A Tale of Two Storms: Supply Chain Risks in the Aftermath of Hurricane Florence and Typhoon Mangkhut

A Tale of Two Storms: Supply Chain Risks in the Aftermath of Hurricane Florence and Typhoon Mangkhut

Executive Summary

  • In mid-September, two major storms rippled through eastern United States and southeastern Asia, bringing transportation at major logistics hubs including Charleston, Hong Kong and Shenzhen to a temporary standstill
  • On the U.S. East Coast, several ports were closed for days while strong winds and flooding caused power outages, road blockages and fuel shortages across many areas
  • In southern China, thousands of flights were cancelled in Hong Kong while ports in the Pearl River Delta area shut down operations for several days
  • Industrial supply chains from aerospace to pharmaceuticals and technology may have been impacted due to flooded roads and suppliers as well as congestion at both airports and ports in the eastern U.S. and in southern China
  • Two new tropical storms have formed in the Atlantic Ocean that could make landfall in Eastern United States in the coming days
  • The Philippines, Taiwan and China are also preparing for the impact of Typhoon Trami later this week

Background

In mid-September, two major storms rippled through eastern United States and southeastern Asia, bringing sea, air and ground transportation to a temporary standstill at major logistics hubs including Charleston, Hong Kong and Shenzhen. On the same day, Hurricane Florence and Typhoon Mangkhut brought a combination of damaging wind speeds, torrential rainfall and storm surges to coastlines in North America and Asia. While most of the damage in the United States came from flooding, in Asia it was caused by extreme winds.

On the U.S. East Coast, Hurricane Florence made landfall near Wilmington in North Carolina on Thursday, September 14, causing damages from wind speeds of up to 90 mph (144 kph) and heavy rainfall that flooded large parts of the Carolina and Virginia coasts. More than 26,000 households and businesses were still without power as of September 24, while blocked highways and interstates caused traffic disruption and fuel shortages in many areas. The remnants of the hurricane produced at least three confirmed tornadoes in North Carolina and Virginia. According to Moody’s Analytics, damage from the storm is expected to total between USD 17-22 billion (EUR 14.4-17.8 billion), with further damages likely due to subsequent flooding.

Shortly after Hurricane Florence struck the U.S. East Coast, Typhoon Mangkhut or Ompong made landfall on September 15 in the Philippines, before affecting southern China near Hong Kong, with wind speeds of over 100 mph (161 kph) and storm surges. Major airports in South China, including Hong Kong International Airport, cancelled more than 900 flights, while sea ports in the Pearl River Delta area shut down operations for more than two days. Flight and vessel schedules have since returned to normalcy, but delays and capacity issues may continue to have an impact. According to Enki Research, financial losses from the storm could amount to USD 32 billion (EUR 27.2 billion) for Hong Kong and southern China.

Disruptive Impacts of Hurricane Florence on the U.S. East Coast

Flooding and ground transportation

Although Hurricane Florence’s immediate impact in the U.S. East Coast was not as severe as initially feared, the rain that fell in North Carolina, South Carolina, and some parts of Virginia, Maryland, Georgia, and Washington, D.C. since September 13 brought flooding that closed roads, caused massive power outages, and damaged countless homes and businesses. According to the National Weather Service, Florence triggered over 8 trillion gallons of rain over North Carolina, with some areas seeing up to 36 inches (81 cm) of rain. The heavy rains put over 19 river gauges in the Carolinas at major flood stage, a situation that is expected to last for 1-2 weeks.

Until September 20, travel conditions remained hazardous particularly in North Carolina. The flooding caused by Hurricane Florence has left several major roads and interstates highways underwater. State transportation officials reported that more than 1,100 primary and secondary roads in North Carolina were closed, with some major portions of Interstate-95 and Interstate-40 not expected to reopen until the following week. In South Carolina, the floodwaters from Hurricane Florence shut down more than 200 roads and bridges and closed off lanes on the Interstate-95 highway just south of the South Carolina- North Carolina border. Major trucking companies such as YRC Freight have advised customers that many of its North and South Carolina terminals had limited operations, with terminals in Fayetteville, Wilmington and Jacksonville completely closed down due to flooding.

The persistent flooding has also raised public health concerns, particularly in North Carolina. On September 17, state environmental officials confirmed that a dozen of open-air manure pits at hog farms had failed and spilled polluted waters to neighboring areas. Similarly, during the weekend, a coal ash landfill at the L.V. Sutton Power Station near Wilmington collapsed due to the heavy rains, causing the spill of more than 2,000 cubic yards (1,529 cubic meters) of coal ash into a nearby lake.

Power outages

About 1.7 million households and businesses in North Carolina and South Carolina lost power at some point during the storm due to flooding and widespread damages to power lines, utility poles and other key components of the electric grid. Duke Energy, the main utility provider in the region, confirmed that more than 75% of households and business in the hardest-hit areas in North Carolina have experienced power outages. In South Carolina, more than 100,000 power outages were reported during the weekend of September 14-16, mostly around Myrtle Beach and areas near the coastline.

A few days after Florence made a landfall in North Carolina, Duke Energy was able to restore power to more than 1 million customers out of the 1.7 million affected. On September 19, more than 205,000 Duke Energy’s customers, mostly in North Carolina and South Carolina, remained without power. More than half of those customers are in Eastern North Carolina, particularly in Carteret, Onslow, and Craven Counties. The company confirmed that power should be restored to most customers by September 26.

Industrial property damages

According to Moody’s Analytics, property damage from the storm is expected to total between USD 17- 22 billion (EUR 14.4-18.7 billion), but this could be a conservative estimate depending on further flooding. On the other hand, Oxford Economics said that the total economic effects could be more extensive, with losses or damage to infrastructure of USD 30-40 billion (EUR 25.5-34 billion).

Chemical companies with manufacturing operations in the U.S. East Coast like Chemours, BASF, and Aprinnova have reported no serious damage from Hurricane Florence, though flooding remains a continuing concern. Some chemicals and pharmaceutical manufacturing plants experienced power outages, but no sustained power interruptions affecting manufacturing facilities have been reported. Standard storm response involved planned facility shutdowns prior to the storm hitting North Carolina, South Carolina and Virginia. The FDA recently confirmed that about 30 companies that produce important medication stayed open during Hurricane Florence and as of September 17, most of the pharmaceutical plants in the area have reopened.

On September 18, international packaging company Sonoco reported that its paper mill operations in Hartsville, South Carolina have been shut down temporarily due to the extensive flooding from Hurricane Florence. They also confirmed that certain operational facilities remain flooded and have experienced damages which could result in those sites being inoperable for several weeks. Other major manufacturing companies located in the wider triangle area between Wilmington, Morehead City and Fayetteville which could see sustained supply chain disruptions include: Pharmaceutical Product Development Inc., AAIPharma, and Ocis Biotechnology in the Pharmaceuticals industry; GE Aviation and Eaton Corporation in the Aerospace industry; GE Hitachi Nuclear Energy in the Energy Industry; Goodyear Tire and Rubber and Purolator Filters in the Automotive industry, and finally, Corning Inc. in the Technology industry.

Figure 01: North Carolina coastline: Industry clusters of affected manufacturing sites and suppliers; Source: Everstream Analytics

Port and rail disruptions

A majority of seaports in the Carolinas and Virginia halted operations ahead of Hurricane Florence’s landfall, but most reopened on September 17. As only minor flooding was reported in most port areas including at the major ocean gateways of Charleston and Savannah, container backlog and arriving vessels were expected to resume quickly in the hurricane’s aftermath. Supply chains relying on the port of Wilmington in North Carolina can expect the biggest disruption as the port had been shut down for more than a week. Port operations only resumed on September 20 after initial assessments found damage to warehouses and container yards in the port area.

The port, which has railroad access for intermodal shipments, is a major hub for exports and imports of defense-related manufacturing goods as well as automotive parts and textiles, with Saudi Arabia, Europe and China among the top trading partners. Truck operations at the port were expected to resume on September 24, clearing the backlog of import containers and bringing delayed export containers to the port.

U.S. PortsStatusReopening dateMajor industries affected
Port of Norfolk, VirginiaOPENSeptember 15Packaging, plastics, machinery,
Port of Wilmington, North CarolinaOPENSeptember 20Defense, automotive, textile
Inland Port Dillon, South CarolinaOPENSeptember 18Retail
Inland Port Greer, South CarolinaOPENSeptember 17Automotive, retail
Port of Charleston, South CarolinaOPENSeptember 17Aerospace, automotive, pharmaceutical, machinery
Port of Savannah, GeorgiaOPENRemained openAutomotive, chemicals, packaging, pharmaceutical
Impacts on ports (as of September 24)

Due to the several-day port closures, shipping liners have reportedly reviewed vessel schedules and may have omitted or swapped port calls due to congestion issues arising from concentrated vessel arrivals. Container line Maersk omitted the North Charleston container terminal for some vessels due to congestion and directly calling at the Port of Savannah. Delays can be expected due to missed vessel connections or modified departure times of vessels.

Railways in the southeastern US are mainly operated by two services, namely CSX and Norfolk Southern (NS). While intermodal ramps in Charleston as well as rail services to or from Charleston, Inland Port Greer and Port Dillon have resumed normal operations since September 17, CSX issued an embargo on inbound traffic to facilities located between Lumberton and Wilmington, which was still in effect on September 24. A derailment of a CSX train near Lilesville, North Carolina has been reported on September 16.

Typhoon Mangkhut’s Implications on Supply Chain in Southern China and Beyond

Air cargo disruption

On September 15 and 16, at least 1,200 flights were cancelled at Hong Kong International Airport (HKG) due to the passing of Typhoon Mangkhut. The airport operated two runways overnight on September 17 and 18 to handle over 2,000 rescheduled flights and clear the backlog. Airports in Guangzhou and Shenzhen temporarily shut down on September 16 but reopened on September 17. While the majority of flight schedules is back on track, a large backlog of air cargo shipments and capacity issues can be expected, which may take weeks to clear due to the extensive amount of flight cancellations. Airport congestion can also lead to increased criminal activity as cargo is stored for days in warehouses. In addition, more than 600 roads and some highways have been blocked or partially closed due to high water, downed trees and other debris caused by the severe winds from the typhoon, potentially delaying cargo pick-up and delivery times at airport warehouses.

Port disruption

Major sea ports including the Port of Hong Kong, Nansha, Chiwan and Yantian were closed for more than 36 hours between September 15 and 17, causing shipment delays and prompting container lines to reroute vessels due to service recovery efforts. Container lines, including Maersk Line, have advised customers to expect up to 3 days of delays for import and export cargo due to inbound congestion and subsequent delayed departure times for vessels loaded with export shipments. Other affected ports along the coastline include Fuzhou and Xiamen, which closed down operations for less than 24 hours.

Chinese PortsStatusReopening date
Port of Hong KongOPENSeptember 17
Port of NanshaOPENSeptember 17
Port of YantianOPENSeptember 18
Port of ChiwanOPENSeptember 17
Port of FuzhouOPENSeptember 16
Port of XiamenOPENSeptember 16
Other
Port of ManilaOPENSeptember 15
Impacts on ports (as of September 24)

Further shipment delays can be expected as some access roads to container terminals have been closed due to flooding or debris, causing cargo traffic to be rerouted, in particular in Yantian near Shenzhen. Before affecting southern China, Typhoon Mangkhut also triggered the closure of the Manila International Container Terminal (MICT) in the Philippines on September 14. Industries ranging from electronics to chemicals using the port should expect delayed shipments as the terminal works off the container backlog. Already earlier this month, the terminal experienced berth congestion with waiting times of up to 4 days due to knock-on effects from other Asian ports following back-to-back typhoons.

Areas and Industries Particularly Vulnerable to Hurricanes

Industrial property damages

In the aftermath of Typhoon Mangkhut, about 40,000 households and businesses were temporarily without power in the Pearl River Delta area, southern China’s manufacturing belt and center of its hi-tech supply chain. There were reports of some manufacturing plants having been affected by power outages and blocked roads in the area. Aluminum manufacturer Aluminum Corp of China (Chalco) reportedly experienced delivery issues due to blocked roads near its plants.

Among companies having reported temporary production shutdowns due to power outages were electronics manufacturer Valuetronics in Huizhou City, east of Hong Kong, as well as apparel and retailers based in Guangdong Province. It is likely that other companies and suppliers in the area, in particular automotive, machinery and pharmaceutical suppliers, may have experienced similar disruptions despite not issuing public statements. Impact assessments generally take longer for sub-tier suppliers, but could still have effects on production lines at Tier-1 suppliers, in particular in the electronics, automotive and technology sectors.

Pearl River Delta area: Industry clusters of affected manufacturing sites and suppliers; Source: Everstream Analytics

Outlook

Hurricane Florence floodwaters have receded in some areas, allowing residents to return home to assess the damage. Interstate-95 has completely reopened throughout North Carolina on Sunday night and both inland and sea operations at the Port of Wilmington are back to normal as of September 24. However, thousands of coastal residents remain on edge as the threat of additional flooding continues across the region. Ten river gauges in North Carolina remain at either major or moderate flood stages. The flow of Cape Fear River is expected to increase and remain at flood stage through the early part of the week, keeping parts of Interstate-40 underwater for at least another week, if not more.

US East Coast residents should also keep an eye on weather disturbances that could head their way as the busiest month of the hurricane season continues. The National Hurricane Center is currently monitoring subtropical Storm Leslie, located 1,170 miles (1,885 kilometers) west of the Azores in the North Atlantic and Tropical Storm Kirk, which is speeding westward across the tropical Atlantic waters. No coastal watches or warnings are in effect from these storms yet, but customers should keep abreast of weather conditions and latest forecasts.

As the Philippines, Hong Kong and southern China continue with the recovery process following Typhoon Mangkhut, supply chain managers in Northeast Asia are preparing for the impact of Typhoon Trami, another powerful storm that is expected to hit Taiwan later this week. As of September 24, Trami was still building in strength in the West Pacific near the Philippines. The storm is expected to hit Taiwan and Japan’s Ryukyu Islands Friday or Saturday as a Category 4 or 5 hurricane with winds of up to 270 kilometers per hour (168 mph). Companies with an interest in Taiwan, Japan and southeastern China should closely monitor this system.

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