October 17, 2018

Statutory Warning – Peak Months of Hurricane Season

Ritmbarah Arora

A Category 4 hurricane is a major concern for businesses that need to keep a count of their inventory and don’t want their suppliers to face any shortages. Storms become more active during the months of August, September and October. It has been estimated that 2018 will witness around 10-16 named storms. A storm that reaches hurricane status is one where winds are at least 74 mph. A major hurricane is one that reaches category three which comes with winds of at least 111 mph.

With the hurricane season peaking, supply chain professionals need to proactively mitigate organizational risks . In 2018, we have witnessed 4 named storms, 2 of which strengthened to hurricanes: Beryl and Chris. In the past month, Hurricane Florence has caused massive disruptions in the regions of Carolinas, USA.

Resilinc helps customers analyse if the suppliers have invested in the necessary capabilities such as multi-tier supply chain visibility/mapping, proactive risk mitigation, and 24x7 monitoring and disruption response planning.

Hurricane Florence, which was a tropical depression initially, started developing into a tropical storm on September 1, 2018 with wind speed of 40 mph. No one anticipated that a tropical storm with this minuscule wind speed could smash the region with such high intensity. The speed of the hurricane intensified to 138 mph upgrading it to a Category 4 hurricane.

Mustangs managed to survive the wrath of Hurricane Florence, businesses and people failed to do so. Economic losses and property damage of at least $17 - $22 billion have been estimated from this hurricane. Moody’s Analytics economists are vigilant that this estimate could be modified as more updates are available. This would move Florence to the Top 10 list of costliest hurricanes to hit the US. The hurricane unloaded around 10 trillion gallons of rainfall in North Carolina which is good enough to fill more than 15 million Olympic-size swimming pools. Hurricane Florence had left about 900,000 customers without power, thousands of flights cancelled and more than 1 million people evacuated.

The Environment Protection Agency (EPA) designated 40 Superfund sites in the path of Hurricane Florence. A Superfund site is land contaminated by hazardous waste and poses a risk to human health or the environment. The impact of the storm on the sites can cause toxic hazards on an astronomical scale. The EPA is implementing countermeasures and the sites have been put under precautionary advisement. In 2017, Hurricane Harvey impact revealed 41 Superfund sites in Texas, USA, of which 13 sites were compromised and littered with hazardous waste.

Last year, Hurricane Harvey, Irma and Maria caused massive damages to business and infrastructure. According to EventWatch Annual Report 2017, North America became the most disrupted region of the year because of the hurricanes that affected the region. Hurricane Harvey was the first major hurricane to batter the commercially critical region of Southern Texas, followed by Hurricane Irma and Maria within a month. Around $50-$90 billion damages were reported from Harvey, and $42.5-$65 billion from Irma, making a total of $265 billion in damage from all the three major hurricanes.

Harvey damaged at least 13 toxic waste Superfund sites in Texas. The region of Texas is home to ports that trade with many countries around the world and is responsible for almost $600 billion in economic activity.

Hurricane Harvey had the worst impact on industries like automotive, freight, retail and oil & gas while Irma impacted the pharmaceutical industry the most, following automotive and high tech. Cox Automotive suffered a loss of around 300,000-500,000 vehicles in this event. Ford Motors, General Motors and Fiat Chrysler were worst hit in terms of getting parts across the storm zone. Explosions were observed in the Arkema Plant, a manufacturer and supplier of industrial chemicals and performance products. Various companies including Formosa Plastics, Ineos, LyondellBasell, Ascend Performance Materials and many others declared force majeure from the impact of Hurricane Harvey and Irma in the year 2017, as per Resilinc’s data.

Here are few steps to proactively mitigate the risk from hurricanes:

  • Have a team for risk mitigation: Collaborating a team of supply chain professionals for risk mitigation will fortify businesses from the ripple effects of natural calamities. The risk mitigation team keeps a regular check on such potential events and notifies the organization before they cause disruptions. The prerequisite thresholds for such incidences can be prepared to safeguard the inventory and potentially affected sites.
  • Have a checklist for assessment and response coordination: Maintain an event response playbook for assessment of expected damages and the amount to be invested for recovery.
  • Back-up plan to relocate the inventories to alternate suppliers (if needed): In case of major events, supply chain mapped customers should implement back-up plans to safeguard or relocate the inventories to a safer place.
  • Execute protocols for smooth flow of communication: Communication is the key towards successful implementation of any process. Both external and internal communication should be brought in place as a major risk mitigation factor.

Outlining risks before it’s too late, is the key to ensure complete supply chain visibility. The right guidance will help organizations with multi-tier supply chains to understand risks to their sites, revenue and product.

 

 

Topics: supply chain risk management, hurricane season