Climate change is the most crucial thing that impacts not only human lives but the entire supply chain ecosystem. It affects demand-supply levels, inventory levels, the food chain, petroleum and other sectors. The Mississippi effect is not only impacting...
Logistics has been an indispensable part of the Supply Chain, generally known and seen as a cost centre. Organizations and Nations have been deploying strategies to reduce logistics costs to a minimal percentage of the total material and supply chain costs globally. Multi-modal strategies involve a combination of Road, Rail, Air, Ocean, and Inland Water Transportation that has been vital to reducing costs and meeting delivery schedules without impacting the quality of material being shipped.
A key artery of the US and global supply chain – The Mississippi basin has been a hub for US trade and logistics, given how it has been vital in the movement of food grains, steel and coal to various parts of the world. Currently, there is a drought impact in the region and what’s worse is the timing. With the winter coming, there is a need for adequate heating systems and natural gas. The drying-up effect imbalances the supply of coal and steel for building/maintaining facilities and fuel. But a peek into the food scene, where prices have been elevated over the Russia-Ukraine conflicts, puts further jeopardy in schedules, affecting harvests of the local farmers while further escalating the prices.
Grounded Barges, boats and banks of clay have been the norm in various parts of the World’s fourth-largest riverine system, over the past few weeks. Acute shortage of rainfalls across the Midwest and the plains have crippled riverine systems in the US, including Colorado, yet another key river. We saw how the waters of the Rhine, in Germany dried up in July-September leading to the knock-over effect of disrupting the supply chain of Industrial cargo. But Mississippi has never faced the “heat” this badly.
The Mississippi river has seen a significant drop in water levels affecting logistics, presented above is a timeline image of the river at the Overton’s arm from NASA (Image Source: – DTN/ Progressive Farmer
The situation will now further affect inventories too. Grains and soybeans being key exports of the region, will no longer be transported regularly until there’s some redemption in the water levels, which experts opine will take time. The Logistics Manager Index (LMI) quote for October 2022 for the USA reports Inventory costs at 81 and Inventory levels at 65.6 on 100, indicating that both are still at a high. As inventory levels have been quite high for the US, this year, there aren’t many benign facilities to pool the produce across the region. The rise in interest rates at a monetary policy level will further elevate interest costs and this is expected to have yet another reverse-tinkering effect on inflation.
Fig 2: Freight Data on the Mississippi river from 2019 (Source: United States Department of Transportation, Courtesy: Bloomberg
The 2,340 miles long river has seen water depths, falling by 2.3 to 14.3 feet across the board. In terms of statistics, it has been key to accounting for 71.7 million Tonnes of Coal, for various industrial activities across the globe (for the year 2020). It also cripples the supply chain of the Aluminium industry in the USA, with Ohio being a key dependent on the river system. Over 100 Million Tonnes worth of food grains, soybeans and farming supplements such as fertilizers are shipped via the river system, with the total cargo shipments estimated to be over 500 Milion Tons, annually across all categories.
Fig 3: Monthy Downbound Barge rates for carriage of Grains on the Mississippi river- A time-series (Source: United States Department of Agriculture
The logistics costs associated with the river hub too have been on a toss, with barge operators raising prices by 5x, over the past year, with a very less number of barges on the move, carrying minimal cargo owing to draft restrictions. The cost to transport grains by barges hit as high as USD50/ton in late September 2022. However, ever since the peak, it has fallen to a third, still higher than the 2022 average.
The US Flatbed and trucking prices in the region are about 20% higher (north of USD2.90/mile, about 3-10% over the national average), than the other parts of the country. The Port of New Orleans, a key port that connects to the cargo from the river basin has seen waiting times of over 20 days at port, owing to the chockablock. The total economic impact on logistics owing to the scenarios is estimated to be in the USD 20-30 billion mark. With looming threats of a rail strike from several unions across the nation, the reliability of rail transportation also has wavered away.
Fig 4: Marine Vessel traffic in the USA concentrated in the Gulf of Mexico and at the mouth of the Mississippi River, as on 14th November 2022 (Image Source: Marine Traffic
The effects of climate change have been choking rivers and riverbeds across the globe. While the Rhine and Danube saw inland water transportation affected owing to lowering water levels, Shanghai and parts of China witnessed issues in the power front, owing to the dipping Yangtze levels. This phenomenon has been surfacing in hydroelectric power generation across various projects and clusters in the world.
Another environmental challenge that has been triggered now, over the Mississippi effect has been the accumulation of salt water in the upstream regions of its river channel. The wedging of salt water from the Gulf of Mexico to the river channels has disturbed the freshwater supplies in the region. The New Orleans district administration has been working on setting up “underwater sills” to take care of this.
Fig 5: Design of a potential Underwater Sill (Source: Underwater Sill Construction for Mitigating Salt Wedge Migration on the Lower Mississippi River- Semantic Scholar by T. L. Fagerburg and M. P. Alexander
While Supply chains stand affected and their impact being weighed, the message is loud and clear- its time to take steps to account for climate change and the role of sustainability in supply chains should be factored in for long-term consequences and averting global disruptions.