Given the effect natural disasters can have on global supply chains, the best course of action for those in the shipping industry is to always have clear backup plans, according to Gary Cardenas, president of TOC Logistics International.
In the aftermath of hurricanes Harvey, Irma and Maria, it’s likely to take several weeks for ports and refineries in affected areas to repair damaged equipment, fix associated issues and reopen after the storms. And, just like any time a port is closed, downstream cargo transportation operations will be affected as well.
Southern Texas, an area that was trampled by Hurricane Harvey, plays an important part in the U.S. economy, accounting for half of petroleum and gas exports, one-fifth of chemical exports, and housing 30 percent of U.S. oil refineries. And no matter how fast they rebuild, these industries are likely to experience challenges in reestablishing normalcy after such a significant disruption.
For many businesses or industries, if an office is forced to shut down for any extended period of time, there will be repercussions. Profit forecasts will be off and there will be losses. But for most companies, those losses will affect only that particular business and its employees.
In the shipping and logistics industry, however, when a port is forced to shut down, it causes a ripple effect. Major disasters reach well beyond local damage and the effects can spread quickly through supply chains, leaving shippers and other affected parties unsure how to respond.
Given that natural disasters can leave organizations with a broken network of global supply chains, the best course of action for those in the shipping industry is to always have clear backup plans. TOC Logistics International, for example, has backup warehouses in every major seaport and airport in order to better deal with emergency diversions of cargo to alternate ports and keep supply chains up and running during natural disasters.
And even with multiple plans in place, it’s not just storms and hurricanes that put pressure on these supply chains.
Earthquakes. In 2011, the Tohoku earthquake and tsunami cost Japan an estimated $210 billion and shook up supply chains all around the world. Major industries such as electronics and auto manufacturing lost entire facilities and in return many companies were left without parts. Huge multi-national corporations such as Toyota, Nissan and G.M. were forced to shut down some facilities because they could not ship or receive required parts.
When major companies shut down, local communities can suffer as the shipping of raw materials, components and consumer goods slows down and sellers raise prices in order to compensate for lost sales revenue.
Flooding. While flooding is most often caused by extreme storms, it can also be caused by heavy, sustained rainfall, making it that much harder to plan for. Flooding can have a devastating effect and has resulted in more lives and property lost than any other type of natural disaster.
In the case of freight transportation, flood waters can block roadways, making it impossible for truck driver to reach their destinations and impeding supply chains across the country. Trucks awaiting the arrival of goods may be unable to even receive them in the event of a port closure, let alone get those goods to their intended destinations.
When companies at the unaffected end of the supply chain are cut off, their only recourse is to wait to reestablish the link, create a new supply chain path, and/or spend enormous amounts of money to overcome the broken chain and keep their original expectations and promises intact.
Given the dire effect a broken supply chain can have on individual businesses and the economy as a whole, ports should always be prepared for the worst, but so should the companies that rely on those ports. Companies receiving goods from storm or disaster prone areas should build redundancy and resilience into their supply chains so they are receiving goods from multiple geographical locations. Other important planning techniques include:
• Organization: Have detailed plans and documentation laid out and ready.
• Partnerships: Have contingency plans in place in advance with your service providers.
• Flexibility: Be prepared to adjust, change schedules and meet new demands.
Cardenas is an accomplished logistics management professional with nearly thirty years of experience in domestic and international supply chains. He currently serves as president of supply chain solutions provider TOC Logistics International.