Daily Update: September 3, 2024

Supply chain resilience is routinely tested by natural disasters. Disruptions can prevent goods from reaching their destination, exacerbating the economic toll of an already catastrophic event.

In a July supply chain outlook report, S&P Global Market Intelligence analysts Chris Rogers and Eric Oak listed weather, conflicts and strikes as risk factors for exports to the US and EU from China during this year's peak shipping season.

So far in 2024, natural disasters have caused several supply chain disruptions, with the January earthquakes in Japan’s Ishikawa Prefecture starting the year off with factory closures across the steel, electronics and construction machinery sectors.

But supply chain disruptions don't just come from the ground. They also come from the sky. Extreme rainfall has reduced shipping capacity to the Panama Canal, caused chemical plant closures in Mexico, led to food shortages in East Africa and brought about catastrophic flooding in Brazil, impacting sectors including agriculture, crude oil and autos.

Extreme rain in May caused trade disruptions in Brazil's Rio Grande do Sul state — a hub of land and maritime international trade — and caused the loss of lives, homes and livelihoods. The region's roads and highways were flooded, railway operations were suspended and major seaports faced delays in receiving goods.

Disasters do not impact all sectors equally. In Brazil, the petrochemicals, agriculture and transport equipment industries faced outsized challenges due to the flooding, according to a June S&P Global Market Intelligence report by analysts Carlos Caicedo, Rogers and Rafael Amiel. Rio Grande do Sul accounts for a significant amount of the country's crude oil imports, required by Brazil's petrochemical refining industry. Furthermore, production of key exports ethylene and propylene derivatives took a hit due to the lack of crude.

The way governments respond to crises can impact how economies rebound. "Overall, the Brazilian government responded well, allocating sizable public money to the state, mobilizing emergency support and granting tax incentives (many companies in the state were temporarily exempt from several taxes); this helped to prevent a social explosion, as initially there were some looting incidents, but they receded rapidly," Caicedo told the Daily Update.

Caicedo added that through May and June, many companies reported suspended operations for up to a month, but operations started gradually normalizing, with ports returning to business as usual in late June. Rio Grande do Sul's main airport, which was heavily affected, is on track to return to normal operations in October, Caicedo said, citing media reports.

In Kenya, flooding in early 2024 has taken a toll on the economy — impacting agriculture, transportation and retail — and will have supply chain implications. S&P Global Market Intelligence analysts Ronel Oberholzer and Thea Fourie said in a July report that Kenya will likely turn to food imports to offset the flood-related disruptions to the domestic food supply chain. Kenya's exports are expected to be resilient, including for tea, which is grown in an area largely unaffected by the floods.

As in previous flood years, Kenya's ability to bounce back will partly depend on government response, which often includes targeted interventions to help communities and businesses recover more effectively and minimize the long-term economic consequences.

As rain-impacted markets such as Brazil and Kenya get back on track, hurricane season in the Atlantic Basin is nearly at its midway point. The season typically spans mid-June to mid-November, although the strongest hurricanes often occur in September and October, during the middle of the peak shipping season for deliveries to the US East Coast.

The supply chain impact of hurricanes is most typically felt by ports on the US Gulf Coast, including Houston and New Orleans, although closures up the southeast and northeast coasts are not unfathomable. While ports typically close for only a few days, recovery can take two to three weeks, according to Rogers and Oak. The most extreme events can take significantly longer, as shown by Hurricane Sandy in 2012.

Today is Tuesday, September 3, 2024, and here is today’s essential intelligence.