March 29, 2024

Floodwaters Are Gone, but Supply Chain Issues Linger

KHLONG LUANG, Thailand — The floodwaters receded weeks ago from this sprawling industrial zone, but the streets are littered with detritus, the phones do not work and rusted machinery has been dumped outside warehouses that once buzzed with efficiency.

Before Thailand’s great flood of 2011, companies like Panasonic, JVC and Hitachi produced electronics and computer components that were exported around the world. Now of the 227 factories operating in the zone, only 15 percent have restarted production, according to Nipit Arunvongse Na Ayudhya, the managing director of the company that manages the Nava Nakorn industrial zone, one of the largest in Thailand and located just north of Bangkok.

“The recovery has not been that easy,” Mr. Nipit said in an interview Friday on the sidelines of a meeting where he sought to soothe anxious foreign factory managers.

The slow recovery here is having global consequences. Before the floods, Thailand produced about 40 percent to 45 percent of the world’s hard disk drives, the invaluable and ubiquitous storage devices of the digital age. It is now becoming clear that it will be months — significantly longer than initially expected — before production of hard drives returns to antediluvian levels.

The upshot for consumers worldwide is that they may face a prolonged period of higher prices for hard drives. In the United States, certain models are currently 40 percent to 50 percent more expensive than before the floods, levels that may remain for several months, analysts say.

“By the end of the year, HDD price could come back to preflood level for certain drives,” said Fang Zhang, an analyst at IHS iSuppli, a market forecasting company based in the United States. He used the acronym for hard disk drives.

John Coyne, the president and chief executive of Western Digital, which makes about one-third of the world’s hard drives, said this past week that production in the company’s factories in Thailand would not return to preflood levels until September. About 60 other companies that produce hard drives and components were flooded, he said.

The challenges facing all flood-affected companies in Thailand are apparent during a drive through the Nava Nakorn industrial zone. Rotting furniture and rusted file cabinets are strewn outside a Panasonic factory. Workers brought in from Cambodia are cleaning up — dredging filthy drainage ditches and cleaning up trash in front of a JVC facility. But more than a month after the last puddles of floodwater dried in the tropical sun, parts of Nava Nakorn, which means “new city,” still resemble a municipal dump. Large piles of garbage bags sit beside roads fissured and potholed by the floods.

Many buildings bear the telltale scar of the floodwaters — a high water mark about two meters above street level.

For most factories, the hopes of recovering machinery seems to have been dashed by the prolonged exposure to corrosive, polluted water — in some cases two months.

One manager at a factory that produces components for television sets described his machinery as “100 percent killed in action.” Mr. Nipit estimates that about 60 percent of machinery will be thrown away.

As they rebuild, many foreign investors seem anxious and uncertain whether the Thai government is taking enough measures to prevent another round of flooding during future monsoons.

On Friday, factory managers attended a presentation about future flood prevention measures. By August, the Nava Nakorn industrial zone is to resemble a fortress, with a giant flood wall around the perimeter and sealable aluminum flood barriers across entrance points.

But the audience at the presentation peppered the managers of the industrial zone with skeptical questions about the timetable of rehabilitation and the reliability of future flood forecasting.

Article source: http://feeds.nytimes.com/click.phdo?i=7740892a73c4d3c5134100efe3efa15d

Pervasive Thailand Flooding Cripples Hard-Drive Suppliers

Three weeks after monsoon run-off swamped more than 1,000 factories across central Thailand, the brown, corrosive floodwaters have only slightly receded, leaving the world’s largest computer makers without a reliable forecast about when crucial parts will be available once again.

Consumers worldwide could see increases of at least 10 percent in the price of external hard drives because of the flooding, according to Fang Zhang, an analyst at IHS iSuppli, a market research company. The effect will be less noticeable for laptops and desktop computers, he estimated, because demand has been weakened by the current global economic malaise.

The image of Thailand as a land of temples, beaches and smiles has over the years been reinforced by the country’s tourism advertising campaigns. But the flooding here, the worst in at least five decades, has revealed to the world the scale of Thailand’s industrialization and the extent to which two global industries, computers and cars, rely on components made here.

The world’s biggest names in hard-drive manufacturing, for example, operate from Thailand, where suppliers and customers come together.

Until the floodwaters came, a single facility in Bang Pa-In owned by Western Digital produced one-quarter of the world’s supply of “sliders,” an integral part of hard-disk drives. Over the weekend, workers in bright orange life jackets salvaged what they could from the top floors of the complex. The ground floor resembled an aquarium and the loading bays were home to jumping fish.

“Surely one of the inevitable impacts of this is that never again will so much be concentrated in so few places,” said John Monroe, an expert on storage devices at Gartner, a technology research firm. He estimated it would take a full year for hard-drive production to return to preflood levels.

The shortage is not entirely bad news for the disk-drive business, especially for those companies whose facilities were not damaged, such as Seagate, which has a factory high and dry on a plateau in northeastern Thailand. Mr. Monroe said price increases will help lift industry profit margin to about 30 percent from about 20 percent before the floods.

The flooding, which is now spreading through the northern reaches of Bangkok, is the second reminder this year of the vulnerability of global supply chains, coming just a few months after the earthquake and tsunami that struck Japan and shut down facilities that produce crucial car electronic components.

Thailand became a hub for Japanese car manufacturers in the 1980s and 1990s, partly because car makers sought to escape the punishing effect of a rising Japanese yen.

Today, as a measure of Thailand’s importance to the global automotive supply chain, the flooding has forced Toyota to slow production in factories in Indonesia, Japan, Malaysia, North America, Pakistan, the Philippines, South Africa and Vietnam. Honda, the carmaker most affected by the Thai floods, has also slowed production at factories in several countries.

The initial forecasts of damage to the auto industry were too optimistic, said Hajime Yamamoto, the Thailand director of IHS Automotive, an automotive market forecasting company based in Detroit. “It’s getting even more serious than what we expected,” he said. “Every week we actually revise our estimate for the scale of losses.”

Mr. Yamamoto predicted that car manufacturers and their suppliers would seek to diversify their operations to other countries.

“They will try to balance their expansion so they don’t have concentration of risk in Thailand,” said Mr. Yamamoto, who named Indonesia as a place Japanese suppliers were likely to expand.

Article source: http://www.nytimes.com/2011/11/07/business/global/07iht-floods07.html?partner=rss&emc=rss