Thai supply chains brace for flood impact
While unusually large volumes of water moving from the north of the country combined with an extremely high tide hit industrial parks north of Bangkok, the flooding largely failed to disrupt business in the capital and had no impact on cargo operations at Suvarnabhumi International Airport.
February 1, 2012
Thai supply chains brace for flood impact
While unusually large volumes of water moving from the north of the country combined with an extremely high tide hit industrial parks north of Bangkok, the flooding largely failed to disrupt business in the capital and had no impact on cargo operations at Suvarnabhumi International Airport. But the floods did stretch and in some cases damage local supply chains. “Floods are disrupting things, but we are still getting through. A few customers are delaying shipments rather than risk them. But if they fly out of Bangkok, they still have to get to the airport,” said one cargo official with an international integrator. Much more problematic is the damage these floods have done to the sectors which use air to move goods such as hard drives – something in which Thailand is a market leader producing around a quarter of the world’s supply according to some published and contacted sources. Among the companies likely to be impacted are Toshiba, Samsung, Western Digital and Seagate Technology, the sources add. The Southeast Asian kingdom, exports some THB 80 billion (US$2.6 billion) of computer storage drives each year, according to one logistics source. With the factories where they were made in Central Thailand having been flooded, that market is now in jeopardy. Industrial parks submerged The potential economic costs were underscored in efforts to save the Nava Nakorn industrial estate located in Pathum Thani, directly north of Bangkok and home to a number of industrial parks. The government’s Flood Relief Operation Center ordered all factories there to halt work and prepare their workers for evacuation after water started to break through makeshift barriers in mid-October. At least four other major industrial parks were inundated, leaving upward of 100,000 workers idle and disrupting supply chains, especially in the automotive and electronic industries. Thailand’s Central Bank estimated in October that the total cost of the floods could reach THB 100 billion (US$3.2 billion). Among the companies with operations at the Nava Nakorn park are Japanese watchmakers Casio and Seiko, the Swiss powdered milk and food producer Nestle, Japanese electronics firm Toshiba and hard drive maker Western Digital, which had already lost another production facility at another industrial park. In a statement, Western Digital said its other facilities in Malaysia, Singapore and the US are fully operational, but that it “now expects that the flooding of its Thailand facilities, combined with flood damage to the company’s supply chain in Thailand, will have significant impact on the company’s overall operations and its ability to meet customer demand for its products in the December quarter.” Also hard hit were Honda and Toyota for whom Thailand is a major production base, with both companies forced to stop work due to flooding of their facilities. Many of the factories in flooded industrial estates are producers of specialised components, such as parts for computer hard drives, producing a knockon effect for manufacturers in other areas unaffected by flooding that are unable to source needed parts. Airlines nervous “All the airlines are going to get nervous” said the integrator source. “Potentially for the next two months they are not going to produce,” he said. This could be extended even further as some suggested the clean up might be as long as six months. Seagate technology warned there will be “significant impact” and said it would be felt over multiple quarters. This might catalyze other changes as the hard drive market has been soft of late, with some starting to look at sea freight. “If you can wait a further four or five days why not go ocean?” said the source of the way the manufacturers were thinking. There is even cross-border – Southeast Asian is increasingly linked to itself and China by road – to factor in. Balancing this one winner has been Suvarnabhumi airport whose reputation took a battering in 2008 when it was occupied by the so-called ‘yellow shirts’ during an earlier bout of Thailand’s political crisis. Airports of Thailand (AOT), who were to some extent ahead of the government which has been criticized for its handling of the floods, put in place enhanced flood prevention measures early one AOT’s Acting President, Somchai Sawasdeepon, said in a statement, a Flood Monitoring Center was set up which coordinated with government departments and airlines. Officials monitor water levels closely and mitigated risk by measures such as moving non-essential equipment. They expressed confidence the airport will continue operating normally. One reason for this is Suvarnabhumi’s design takes into account its location on a floodplain and has an extensive water management and flood prevention systems in place. This includes a 23.5 kilometre soil barrier around the perimeter, which was recently increased by 50 centimetres to 3.5 metres, six reservoirs and two water pumping stations each with four about one million cubic metres per day. The Japan External Trade Organisation Thailand meanwhile, has criticised the Thai government for allegedly failing to provide timely and accurate information about the situation in the central province of Ayutthaya, where hundreds of factories have been devastated, including electronics makers and automotive parts suppliers.