This article is part of a series on the impacts of climate change and adverse weather on logistics networks. See the entire series here.
In 2020, California lost 4,257,863 acres to wildfires. This came from 9,917 incidents and damaged or destroyed 10,488 structures in one year. This year is fire season it is expected to be worse.
“California has always had wildfires,” but the number of days with favorable fire conditions, such as high winds and low relative humidity, has doubled over the past three to four decades, said Jon Davis, chief meteorologist at Everstream Analytics.
Less snow and earlier melting result in longer and more intense dry periods, with vegetation susceptible to fire.
This requires logistics managers to anticipate more frequent and severe fires in the future, as fires destroy homes and buildings, as well as clog transportation arteries. The combination makes supply chains difficult to operate.
The five-year average of fires from January to May 9; it’s 905. But in 2021, California saw twice that number, with 1,812 fires and three times as many acres burned. And it’s not even the height of the season. The fire season usually peaks between September and November and grows. Cal Fire, part of the California state government, estimates that the fire season increased by 75 dayswith climate change seen as a key driver.
2020 was the most active fire season in recent history
Number of acres burned and fire incidents recorded
“The wildfire situation is becoming a problem because there are some choke points in California,” said BJ Patterson, CEO and co-owner of Pacific Mountain Logistics, based in San Bernardino, California. “The biggest challenge is contingency planning for when those routes are cut off.”
I-15, to Las Vegas and Salt Lake City, as well as I-5 pass through fire-prone areas. To avoid I-15 when hauling cargo in Salt Lake City, drivers can use I-10 to US 95 in Las Vegas before switching to I-15, which can easily add a day and a half.
“Sometimes they’re cut off for a week at a time. When you’re in Southern California, a week’s worth of loads is more than most parts of the country get in two months,” Patterson said. Choke points can affect interstates and trucking as well as railroads, he said.
Poor air quality also takes a toll on workers’ health. “You have to be outside the loading and unloading boxes. This puts workers at risk,” said Bindiya Vakil, CEO of Resilinc.
Review of warehouses and stocks
The risk of fire has not deterred many logistics managers from expanding their supply chain networks in California. Real estate company CBRE mentionted that California’s Inland Empire, next to Los Angeles, was the top market in demand last year, and the state’s Central Valley was one of the top emerging markets nationally.
In recent years, warehouses have been built closer to population centers because of the Amazon effect, said Kathy Fulton, executive director of the American Logistics Aid Network. “The things that make us more efficient also make us more fragile,” he said.
Distribution centers are closer to populations that rely on them for local needs. “There’s more potential for supply chains to be disrupted than just road challenges,” Fulton said.
With fire risks, some companies are considering moving storage operations or sourcing from vendors outside of potential fire hazard areas, Davis said.
But this is not possible in all cases. “Food is perishable,” Vakil said. “How do you manage a Safeway distribution center? You can’t locate your supply outside of 1,000 miles. It’s hard to get in and out.” Some industries have more leeway, he said, such as technology or pharmaceuticals, where inventory stored elsewhere can still support operations.
To mitigate a potential impact, Vakil said, companies can periodically move some inventory or add buffer stock outside the region during periods of higher risk. This allows them to keep most of the inventory at the required location, but ensures some availability of supply in case that site is less accessible.
Having adequate buffer stock is still a concern for many companies. When the country emerged from the recession a decade ago, most retailers faced a negative impact on inventory, Patterson said, as they were caught with expensive excess goods.
“I often refer to it as the 2008 syndrome,” he said. Supply chains moved to a just-in-time approach to mitigating this risk, resulting in shortages that were evident during the early months of COVID-19. Low safety stock levels can be problematic in an event such as a fire. If inventory is inaccessible or transportation is delayed due to road closures, supply chains can grind to a halt.
Prepare for fire risk with data, drills and insurance
Unlike hurricanes, which come with advanced warning, fires, tornadoes and earthquakes do not.
“You’re reacting,” Vakil said.
Wildfires are seasonal, and companies can prepare for risk by understanding which supplies, suppliers and distribution centers are in the most dangerous areas for wildfires in California or other states.
Even with planning, there may be periodic disruptions, but it doesn’t have to be a huge disruption if the company plans ahead.
“The last thing you want to do as a risk manager is look for resources when you’re in a crisis situation.”
Sehrina Kamal
Vice President of Intelligence Solutions at Everstream Analytics
Risk management used to be ad hoc, but now companies are using more technology solutions, said Shehrina Kamal, vice president of information solutions at Everstream Analytics.
“The last thing you want to do as a risk manager is look for resources when you’re in a crisis situation,” he said.
Monitoring fire status in real time and having all company data in a central location with easy access helps. This allows a company to understand where their inventory is, how a fire in a particular area will affect them, what revenue is at risk if that inventory is damaged or unavailable, and to connect other dots between different sources of information.
Logistics companies like Patterson’s prepare for fires and earthquakes with annual drills. The company has evacuation plans and business continuity plans, which describe how to deal with business issues and communicate with customers during an outage. The communication tree identifies which employees call which customers and how the inventory will be handled.
Pacific Mountain Logistics may move product if necessary to fulfill orders elsewhere. It backs up data to the cloud and is able to operate remotely. The company has generators in case the facilities lose power and emergency supplies of food, water and first aid in case workers are stranded on site.
In many western states real estate is at risk
Number of properties at risk of fires
Property insurance can protect the value of your warehouse or production site and its contents in the event of a fire. But business continuity insurance can be expensive.
“The discounts are very high,” Patterson said. This insurance is useful if a company is directly affected in the long term, such as if the warehouse or factory burns down. “But it should have a very significant impact [insurance] worth it”.
Developers carefully consider the area’s fire risk during construction, in part because insurance can be a costly proposition.
The other type of insurance to consider is emergency business interruption insurance, which only covers bodily injury at named locations, Vakil said. A company based at a 3PL or contract manufacturing site should name the site on the policy in the event that it is damaged or destroyed by an event such as a fire.
“It’s important to map the supply chain, really all the locations that make up that chain, and name them all in the policy,” he said.
Constant crises and disturbance
The California wildfires pose other risks, such as precautionary power outages, Vakil said. In 2020, PG&E shut off the power because the fire risk was too high and the company can proactively do it again in the future.
While the use of generators is not ideal, Patterson’s facility has a backup generator in the event of a power outage.
“We’ve had rolling blackouts a couple of times,” he said.
With enough notice, logistics businesses can rely more on locations outside the crisis zone and plan ahead for shutdowns.
5 of the 6 largest wildfires in California occurred in 2020
Class | Name of fire | Date |
---|---|---|
1 | August Group | August 2020 |
2 | Mendocino Complex | July 2018 |
3 | SCU Lightning Complex | August 2020 |
4 | Creek Fire | September 2020 |
5 | Lightning LNU complex | August 2020 |
6 | North Complex | August 2020 |
7 | Thomas | December 2017 |
8 | Cedar | October 2003 |
9 | Rush | August 2012 |
10 | Lip | August 2013 |
Source: Cal Fire
And of course, the California wildfires aren’t the only crises supply chains must consider.
“They have to deal with multiple crises at once, whereas in the past you’re worried about hurricanes in the southeastern United States and that’s where your business has to focus,” Fulton said.
Last year, companies had to deal with political unrest, the pandemic, wildfires and hurricanes, sometimes at the same time.
“There are complex crises, and we’re seeing more of them, and more often,” Fulton said. This requires companies to increase the scope of their programming. When trying to overcome a crisis, “if we can’t even sustain ourselves, where does the increased support come from?”
“There are complex crises and we’re seeing more of them.”
Cathy Fulton
Executive Director of the American Logistics Aid Network
The risks don’t go away.
“It’s an ongoing role of disruption when it comes to the supply chain,” Vakil said.
Not all concerns can be mitigated, but companies can use the information they receive to plan ahead for known seasonal issues like wildfires. This includes understanding which supplies are most critical to the company’s revenue, so that the supply chain is discouraged in at least that area.
“This way you ensure that your supply chain doesn’t bring you to your knees financially or cause financial distress to your company,” Vakil said.