We have another reader update regarding the global supply chain impacts from the devastating monsoon floods that have impacted Thailand and other southeast Asian countries.
While current news reports indicate that some of the flood waters are receding and the situation is improving, the effects remain. In human tragedy, the death toll no exceeds over 600 persons, and many continue to suffer from the after effects of this natural disaster. The Associated Press reports that over two-thirds of the country’s provinces have been affected by the floods. Seven of the country’s important industrial parks were flooded impacting what is forecasted to be two percentage points off Thailand’s GDP growth this year. The United Nations Food & Agriculture organization has warned on the potential for severe loses in agricultural food production across the region. Rice supplies are particularly impacted since over 12 percent of rice farmland has been damaged across Thailand, along with another 12 percent in Cambodia This is also in addition to the rice crop damage caused by the tsunami in northern Japan.
Our last update noted the significant vulnerability for hard disk drive (HDD) and Japanese automotive component production sourcing. An article published in Bloomberg BusinessWeek this week features an interview with Seagate Technology CEO Stephen J. Luczo. Seagate was one of the hard disk drive manufacturers whose factories in Thailand were largely spared, but Mr. Luczo indicates in the interview that the impacts are much longer than people are assuming, until at least the end of 2012. Average HDD drive prices have already spiked by 20 percent and higher and what supplies and capacity that remain are being bargained among major OEM manufacturers. According to Mr. Luczo, some have offered $250 million upfront to secure supply. Supplies and precision production equipment from as many as 130 suppliers may still be under water, and there are concerns that smaller suppliers may not have the financial resources to rebuild. A spokesperson for disk drive motor manufacturer Nidec reported that divers were sent into its factories to unbolt production equipment to be floated to safe areas, and later transported to alternative Nidec factories in China and the Philippines.
Computer OEM’s Dell and HP have weighed in with statements related to their latest earnings announcements. Dell indicated that it assembled a risk management team within 48 hours, and began pulling in component inventories from suppliers into its own warehouses. Dell expects the aftermath of the floods to be an issue for the next couple of quarters. HP indicated that it began to make strategic buys of HDD inventory in October, and indicated tough sledding for others in the industry. Industry analyst firm IDC now forecasts that PC shipments will decline between 2.2 and 3.4 percent in the fourth quarter, down from a previous forecast for 5.1 percent growth. According to IDC, Q1 output may drop anywhere from 1.8 to 13.4 percent.
In automotive supply chains, Honda continues to appear as the most severely impacted OEM, having to previously cut-back production by as much as 50 percent in some regions. The company has now indicated that it will begin to increase production across its North American plants in the next two weeks. Toyota, who suffered a sharp drop in fiscal second quarter earnings withdrew its earnings forecast for the remainder of the year as it continues to navigate its way through this latest supply chain shock. Toyota indicated that between October 10 and November 12, the impact of the floods on closed facilities resulted in 150,000 units of lost production.
At this point there is little question that the supply chain impacts from the floods in Thailand will be an ongoing business headline for some months to come and supply chain response management initiatives will be critical for the many companies impacted.