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Bangkok flood worsens with detrimental effects on regional electronics supply chain; Travel advisory issued by governments

Updated On: Oct 28, 2011

Thailand's flood crisis deepened this week as floodwaters advanced into Bangkok. Authorities were forced to shut down the capital city's second-largest airport, stop operations at seven industrial estates in Ayutthaya, Nonthaburi and Pathum Thani provinces bordering Bangkok, causing billions of dollars of damage, disrupting supply chains and putting about 650,000 people temporarily out of work.

“The floods may cause about 140 billion baht (USD$4.6 billion) of damage to manufacturers in seven industrial estates,” said Chantra Purnariksha, secretary-general of the Office of Insurance Commission.

The car and electronics manufacturing sector across Southeast Asia and Asia are most affected by the floods.

Honda Motor Co and Canon Inc have had to halt operations at factories in Thailand while others with production hubs in the country, including Nikon Corp, Toyota Motor Corp, Pioneer Corp and Sony Corp, have reported damage to plants or supply snags affecting production.

Honda Motor had to shut its plant in the central province of Ayutthaya, closing down 4.7 percent of its global output, in a natural disaster that has echoes of the supply chain disruption caused by Japan's earthquake and tsunami.

"We were the first to shut our plant in the area because our trading partners who were producing parts in Saharat Nakorn Estate were hit by the flood," a spokewoman for Honda's Thai unit said, adding that it was still trying to estimate the costs.

Similarly, Toshiba has had to halt operations at nine production plants at the Bangkadi Industrial Park and another plant at the Nava Nakorn estate, both in badly flooded Pathum Thani province to the north of Bangkok.

“We expect to resume operations in January at the earliest,” Kobkarn Wattanavrangkul, chairwoman of Toshiba Thailand, stated. “We're talking about 45 days after the water recedes. But whether we achieve that is still in question.”

Lenovo Group Ltd., the world's second-biggest PC maker, said on Wednesday it expected some constraints on hard disk drive supplies through the first quarter of next year after severe floods in Thailand crimped global supply.

While the Thai Government scrambles to protect the capital as water levels crept higher, the Thai private sector has decided to take the matter into their own hands. The private sector are working on plans to protect other estates in eastern Bangkok from flooding, including Bangpoo, Wellgrow and Lad Krabang, said Payungsak Chartsuthipol, head of the Federation of Thai Industries.

Some electronics makers have turned to Chinese suppliers to help with supply chain problems.

“We shifted to import from suppliers in China and keep our production running,” Delta Electronics (Thailand) Pcl director Anusorn Muttaraid said.

Ammar Master, a senior market analyst at the Asian unit of JD Power and Associates, a California-based industry research firm, said there would be an immediate impact across Asia, not only in Thailand, both in terms of sales and production.

"In terms of the region, the impact is not just going to be only in Thailand but there will be repercussion to operations in other markets such as Indonesia, Malaysia, the Philippines, even as far as India, where Honda is supplying components out of Thailand," Master said.

"The severity of the impact is too early to assess because it depends on what kind of inventory the other operations have. Some companies have very short inventories," Master said.

Output losses from the floods that have inundated about 10,000 factories are spreading beyond Thailand as supplies of components for cars and computers are disrupted. Operating profit at Toyota may be reduced by 125 billion yen (USD$1.6 billion) as plant closures cut production by 250,000 vehicles through Nov 20, analysts at Credit Suisse Group AG led by Kunihiko Shiohara said in a report.

“Difficulties securing electronic components are likely to have increasingly significant impacts,” Credit Suisse said in the report.

Travel Advisory Issued by Governments

The United States issued a warning to its nationals to avoid all but essential travel to parts of Thailand hit by floods, but pointed out that many tourist hotspots were unaffected.

"The US Department of State recommends against all but essential travel to these areas of Thailand," it said in a statement.

In Singapore, the Ministry of Foreign Affairs (MFA) continues to advise Singaporeans to defer non-essential travel to Bangkok until the flood situation improves.

It also urged Singaporeans in Bangkok to consider moving to higher ground or areas unaffected by the flooding if they have any concerns about their personal safety.

Report: MFA reiterates Bangkok flood warning [Asiaone News, 25 Oct 2011]

Report: Thai floods may disrupt supply chain around Asia [Reuters, 13 Oct 2011]

Report: Sharp Says Thai Floods to Hurt Sales as Toyota, Ford Cut Output [Bloomberg News, 27 Oct 2011]

Analysis: Electronics firms see Thai disruption for many quarters [Reuters, 26 Oct 2011)







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