Backlog at the Port of Vancouver is a sign of supply-chain disruption to come

December 1, 2021, 11:15 AM UTC

First came the shipping containers. Then came the atmospheric river. In mid-November, Vancouver’s port was already piled high when record-setting rains resulted in flooding and mudslides that destroyed roads, bridges, and train tracks, effectively cutting off North America’s third-largest trade hub from the rest of the continent. 

The unfolding disaster is expected to tangle up supply chains for months if not longer. “There’s $550 million a day of goods that normally traverse the gateway,” said Peter Xotta, vice president of operations and supply chain for the Vancouver Fraser Port Authority. “This event obviously has had far-reaching implications, not just for the flow of goods but for the residents of the area.” 

The Port of Vancouver has not been directly affected by flooding, but rail shipping has been suspended, and the highways that act as arteries to Canada’s interior have been closed. Xotta says the port is working with emergency managers to figure out how long the closures would continue, but the extent of the damage is still being assessed. 

The port is unusual in that it ships a diversified range of consumer goods and commodities, including oil from Alberta, grains from Saskatchewan and Manitoba, and minerals and lumber from British Columbia and points farther north. It is also the main entry point for imported consumer goods coming to Canada. 

In the first half of 2021, the port experienced a 7% rise in cargo volumes over midyear 2020, setting a record. Container quantities increased by almost 25%, and grains by 20% over midyear. One notable increase was in the volume of empty containers backed up at the port, a phenomenon also experienced at West Coast ports in the U.S.

Xotta is hesitant to even speculate on how long it would take the supply chain to normalize. For now, he says, shipping terminals are sending out their existing inventory to the Asia-Pacific and other regions. “Once that’s exhausted, they will remain idle until rail service resumes,” he says.

As for goods headed back the other way to Central Canadian markets, they’re not presently going anywhere. Depending on how long this state of affairs continues, “vessels will start to back up,” Xotta says.   

If the situation doesn’t resolve soon, shortages of fuel, consumer goods, and even some medical supplies could sweep the region. The interruption could also cause consumer prices to rise as shipping costs rack up along the route that commodities end up taking. On a call during the week of the flooding, CN Rail executives told investors that any lost revenue for the quarter could be made up by raising shipping prices within Western Canada.  

The situation underscores the importance of building resiliency into the supply chain in the face of climate change, says Adel Guitouni, a professor of supply-chain management at the University of Victoria’s Gustavson School of Business. “We need to have redundancy in these kinds of networks,” he says. “What we were thinking to be 100-year episodes now happen almost every year.” 

Economists predict that the floods will rank among Canada’s costliest natural disasters. They come on the heels of a grueling summer of heat and yet another season of wildfires in British Columbia’s interior. These events also impacted shipping, though to a far lesser degree, and caused shortages in the lumber sector.

The heat and fire from earlier in the year exacerbated the rain’s damage by making soil unstable, which caused mudslides and worsened the flooding. “You see how this vicious cycle between the fires, the extreme heat, and the rain is going to put our infrastructure under stress,” says Guitouni. 

These closures will result in costly shipping delays and may produce shortages. Some goods are being rerouted north to Prince Rupert, B.C., and other points south along the U.S. West Coast, but extra capacity is limited right now. Similarly, some truckers are headed southward, but that move comes with extra costs and logistical issues.

What we were thinking to be 100-year episodes now happen almost every year.

Adel Guitouni, University of Victoria

This incident is one in a string of recent examples of extreme weather disrupting delivery networks. In Asia, the ongoing semiconductor shortage has been exacerbated by Taiwan’s worst drought in more than half a century. Earlier this year, Winter Storm Uri devastated Texas, causing shortages of plastics and petrochemicals. 

Ripples from these events are felt up and down the supply chain, in parts of the world you wouldn’t expect and in industries that might seem unrelated at first glance. “That’s the unfortunate nature of all the interdependencies we have in the global economy,” says Guitouni. 

Amid all this destruction, Guitouni and others in his field see new opportunities to make a positive impact. Their goal is to promote the idea of a regenerative supply chain that offers economic and social benefits to people and the environment at every point. “One action along the supply chain is worth multiple times the action you take within one organization,” Guitouni says. 

A version of this article appears in the December 2021/January 2022 issue of Fortune with the headline, “A port cut off.”

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