Natural disasters and supply chain disruption

How to mitigate the business interruptions brought on by catastrophe

Hurricane season hit the U.S. and its territories mercilessly in 2017. Harvey dropped 17 trillion gallons of water on Texas in August; Irma wreaked havoc in the Florida Keys; and Maria utterly destroyed Puerto Rico in September.

What may be eye opening is how the supply chain is affected after a natural disaster, and how this translates into higher costs all around. While it is upsetting and alarming to see extreme price gouging for fuel, food and water, unfortunately, some price hikes are necessary because of the following factors:

  1. Supplies must be delivered to the affected region. But the destruction of businesses in those areas means manufacturing and production are halted, so trucks must make the return trip empty. This is called deadheading and it causes costs to go up dramatically.
  2. Fuel rates increase when hurricanes hit regions where oil refineries are prevalent, disrupting production and delivery of gasoline and oil.
  3. Damage to transportation infrastructure requires rerouting, which adds more time and miles since the driver must maneuver around impassable roads and purchase more fuel to get to the destination.
  4. The general population in the area experiences traffic impediments and delays because of the influx of trucks delivering supplies. Displaced residents must be moved to shelters since they cannot live in damaged homes.
  5. Since thousands of trucks and drivers are being used in emergency situations to deliver supplies to affected areas, capacity — the number of trucks on the road available to haul general freight — is reduced. The increased demand upsets the normal market equilibrium, putting a squeeze on the everyday shipping needs of manufacturers. An existing shortage of drivers has already created a capacity challenge and the recent disasters have exacerbated the situation.

What can business owners do to mitigate the effects of a natural disaster?

  1. Develop a disaster-recovery plan and create a crisis-response team and command center within your company. Plan for worst-case scenarios and develop detailed guidelines for emergency situations. Insist on transparency and timely communication. Set this up now, not after a disaster strikes.
  2. Audit your supply chain sources and assess risks. Know the geography of your own business, your suppliers and your customers. Build redundancy into your business plan so production supplies are coming from different geographic areas. Use a variety of suppliers and diversify your transportation options.
  3. Maintain sufficient insurance for your business and equipment. Ensure data backups are redundant and offsite.

When disaster strikes, be flexible and adjust operations when necessary. Recovering from a major business disruption is a fluid situation and changes can come quickly. Be prepared with a backup umbrella when strong gusts blow yours inside out.

Both of Michael Jarrett’s companies, Jarrett Logistics Systems and PackShip USA, have won numerous awards, including the Weatherhead 100, Cascade Capital Growth Award, Inc. 500/5000, The Entrepreneurial Edge Award and NEO Success Award.