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Thailand suppliers deal with devastating flood

By Hpanchal on November 28, 2011

The floodwaters that have inundated large swaths of Thailand reach far beyond Southeast Asia. They have affected supply chains and production patterns as far as Japan and North America.

The impact of the flooding has been all the more severe because production in Thailand is concentrated in a handful of areas for the sake of just-in-time production and to reduce supply-chain costs. About 14,000 factories in Thailand have been affected by the floods, and the list of them reads like a who’s who of international auto and technology manufacturers — Apple, Ford, GM, Nissan, Toyota, Honda, Western Digital and Toshiba, as well as numerous parts suppliers to these giants.

Not surprisingly, the flood caused production to cease at many factories. Manufacturers that were able to stay open, however, faced enormous challenges in finding alternative suppliers and production locations, and getting parts to their facilities, reported Vincent Yong, chief operating officer for Thailand at DHL Global Forwarding.

In addition to serving as the second-largest exporter of hard disk drives, Thailand is the largest automotive hub in Southeast Asia. In fact, officials from Toyota, Thailand’s largest automaker, estimate the flood has cost them more than 37,000 vehicles. Output of hard disk drives is also down considerably, plummeting 25 percent. And Western Digital’s plants in Thailand are closed and are unlikely to open for four to seven months.

Car manufacturers in Canada and the U.S. are already feeling the impact of the flooding. Having just ramped up production in North America after the disruptions caused by the March tsunami, Honda was forced to slash output on this side of the Pacific by 50 percent for two weeks, while Toyota halted overtime and Saturday production at its North American plants.

Output in North America is not only crimped by a lack of parts from Thailand, however. In order to compensate for the production losses, some Japanese automakers have diverted some of the parts built in North America that usually feed their plants in the Asia-Pacific. In fact, Nippon Cargo Airlines has been busy flying car parts produced in the Midwest and Canada to Japan. They are trucked to Chicago to catch NCA freighters headed west, according to Shawn McWhorter, the carrier’s president for the Americas.

Predictably, Thai exports have taken a hit from the flooding, which has prompted the Bank of Thailand to downgrade its growth outlook for 2011 from 4.1 percent to 3 percent. “The volume of freight is down significantly,” reported Suchet Chayanurak, director of airfreight and PM airfreight at Schenker (Thai) Ltd., adding that airlines had cut their freighter and passenger flights temporarily.

Cathay Pacific has maintained its freighter schedule into Bangkok, but cut one daily passenger frequency, stated James Woodrow, general manager of cargo sales and marketing. The airline is ready to deploy freighters for relief flights, for which calls seemed to be escalating, he added.

NCA is also responding to the nation’s humanitarian needs, McWhorter maintained. “We shipped small boats to Thailand to help people there deal with the flooding,” he said.
So far, Bangkok’s Suvarnabhumi airport has coped with the situation, despite a shift of domestic flights over from Don Muang, the city’s domestic airport, which was shut down due to flooding in early November. The authorities have expressed confidence that Suvarnabhumi will not be flooded, but there are questions surrounding how congested it will be when activity picks up.

“Most likely, there will be bottlenecks at Suvarnabhumi,” predicted Chayanurak. “I’m not sure if the carriers can quickly adjust their schedule once production resumes.”

Patrick Dick, managing director of the logistics firm The Freight, noted that Suvarnabhumi has handled a record number of flights after the migration of passenger routes from Don Muang. It helped that freighter operations were reduced, but it remains to be seen how the airport will cope with relief charters, when those arrive in large quantities, he added. By the second week of November, they had not made an impact, as the Thai government had not initiated the kind and scope of relief efforts seen in other countries.

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