Climate Volatility Disrupts Global Supply Chains

According to Aon’s latest 2025 Client Trends Report, climate volatility and extreme weather events are disrupting global trade routes, impacting supply chain reliability and leading to financial losses. The interconnectedness of trade adds complexity to the already-challenging exercise of mapping supply chains and mitigating exposures, with even seemingly localised events having significant downstream impacts on business on the other side of the world.

Natural catastrophes and impacts of climate extremes can further exacerbate financial and reputational challenges when overlaid with other geopolitical and socioeconomic risks. For example, increasing construction expenses, coupled with a shortage of skilled labour and supply chain disruptions, have driven up the costs of rebuilding efforts in the wake of natural disasters.

Global natural disasters in 2024 resulted in economic losses reaching at least $368 billion[1]  and as the frequency and severity of climate events continue to rise, it’s crucial for businesses to integrate climate risk assessments into their strategic planning. The need for climate-resilient infrastructure and diversified supply chains is likewise becoming more pressing.

Mapping Climate’s Impact on Trade
Climate-related events in recent years have had widespread repercussions for trade across Southern Africa:

• In 2023, severe drought conditions across parts of the Eastern Cape and Northern Cape led to critically low dam levels, impacting water-intensive industries such as agriculture and Agri-processing. Reduced output from these sectors affected export volumes of citrus and other produce, disrupting supply contracts and shipping schedules.[2]
• Record-breaking wildfires in the Western Cape during the 2023/2024 fire season caused significant damage to infrastructure and vineyards, leading to transport delays and temporary closures of regional roads. Smoke and hazardous air quality also hampered air traffic operations in and out of Cape Town International Airport. [3]
• In early 2024, heavy rains and flooding in parts of Mozambique and Limpopo disrupted regional trade routes and damaged key agricultural zones. In Mozambique, the flooding displaced thousands, disrupted transport logistics and caused crop failures, which had a knock-on effect on food imports into South Africa. [4]

Industry Perspectives on Climate Impacts
Beyond regional exposures to climate volatility and extreme weather, the impacts of these risks on businesses vary widely across industries. Two notable sectors impacted by a changing climate include:

Food, Agribusiness and Beverage (FAB)
Across Africa, climate volatility and extreme weather events — including prolonged droughts, intense heatwaves, flooding and cyclones — are undermining agricultural productivity and threatening food security. In recent years, staple and cash crops alike have suffered significant yield declines due to shifting rainfall patterns, increasing temperatures and unpredictable seasons.

In southern Africa, for instance, prolonged drought conditions linked to El Niño[5]  have severely affected maize and soybean production, with countries like Zimbabwe and Zambia declaring national disasters due to crop failures. In East Africa, rising temperatures and erratic rains[6] have jeopardised the production of coffee and tea — crops crucial to economies in Ethiopia, Kenya and Uganda. Ethiopia, the continent’s largest coffee exporter, has seen declining arabica coffee yields and quality due to heat stress and irregular rainfall, contributing to supply instability and price volatility.

Similar to Central America’s experience, the impacts are disproportionately felt by smallholdings, many of whom lack access to crop insurance, financial buffers or diversified income streams. In West Africa, cocoa-growing regions in Ghana and Côte d’Ivoire — responsible for over 60% of the world’s cocoa — have faced intense weather fluctuations and deforestation-driven climate shifts [7], contributing to reduced yields and increased pest outbreaks. As production dips, international cocoa prices have soared, mirroring the coffee price spikes seen elsewhere.

“As agricultural commodities become more climate-sensitive, cargo risks are also intensifying. Transport delays caused by heavy rains, washed-out roads and port backlogs increase the risk of spoilage, particularly for perishable exports like fruit, flowers and processed beverages. The rising cost of agricultural shipments due to logistical bottlenecks is placing serious pressure on exporters and supply chain partners,” says Anthony O’Reilly, regional manager for Aon South Africa’s southern region.

“To build resilience, the FAB industry in Africa must prioritise climate adaptation, sustainable farming practices and better risk transfer mechanisms. Insurance solutions that support farmers — from drought cover to multi-peril crop insurance — play a critical role in enabling recovery, stabilising earnings and safeguarding regional and international supply chains,” Anthony explains.

Road Transport & Fleet Operations
Road infrastructure and fleet operations form the backbone of South Africa’s logistics and supply chain networks. Any significant disruption—be it from weather, infrastructure and maintenance failure or geopolitical instability—can severely impact the movement of goods, drive up operational costs and strain the broader economy.

Many fleet operators and transport companies rely heavily on specific vehicle suppliers and spare parts, which creates vulnerabilities when global supply chains are disrupted. Delays in sourcing critical components can ground vehicles for extended periods, hampering delivery schedules.

Extreme weather events across the region, such as the April 2022 floods in KwaZulu-Natal [8], illustrate the growing exposure of road infrastructure to climate risks. That single event caused over R17 billion in damages, including the destruction of key transport routes and severe delays to freight movement. 

Roads, bridges and support infrastructure are increasingly vulnerable, with rebuilding costs and downtime becoming a growing burden for both government and private fleet operators. Additionally, rising temperatures and prolonged heatwaves are accelerating the degradation of road surfaces, increasing vehicle maintenance costs and reducing operational efficiency. 

“It is essential for any operator in the transport and logistics sector to re-evaluate road transport risks in light of more frequent and severe weather losses,” says Russell Davis, from Aon South Africa’s property and motor broking centre. “Deductibles for large commercial fleets are climbing which means that robust risk management strategies are central to identifying more resilient routing and maintenance strategies with the inclusion of telematics solutions in fleet vehicles.”

Strategies to Help Supply Chains Weather the Storm
Amid a changing climate, insurance solutions can help organisations transfer the risk of weather-related disruptions. With the volatility, frequency and severity of climate events expected to rise, here are additional risk management strategies businesses can integrate to remain resilient:

1. Implement climate-resilient infrastructure: Retrofitting or fortifying existing assets to withstand property perils can be expensive. In many cases though, it’s worth the investment. For instance, constructing an edifice to a “building code-plus” standard — that is, beyond what the current building code requires — can be a difficult capital decision. With the right data and risk quantification, however, businesses can make informed decisions about infrastructure-focused risk mitigation for various perils.
2. Use natural catastrophe and climate models: Physical risk modelling tools can help organisations assess exposure to natural catastrophe events and climate extremes across their supply chains, as well as quantify the financial impact of a range of potential events. These models can measure the value at risk today and into the future under various emissions scenarios and evaluate vulnerabilities in the portfolio to develop tailor-made mitigation strategies.
3. Diversify supply chains: Supply chain disruptions due to weather can occur at various points and across multiple nodes that span regions, highlighting the importance of diversifying supply chains. If it’s possible and alternative suppliers are available, organisations should implement diversification to ensure that a disruption in one node doesn’t have a substantial impact down the line. While this may come at a cost, it effectively represents an investment in resilience.
4. Enable supply chain visibility: Managing supply chain risks is a complex challenge that typically falls under the purview of procurement or supply chain directors rather than the risk office. Large multinationals may trace their supply chains down to the second tier, but beyond that, it can be more challenging. Many companies have focused their risk management efforts on first-tier suppliers, given the concentration of risk often found in these entities. Where possible, risk management efforts should focus beyond this tier to build out full-scale visibility of an organisation's supply chain. This will help create a more resilient enterprise, as well as provide underwriters with better information to provide access to fit-for-purpose insurance coverage.

Given the growing complexity and interconnectedness of global supply chains — and the increasing threat posed by climate-related disruptions — it is essential for organisations to work closely with a knowledgeable insurance broker and risk management advisor. “A team that brings deep expertise in risk quantification, insurance innovation and mitigation planning, enables businesses to make more informed, data-driven decisions. By engaging the right advisors early, organisations can not only access tailored insurance solutions but also develop comprehensive, forward-looking strategies that strengthen resilience and protect operational continuity in a rapidly evolving risk landscape,” Russell concludes.

Ends…

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[1] Aon 2025 Climate and Catastrophe Insight

[2] dlrrd.gov.za 2023 Quarterly Economic Overview Agricultural Sector

[3] South Africa: Cape Town, A City Under Fire

[4] Storymaps.arcgis.com Floods in Mozambique, March 2024

[5] Southern Africa: El Niño Regional Humanitarian Overview, September 2024

[6] Africa faces disproportionate burden from climate change and adaptation costs

[7] Climate change impacts on cocoa production in the major producing countries of West and Central Africa by mid-century

[8] Initial Results – April 2022 Flood Economic Impact