Devastation wreaked by Hurricane Irma and other recent storms shows the vulnerability of supply chains to disruption and commodities price volatility. How can businesses mitigate the risks?
Hot on the heels of Hurricane Harvey, Hurricane Irma proved to be one of the strongest storms in history, resulting in catastrophic damage across the Caribbean and Florida.
The impact on human and animal life, property and infrastructure are still front of mind as this unusually active hurricane season causes havoc across the region.
Even for firms not directly impacted, the events place their supply chains at serious risk.
The Allianz Risk Barometer 2017 ranks natural catastrophes as one of its top ten global business risks, and responsible for US$175bn in economic losses in 2016 — a four-year high.
However, Moody’s Analytics says hurricanes Harvey and Irma alone are likely to have caused $150-200 billion of damage.
Additionally, ClimateWise said the ‘protection gap’ (between total economic loss and the value of assets covered) created by increasing climate risk could be as much as $100 billion.
Organizations are aware of this increasing risk.
In a Thomson Reuters survey of more than 600 procurement professionals, 43% of respondents cited raw material price volatility as their biggest risk.
And one of the biggest drivers of this volatility is the supply/demand dynamic, in turn significantly impacted by natural disastors, including hurricanes.
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Supply & demand havoc
A list of actual and potential scenarios and events currently or recently affecting supply/demand dynamics in commodities markets includes:
- Hurricane Harvey reportedly disrupted or shut 13 refineries, causing U.S. gasoline production capacity to drop by 10%.
- In the week after Harvey hit, US crude exports dropped by 749,000 barrels.
- In early September fuel shortages were reported in Florida as demand soared and customers stockpiled before Irma’s expected landfall.
- Concerns about damage to sugar cane fields. Florida accounts for nearly a quarter of U.S. sugar production and harvesting is due to begin on 1 October.
- In North Carolina, cotton plants were under threat and livestock operators have stockpiled feed, fearing supply disruptions if roads are badly damaged. The state is the second largest producer of hogs and turkeys in the United States.
This list illustrates just a fraction of the many different facets of the supply/demand disruption in commodities markets caused by natural disasters such as hurricanes.
Increasing weather volatility is set to impact global supply chains more severely with each passing year and when disaster strikes, procurement professionals need reliable information before markets move.
First with the news
Thomson Reuters was first to report on the outages and closures caused by Hurricane Harvey, which affected the prices of crude oil and gasoline as well as crack spreads and margins.
We also delivered quick insights into the impact on supply and demand fundamentals that will in turn have a longer term impact on refined product supply and demand balances over the coming weeks in the U.S., Latin America and Europe.
We used a combination of technologies — including infra-red cameras, satellites, vessel tracking, and acoustic monitoring devices — as well as port authorities, analysts, agents and brokers to gather this information across the oil supply chain.
Supply chain professionals can best manage and mitigate natural disaster risk by developing a deep understanding of the potential risks that could impact their global supply chains, as well as the probabilitiy of different scenarios unfolding.
To help with this, they should work with a trusted partner such as Thomson Reuters as we deliver relevant, timely and accurate content, gathered through a combination of our own proprietary research and key third party partners, all filtered and integrated onto one platform to help supply chain professionals pinpoint developing risks and identify opportunities unfolding across the globe.