Supply Chain Matters provides another update regarding the impact of the devastating floods that impacted Thailand last fall.
The government of Thailand recently reported that that while factory output rose during the month of April, that country’s exports unexpectedly fell again as industries continued to feel the impact of last year’s flooding. An added challenge has been the building economic crisis in Europe. Shipments to Japan fell 7.7 percent while shipments to the Eurozone fell 11.4 percent and to the U.S. fell 1 percent. A more positive indicator was shipments to China, which increased 16.5 percent.
A Reuter’s published article quotes a government spokesperson as indicating that the main industry sectors impacted by the recent floods, particularly the automotive sector, have recovered steadily. It further notes that at least 72 percent of the 839 impacted firms are up and running nearly 7 months after the incident. Car production was reported as increasing along with air conditioners. Full production activity is expected to recover by June, which is consistent with initial estimates.
In our late February update, we noted that Thailand’s economy contracted at the annual rate of 9 percent in the final quarter of 2011 which is quite significant. According to the National Economic and Social Development Board of Thailand, the manufacturing sector alone declined 23 percent while net exports fell at an annual rate of 6.1 percent compared to a 17.3 growth rate in the previous quarter. Thai authorities had estimated that flood damage costs could be up to $15 billion, involving more than 400 manufacturers and households. We also pointed out that small and mid-market manufacturers in the country could suffer longer-term impacts because of the overall magnitude of insurance losses and potentially higher insurance costs. The latest statements from Thai government officials remain optimistic in terms of forecasted export growth in 2012. We believe that may be too optimistic, given that some firms have already changed their production sourcing strategies towards other countries.
Meanwhile, some supply chain teams have risen above the flood impacts and have accomplished extraordinary efforts. Hard disk drive production, which suffered up to a 25 percent reduction in factory production, is just coming back to normal levels of supply. However, iSuppli reports that average selling pricing for HDD drives are as much as 28 percent above pre-flood levels, because many PC manufacturers locked-in longer term pricing directly after the crisis. We recently complimented the Western Digital teams for their efforts. In the automotive sector, Nissan has also demonstrated an ability to turn crisis into opportunity for sales growth.
Once again, the takeaway for senior management and supply chain teams is to factor the practicality related to the severity of these ongoing natural disaster events. It took almost a year for supply chains to recover from the northern Japan incident in March 2011. Seven months from the Thailand floods, normalcy is just beginning to occur, but open questions on sourcing strategy remain. Business disruption and continuity planning needs to both factor realities of timing and contingency planning.