will people look upon your supply chain as reliable and responsible, putting consumers first, or will people be posting on social media about the potentially life-threatening issues they’re experiencing as a result of your poor planning?

If disaster does strike, make sure all investigations are thorough and well conducted. 

This is an opportunity to learn from mistakes, identify what was done right, and reassess your preparedness plans in relation to the findings. If a disaster occurs in the future, you’ll be better able to handle the after-effects.

Hope for the Best, Prepare for the Worst

Most countries are prone to some kind of disaster. No one enjoys thinking about worst-case scenarios, but when dealing with natural disasters, proper planning and recovery processes are critical for ensuring resiliency in your supply chain.

Since these catastrophic events are unpredictable, companies across the country — and across the globe — should regularly reassess their disaster response plans, analyze risks, and, should the worst occur, determine the most important third parties for rebuilding and recovering.

What Can Be Learned From Natural Disasters and Their Impact on Supply Chains

World events like this can be disastrous for infrastructure, survivors, and the supply chain. With more preparation, it’s possible to soften the blow of natural disasters — though not always. 

Some economies have the resources to quickly heal and bounce back from a natural disaster, but others do not. For instance, developing countries may not have the resources for quick recovery, and therefore need additional support for coming back from natural disasters and reigniting supply chains. 

This is especially important for industries with factories and workers in areas that may not have the tools to cope with something this disastrous. 

Modern-Day Natural Disasters: COVID-19 and the Supply Chain

The same data can be used to handle hazards that affect the well-being of people and thus the supply chain. Natural disasters aren’t just limited to storms and environmental shifts — biohazards are menacing, too. A good example of this is the COVID-19 pandemic. 

Categorized under natural hazards, this tore through communities globally, fully halting some supply chains, and led to many recovery efforts that are still happening in the present day. 

Understanding these natural disasters and providing education even to those who are at lower risk of being affected can lead to fewer economic losses, quicker recovery times, and better support networks for the companies, factories, and people affected.

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