Supply-Chain Risk Management and Climate Change

Insurers are compensating more often for natural disasters and want companies to do more risk assessment

Munich Re, one of the world’s largest reinsurers, is paying increasing attention to climate change, according to Carol Matlack, author of the special report “How Munich Re Assesses Risk,” published in the Dec. 2, 2010 issue of Bloomberg BusinessWeek.

“The company [Munich Re] has the world’s most comprehensive database on natural disasters, with information going back centuries,” reports Matlack. “It shows that the frequency of serious floods worldwide has more than tripled since 1980, while hurricanes and other severe windstorms have doubled. ‘Global warming is real, and it affects our business,’ says Peter Hoppe, who heads the company’s climate-change research. Munich Re has become a leading advocate for renewable-energy development, even joining a venture that plans to generate solar power in the Sahara and ship it under the Mediterranean to Europe.”

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Dealing with carbon permit laws

Re: "In The Wall Street Journal article, “UPS Charts Possible EU Flyaround,” published Dec. 21, 2011, authors Doug Cameron and Daniel Michaels write, “The U.S. air-cargo giant may reroute flights to cut the cost of the European plan, which will require carriers to buy permits for emissions generated on flights to, from and within the European Union.” It seems like the really smart way to address this problem is to fly directly to a non-EU nation in the region (e.g. Israel, Turkey if Turkey has not been admitted to the EU, or a non-EU member from the former Soviet Union) and then move the goods to Europe by rail or ship. This would increase cycle time by a couple of days so customers could be given the option of paying more for direct air freight or less if they want to skip the muda (waste) of the carbon offset purchases.

A good argument against offshoring

Weather-related risks and natural disaster (e.g. tsunami) related risks are a good argument for bringing manufacturing capability back to the U.S. One of Henry Ford's policies was apparently to be able to make any part his company purchased in case the manufacturer went under (for any reason). They are also strong arguments for building plants and infrastructure to resist foreseeable disasters like hurricanes--anybody who builds on the Atlantic coast is simply asking for trouble unless the structure can withstand any foreseeable wind and high water. Factories should not be located in areas susceptible to flooding and, if built in areas subject to earthquakes, should be designed to withstand them. California for example requires seismic design for all structures, which is a good idea. Ford incidentally had a logistics system that could re-route shipments, e.g. to avoid a flooded-out rail line, to prevent shortages at any of his factories.

Excuse to increase premiums

There has been NO increase instrong tornedoes. Look at the data:

http://wattsupwiththat.com/2012/01/05/even-with-a-busy-tornado-year-sti…

No doubt there is better monitoring of minor ones. Lies, damn lies, and statistics.

What's cheaper?

Which would be optimal, in terms of cost/benefit, I wonder: Paying the carbon offsets, or flying an extra 1000 or so miles past Europe, then paying for slow freight back to Europe? Which way actually generates more muda? The carbon offsets would have to be really expensive, I would think.