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A Deluge of Challenges in Thailand

Published: 20 May 2015 01:05:40 PST

Since October 4, historic flooding in Thailand has been responsible for a ripple effect of problems in the Asia-Pacific supply chain. In a recent article for The Journal of Commerce (JOC), PIERS data showed the percent change in containerized trade drastically declining in a number of areas from 2010 to 2011. With these numbers in the red, and Secretary of State Hillary Clinton’s estimate that losses from natural disasters in the Asia-Pacific region could surpass $200 billion this year, experts in the industry are questioning the reliance on Thailand for everything from auto parts to microchips.

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When one of the world’s largest automakers, Honda, has to shut down operations for over a month due to flooding in this productive area of the world, it’s no wonder a shift is being pondered. Drastic measures are being taken to recover some of the lost property under water—literally. Honda and other automakers such as Toyota and Mitsubishi are hiring divers to find parts molds in the flooded areas.

The tech sector is also feeling the loss of production, most notably in the hard disk drive sector, which is normally capable of supplying up to 45 percent of the world’s production in this area—now production has been sliced in half. Flooding has also been blamed for Intel and Apple’s drop in share price this quarter and a year-on-year contraction in global personal computer shipments.

The primary reason the recent flooding has had such a far reaching impact is because Thailand’s manufacturing supplies a disproportionate percentage of several key industries.  While this clustering of suppliers and customers has become popular due to the efficiencies it creates at the front end of manufacturing, it comes at the expense of flexibility in supplier networks, which is evident by the recent floods as well as the earthquake in Japan earlier this year.

It still remains to be seen how these natural disasters affect the future of production in Thailand.  But being that manufacturing in both the tech and automobile sectors are susceptible to long down times from damaged machinery and equipment, the recovery will likely take place over months and multiple quarters rather than weeks. To stay in touch with trade trends and shifts across geographical boundaries, check out PIERS product solutions designed to meet your global intelligence needs.

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