Supply Chain Losses Likely Exceeded $10 Billion During Deep South Winter Storm

The following article is from the WeatherOptics blog discussing the impact of the recent storm in Texas and other southern states. In this piece, WeatherOptics present their analysis of the loss supply chain companies experienced due to delays in freight. In their findings, they discuss the data used in this analysis and estimated results of carrier and shipper losses that can be attibuted to this weather phenomena.

It is an interesting, detailed and well presented analysis of nature’s risks and subsequent resulting cost to business.  

Last week’s severe winter storm, which brought sub-zero temperatures and more than a foot of snowfall to parts of Texas, is shaping up to be one of the costliest natural disasters of the year.

After freezing rain and snow reached as far south as Brownsville, TX, tens of millions were left without running water as more than 4 million customers lost power in Texas alone. The death toll is up to 58 people as southern states continue to struggle with the aftermath of last week’s storm.

The 4-day event, which included multiple rounds of snow, ice, and freezing temperatures, led to numerous road closures and significant freight delays across Oklahoma, Texas, Louisiana, Arkansas, Mississippi, Tennessee, Iowa, Missouri, Illinois and Indiana. COVID-19 vaccine distribution was heavily impacted as widespread delays and power outages caused hundreds of thousands of vaccines to become unusable.

Total economic losses from the week of winter weather are already estimated to be in the tens of billions of dollars. While it will take time for the complete picture of economic losses to be understood, our team investigated how much supply chain companies may have lost due to freight delays alone.

In order to do this we used our internal weather speed reduction data, annual freight volume data from the FHWA, observed decreases in freight volume during the storm, and industry research on the cost of freight delays per hour.

Weather’s Impact on Supply Chain and Logistics

Weather-related supply chain issues cost the industry billions of dollars each year – the trucking industry alone loses more than $3 billion, with some estimates much higher. In extreme cases, like with hurricanes and blizzards, losses can be greater than $100 million per day.

Regardless of cause, delays alone are a huge headache for the trucking industry. An Urban Mobility Report from the Texas Transportation Institute (TTI) estimated that in the year 2000, the imputed operational cost of delays was somewhere between $65 and $80 per hour for the southern US. A similar study done by researchers at Texas A&M and the University of Wisconsin showed that delays to shippers cost about $56 per hour.

Weather causes 23% of all roadway delays, and leads to 32.6 billion lost vehicle hours per year. As a result, shippers and carriers lose billions of dollars annually from lost productivity and increased operational costs.

How much did weather-related delays cost shippers and carriers last week?

Using our internal speed reduction data and average annual daily freight volume data from the FHWA we were able to analyze and estimate the total number of lost vehicle hours for 7 states hit hardest by the storm. We also factored in observed freight volume decline during this time period, which over the course of 4 days was about 50% lower than normal.

Between February 14th and 18th we estimate there was a total of 127 million lost vehicle hours due to weather-related issues. Above we mapped out the estimated total truck hour delays per mile across the Deep South and Midwest to show which roadways were impacted the most by weather-related delays.

Using the research cited earlier from TTI, we were able to estimate the total carrier loss due to weather-related delays across these states as well. This includes any truck passing through the region highlighted above.

Assuming it costs carriers $65 per each hour of freight delay – this includes costs such as fuel, maintenance, unreliable delivery times, changes in workforce – we estimate that the 127 million lost vehicle hours likely cost the trucking industry $8.3 billion between February 14th and 18th.

We mapped out the estimated cost per mile to carriers based on the estimated hours lost and the cost per hour. Major interstates such as I-30/I-40 from Dallas to Nashville and I-35 from Oklahoma City to San Antonio were among the hardest hit by extensive freight delays.

Shippers similarly saw big losses from the 4-day event – using the research cited earlier from Texas A&M and the University of Wisconsin, we assumed delays cost shippers roughly $50 per each hour of freight delay. This includes increased inventory costs, missed delivery windows and can vary rather significantly based on the commodities being shipped.

We estimate that the 127 million total lost vehicle hours cost shippers $6.4 billion between February 14th and 18th. We mapped out the estimated cost per mile to shippers based on the estimated hours lost and the cost per hour.

Key Takeaway and Notes

Quantifying lost productivity and increases in operational expenses is challenging, but for a storm of this magnitude over a region unaccustomed to this type of winter weather, it’s not hard to imagine how shippers and carriers could have suffered losses in excess of $10 billion.

Here are the key takeaways from our research and analysis:

A historic winter storm hit a large portion of the deep south from February 14th to February 18th, causing significant delays to supply chain and logistics operations

Freight volume decreased by 50% on average for the 4 days the storm impacted the area

We estimate 127 million total trucking hours were lost due to weather-related delays

We estimate the delays cost carriers $8.3 billion and shippers $6.4 billion over the course of 4 days

It’s important to note that this research makes several assumptions about the cost of hourly delays, the types of commodities being shipped, and the speed reduction experienced by freight over the course of 84 hours. Speed reduction estimates are based on the WeatherOptics speed reduction index and while they represent general freight slowdowns, they are not observed history. This study is also limited to only the hardest hit areas, and does not include many other states that were impacted during this time period.

This content was originally published here.