When large-scale weather threatens large-scale consequences

 

I'm sure most of us have read news reports about the imminent return of the climate phenomenon known as El Nino, possibly in the form of a so-called "super" El Nino, far stronger than "normal" events of this kind.  There have been all sorts of alarmist forecasts about drought, flooding, and everything in between.  However, the big story may be the effect of this climate phenomenon on global commerce and industry, regardless of whether it's rainy or sunny.  TT Club, a "provider of mutual insurance and related risk management services to the international transport and logistics industry", examines the implications.

El Niño events are part of a naturally occurring climate cycle, but “super” events are characterised by exceptionally high sea surface temperature anomalies, which are far less frequent and significantly more disruptive. Current forecasts are suggesting that a very strong event is increasingly likely, with some indicating increases well above historical norms. The result is not a single point of failure, but rather a synchronised, multi-regional disruption that has potential to affect the interconnected global supply chain.

. . .

Perhaps the most concerning aspect of the current outlook is the convergence of climate and geopolitical risk factors. When overlaid with El Niño-induced climate shocks, the potential for cascading effects increases significantly.

For example: 

• Reduced fertiliser availability may exacerbate the impact of drought on crop yields
• Higher fuel costs may increase the cost of transporting goods
• Trade route disruptions may amplify delays caused by weather-related events
• This interconnected risk landscape highlights the need to view El Niño not as a standalone hazard, but as part of a broader system of interdependent risks.

. . .

The critical point for global businesses is that exposure is rarely limited to the location of the physical hazard. Organisations may face indirect impacts through suppliers, commodity markets, logistics networks, energy systems, insurance costs and customer demand.

Key global vulnerabilities include: 

• Food and commodity price inflation driven by crop losses or supply uncertainty
• Disruption to agricultural, industrial and consumer-goods supply chains
• Transport delays, port disruption and reduced reliability across maritime and inland logistics routes
• Energy market volatility linked to higher demand, reduced hydropower output and infrastructure stress
• Increased insurance, financing and working-capital pressures as businesses respond to greater uncertainty

For internationally exposed organisations, these second-order and third-order effects may prove just as significant as direct physical risks. The practical implication is that El Niño should be assessed not only by geography, but by dependency: where goods are sourced, how they are transported, which inputs are most constrained and where alternative capacity exists.

There's more at the link.

That's an often underestimated factor in many plans:  military, political, business, disaster, whatever.  A factor that is described in geographical terms - like El Nino, often termed the "southern oscillation" of weather patterns - can have effects far outside that geographical area.  I'm sure most US businesses on the East Coast aren't planning for any major disruption due to weather that might affect the West Coast of this country, but that's very short-sighted.  What about Europe, or Asia?  I'm sure many nations on those continents are dismissing El Nino as "someone else's problem", but if, as the article suggests, we define it by dependency on economic activity in the area where it occurs, that dependency reaches into every corner of global markets, both imports and exports.

Even on a small scale, in terms of personal planning for the next year or two, this bears thinking about.  For example:

• Is my employer (and hence my job) likely to be affected by El Nino, positively or negatively?  Could it determine whether or not I have a job at all this time next year?
• What about our household emergency planning?  Are we assuming that certain staple foods and basic necessities will always be both available and affordable, or might the advent of El Nino-related weather patterns affect that?
• Are we planning to travel anywhere over the next year or two?  Will airline flights be affected by El Nino?  Will they become more or less affordable?  What alternatives are there?

Just a few areas where we might all do well to consider what's going on in our atmosphere and our oceans at present.

Peter