Freight Transportation Resilience in Response to Supply Chain Disruptions (2019)

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130 impacts on market value. Very few plans devote much attention to the broader picture of how interaction with public agencies should occur. The role of public transportation agencies in planning for dealing with incidents, especially large-scale disruptions that could have widespread impacts across multiple economic sectors and markets, is to be prepared to get the transportation system up and running as soon as possible after an event, as well as supporting other agencies in dealing with public safety and public health issues associated with the aftermath. For public agencies the focus has been on planning, institutionalizing, and practicing their response to incidents. For such agencies the lessons learned from past incidents are considered important for improving both the approaches taken and the protocols used as part of the emergency management program. At a broader agency level, federal law requires state DOTs to develop a risk-based asset management plan where possible risks to the transportation system are identified and strategies are developed to reduce these risks to DOT assets. However, the exact definition of what this means is left unclear. The concept of examining transportation system resilience from the perspective of identifying potential vulnerabilities for a variety of threats, examining strategies for reducing the risks associated with such threats, and developing plans and strategies for making the transportation system more resilient has only become a growing concern to transportation officials over the past decade or so. Some states have undertaken vulnerability studies for extreme weather and climate change risks (e.g., California, Massachusetts and Washington) while others have conducted planning for earthquake disruptions (e.g., California and Oregon). In each of these efforts, the impact on the flow of people and goods is explicitly considered as an economic cost that should be minimized. For example, the costs of using detour routes around affected road segments is added into the benefit cost assessment of analyzing different mitigation strategies. In very few cases, however, have representatives from the freight sector been involved with these studies, and discussions with freight representatives in the states that are conducting such studies did not know the studies were even being undertaken. CHARACTERISTICS OF DISRUPTIONS A disruptive event is one that causes direct short- term or long-term impacts such as fatalities, infrastructure destruction and economic loss. In terms of freight transportation, disruption can be defined as both the planned/expected and the unplanned/unanticipated events that will affect the normal flow of goods and services in the supply chain. Not only could disruptions have an immediate impact on the performance of a facility or network, but they might have much broader consequences. Disruptions to ports, for example, could not only affect the businesses directly involved in maritime operations, but could also affect broader regional economies and even far-flung industrial sectors relying on the supply chain served by that port. Disruptions exhibit certain characteristics that become important considerations in identifying desirable resilience strategies. As noted earlier, the duration of a disruption was found in the research to have the most impact on how agencies and companies respond. However, three additional characteristics highlighted in this guidance were also Impact of Disruptions on Supply Chains and on the Economy One of the most dramatic examples of the impact of a natural disruption was the Great East Japan Earthquake of March 2011, which disrupted the automobile parts supply chain; led to soaring energy prices in Japan due to the temporary shutdown of nuclear-powered power plants; and the appreciation of the yen that caused Japan to record its first trade deficit in 31 years. The government found that 308 small businesses in Japan were severely affected; 337 went bankrupt with 46 of these being in the affected area (the smaller number due to government assistance for those businesses most affected). The stock value of Japanese companies fell 7 percent on average. In the aftermath of the earthquake all of the major companies in Japan now have business continuity plans. Source: Ministry of Economy, Trade and Industry. 2012. White Paper on International Economy and Trade 2012.Japan. http://www.meti.go.jp/english/report/downloadfiles/2012WhitePaper /2-4.pdf

131 considered important in terms of the type and extent of response: 1) the degree of advance notification, 2) the geographic scope of the disruption and concomitant consequences, and 3) the magnitude of loss. Advance Notification The amount of time before which we can know that a disruptive event will occur, also known as “lead time,” is defined as “the time between knowing that a disruptive event will take place and the event’s first impact.”6 The timeframe can vary depending on the type of disruption and it can help characterize types of disruptive events. Some disruptions may involve a long-term trend, such as climate change, which provides ample notification. Other disruptions could be planned, such as a lock closure, which provides relatively accurate advance notification and opportunity to make alternate arrangements. Disruptions can also occur without any advance notification, such as an earthquake or fire. Based on the advance notification time, a disruptive event can be characterized as follows. These categories can be further classified into man-made and natural events: Abrupt events – disruptions that occur with zero to extremely little advance notification. These could be natural events such as earthquakes, tsunamis, or man-made events such as terrorist attacks, bridge failures, fires, technology failures or financial failures. These events show very little to no prior warning signs. Advance notification of such events could be measured in minutes or hours. Rapid events – disruptions that occurs with little to moderate advance notification. These could be natural events such as a hurricane, snow or ice storm, flood, or man-made events such as a labor strike. These events show some warning signs before occurring and notification could occur days in advance of the actual event onset. Planned/Predictable events – disruptions that occurs with an ample amount of advance notification. These could be natural events such as climate change, or man-made events such as a lock or bridge closure. The majority of these events are planned and hence, they provide sufficient warning signs before occurring. Advance notification of such events could be measured in weeks to months even to years. Disruption Impact –Geographic Scope The geographic scope of a disruption can be classified as: Local – disruptions that affect the local area and can be mitigated by providing detours or other alternate routes for freight transportation. Regional – disruption that impacts the freight transportation and supply networks of an entire region and requires mitigation strategies to overcome their impacts. National – disruptions significant enough that impacts to the freight transportation and supply networks of the nation require extensive mitigation strategies, with multiple agencies involved. Such disruptions may lead to declaring a state of emergency. International – disruptions that are large enough to affect international freight transportation and supply networks and require extensive mitigation strategies involving multiple countries. Disruption Impact - Level of Loss The impact of a disruptive event, depending on its geographical scope, level of predictability, duration, and loss of lives and economic activity, can be classified as: 6 Sheffi, Y. 2015. "Preparing for Disruptions Through Early Detection." MIT Sloan Management Review. http://sheffi.mit.edu/sites/default/files/Preparing%20for%20Disruptions%20Through%20Early%20Detection.pdf

132 Severe impact – disruptive events that can affect national or international freight transportation and rank very high in terms of economic loss incurred, or as a result of which many lives are lost. High impact – disruptive events that can affect national or regional freight transportation and rank high on economic loss incurred or lives lost. Low impact – disruptive events that can affect regional or local freight transportation and rank low to moderate on economic loss incurred and people injured. Another challenge in estimating level of loss is the amount of time for the impacts to reverberate through the economy. Figure 5, for example, illustrates how the economic costs will vary by length of disruption and how a particular market could respond. The longer the disruption, the larger the economic costs likely to be incurred. Source: Meyer, M., Georgia Tech Research Corporation; Parsons Brinckerhoff, Inc.; and A. Strauss-Wieder, Inc. 2012. Methodologies to Estimate the Economic Impacts of Disruptions to the Goods Movement System. National Academies of Sciences, Engineering, and Medicine. Washington, DC: The National Academies Press. https://doi.org/10.17226/22702. Figure 5: Changing Economic Costs Over Time Due to System Disruptions Disruption Classification Figure 6 shows a classification scheme for disruptions. "Advance Notification" is located on the vertical axis and "Disruption Impact" on the horizontal axis. Disruption events that fall under rapid notification with low impact and events that fall under planned/predictable notification with low to high impact are classified as Class 1 disruptions, shown in yellow. Similarly, events that falls under abrupt, rapid and planned/predictable notification with low, high and severe impact respectively are classified as Class 2 disruptions, shown in orange. Events that fall under abrupt notification with high to severe impact and events that fall under rapid notification with severe impact are classified as Class 3 disruptions, shown in red. Typical types of disruptions are shown in the figure. Note that this presentation is similar to many portrayals of risk, and is often referred to as a "heat map."