Overview
Today's Deep Dive is 1,426 words and a 9-minute read.
Over the last month, both the Atlantic and the Pacific have seen historic storms that have taken hundreds of lives and dealt billions in infrastructure damage and property loss. In addition, extreme weather events are doing unprecedented damage to global supply chains, destroying logistics infrastructure, hobbling Asian manufacturing hubs, and causing shortages in critical industries like healthcare supplies and semiconductor components. As climate change intensifies, hurricanes and typhoons will be more numerous, more intense, and more damaging – posing escalating risks to the world’s unprecedentedly globalized supply chains.
Hurricanes Cause Manufacturing Delays
On September 16, Hurricane Helene made landfall on Florida’s Big Bend region as a Category 4 storm before moving inland to hit parts of Georgia, South Carolina, North Carolina, Virginia and Tennessee. With at least 230 confirmed dead and many more missing, Hurricane Helene is the second-deadliest hurricane to ever hit the contiguous United States (after Hurricane Katrina), and it has caused widespread destruction. Storm surges rose to 15 feet in parts of Florida, more than 30 inches of rain on North Carolina, producing the largest local flooding in recent history, over 20 tornadoes were reported across five southeastern states, and dangerous wind gusts reached up to 106 miles per hour in North Carolina. As a result, entire communities are still disconnected from the grid, infrastructure has been washed away or destroyed, and an untold number of people remain displaced.
Already costly for homeowners, private businesses and insurers, the storm and its effects have also had serious impacts on the global supply chain. Freight trucking spot rates are expected to fluctuate wildly as demand soars while roads remain difficult to navigate (Interstate 40 near the North Carolina-Tennessee border could be closed for up to a year). Several businesses had to pause operations: General Motors, for example, briefly shut down production at its Flint, Michigan production plant the week that Helene hit, saying that the hurricane had impacted suppliers, making work impossible. The food supply chain was also hit: farmers throughout the affected region are reporting partial to total crop losses, with cotton and pecan crops in Georgia reporting significant losses. In Georgia, 107 poultry facilities were damaged or totally destroyed in the storm, and dairies and food processing facilities were similarly shuttered by power losses and storm damage. In addition to price spikes on these commodities, shortages could ripple through supply chains, impacting goods like clothing, cosmetics, and pet food.
The two most concerning work disruptions, however, have been in medical supply manufacturing and the production of crucial semiconductor components, the latter of which could have international ramifications. Storm surges from a broken levee overwhelmed by Hurricane Helene ravaged a Baxter International plant that is among the largest producers of intravenous fluid and peritoneal dialysis solution in the US. While Baxter is working with the FDA to get their plant up and running and prioritize planned shipments, the resulting shortages are reminders of the risks in medical supply chains vulnerable to single suppliers of individual drugs or medical equipment. In 2022, the US saw weeks-long shortages of generic antibiotics after a few plants were shuttered, and, when a tornado hit a Pfizer plant in North Carolina, the company projected shortages of some medicines through mid-2024.
High-purity quartz, a crucial component of microchips, has also been affected by Helene: the town of Spruce Pine, about an hour north of Asheville, is home to the world’s largest known deposits of ultrapure or high-purity quartz (HPQ), a material necessary for manufacturing crucibles and other semiconductor components. The town supplies around 70% of the world’s naturally-occurring HPQ, with one mining company there estimating that nearly every cell phone and computer chip contains quartz from Spruce Pine. As of last week, both major mines in the town were still shut down, but leaders reported mostly minor damage – although they cautioned that the real delay to resuming operations will be repairs to surrounding infrastructure. While major chipmakers mostly said that they did not expect Helene to create disruptions, the quartz supply chain is fragile – it is unclear the size of chipmaker stockpiles, and while there are synthetic processes to mimic HPQ, these can be more expensive and time-intensive than purchasing Spruce Pine quartz. Especially as the chipmaking industry has risen to the top of global agendas, the world will be watching for any hiccups.
On the heels of a historically destructive Helene, Florida is in for yet another unprecedented storm. Hurricane Milton hit Florida’s western coast near Sarasota on Wednesday evening as a major Category 3 storm; the storm had surprised meteorologists by springing out of nowhere, strengthening from a Category 1 to a Category 5 within 12 hours and then wobbling between 4 and 5 before making landfall. In addition to being a powerful storm in its own right – the storm spawned tornadoes on its edges, dumped a thousand-year flood on St. Petersburg, and recorded wind gusts of 100 mph in Tampa – Milton was especially devastating as much of Florida had not recovered from Helene. Debris from Helene had not been fully picked up, for example, increasing dangers of damage from flying projectiles. Analysts are already predicting that the storm could result in $137 billion or more of damages, and the storm will have its own supply chain impacts. Medical supplies were hit again: a second key IV fluid manufacturer in Daytona Beach was in the path of the storm, with likely impacts for health providers, 80% of which already report that they are experiencing shortages. Milton will also cause further crop losses, with price increases potentially seen in grocery stores throughout the US in the next few weeks on fruits and vegetables like oranges and tomatoes. Infrastructure damage and power outages will also broadly affect Florida’s economy, compounding logistics challenges already brought by Helene.
Asia Faces Super Typhoon
The US is not the only country facing supply chain disruptions as a result of an especially severe storm season. Early last month, Super Typhoon Yagi made its way across the northern Philippines as a regular typhoon before strengthening to a Super Typhoon (and the equivalent of a Category 4 hurricane) to land in Hainan Province, China. Effects reached Guangdong Province, one of China’s largest manufacturing hubs, and forced a temporary shutdown in the logistics hub of Hong Kong. Finally, the storm made its way largely over land to Haiphong, Vietnam, part of the country’s manufacturing-heavy Quang Ninh province, where it did the most damage, killing at least 226 and causing extreme damages to roads and bridges.
The impacts on the global supply chain are immense. Operations were ceased in the key manufacturing hubs of Guangdong, China and Quang Ninh, Vietnam, where important electronic components, clothing, and other goods are manufactured. Vietnam in particular has become a global manufacturing nerve center in recent years as Western countries have attempted to hedge their relationships with China and diversify their supply chains. Ports around both provinces as well as in Hong Kong were temporarily closed and flights canceled, with a Maritime AI tool developed by Windward predicting maritime shipment delays of up to 30 days for shipments with port calls in any of the affected ports. While 95% of businesses in Vietnam were up and running by mid-September, major manufacturers reported that their factories had been critically damaged, and officials estimated that power consumption there would stay a third below normal for weeks or months, as companies rebuilt. Semafor estimated that the manufacturing and logistics backlog could take weeks to clear, which infrastructure repairs taking months or years to be fully resolved – especially in Vietnam, which has fewer resources to spare.
Costs of Extreme Weather Mount
The historic Atlantic hurricane season, and extreme Pacific typhoon season, are a stark reminder of the rising risks, and rising costs, associated with storms that are intensifying climate change. The infrastructure and property damages of these extreme weather events is well documented – NOAA analysis from 2020 estimated that the total cost of so-called “billion-dollar weather events” in the US already topped $1 trillion – but losses due to fractured supply chains are harder to pin down. The global supply chain is diffuse, enmeshed, and often fragile, a fact amply demonstrated by extreme weather like Helene or Yagi but also by events like the COVID-19 pandemic, backups in the Suez Canal, or attacks on cargo ships in the Red Sea as a side effect of regional war. Building resiliency in global supply chains through diversification and redundancy will help to mitigate risks associated shortages and price spikes associated with extreme weather, especially as climate change drives increasingly intense storms.
