Extreme weather a rapidly growing, but underappreciated, threat to supply chains
Damage from hurricanes is predicted to soar and European extreme weather events have risen 50% between 2021 and 2024, but many are lagging behind in quantifying and mitigating risk
Extreme weather events are a rapidly rising risk category for supply chains, but they are viewed with less urgency than other major risks according to research.
Even though two thirds of business leaders in Aon’s 2024 Business Decision Maker Survey said that damaging weather events are now regular issues for their firms, they also rated weather the lowest of the four megatrends risks identified in the report. While 70% said weather was a key risk, 80% said the same for trade, 84% for their workforce and 86% highlighted technological risks.
Furthermore, while 72% of those surveyed had quantified the financial impacts of cyber attacks, that number fell to 59% for extreme weather events. Similarly, a higher percentage reported completing cyber security preparedness measures over the last year when compared to climate planning, with just 42% in the US analysing the potential displacement of operations due to weather events and 37% doing so in Europe.
This comes despite a massively expanding risk profile from extreme weather across the world.
Recent research found that the threat of hurricane frequency and severity is surging. A model produced by Deep Sky estimated that the risk of extreme rainfall during hurricanes had risen by a third and that over the next five years losses in the US’ Gulf and South Atlantic coast states as a result of these events would rise 50% to $450 billion.
They noted that “Houston is most vulnerable to hurricane-caused power outages” out of the areas studied. With the Houston Ship Canal the busiest waterway in the US and city’s port one US’ most critical, this represents a notable increase in risk profile for US supply chains.
Across the Atlantic, Europe is the continent seeing the fastest current rates of climate change. Research from Inverto, part of the Boston Consulting Group found that the incidence of extreme weather events in the region had risen 48% from 2021/22 to 2023/24.
The jump from 11,442 to 16,956 events was most prominently felt in the agricultural sector, with Inverto noting impacts to olive oil, rice, potato, tomato and maize over that time period. The effects are already dramatic for supply chains and consumers, with the price of Maris Piper variety potatoes jumping 158% in the year to December 2023 due to heavy rains, while droughts cut olive oil production, causing extra virgin oil wholesale prices on Spanish markets to treble from 2021 to 2024.
Therefore, modelling, quantifying and planning for climate-related events should be a priority for businesses and supply chain functions.