Posted on 07 Nov 2011
In the neck-deep floodwaters of an industrial zone in Bang Pa-In, Thailand, workers are using Jet Skis and wooden skiffs to transport stacks of computer components out of waterlogged factories. 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.
The slow-moving floodwaters, which are an accumulation from this year’s unusually strong monsoon rains in northern Thailand, are gradually draining into the sea. At what is known as the Bang Pa-In Industrial Estate, trucks have delivered massive pumps. Workers said they would start trying to remove water from the area on Monday.
The floodwaters descended to this area an hour north of Bangkok in early October. Efforts to defend industrial areas with sandbags and other barriers were futile.
“There was no way we could have held back the water,” said Samruay Pakubol, a welder at an automotive parts factory here. Now out of work, he takes passengers on a wooden boat down the streets of the industrial zone. Workers have caught and killed crocodiles swimming in the area, he said.
Dale Schudel, managing director of IntriPlex Thailand, a company that makes components for hard-disk drives, said his factory in nearby Ayutthaya had floodwaters almost six feet deep. But pumping out the water, which will take about two to three weeks, is only the beginning of the cleanup. Mr. Schudel described the water as “highly corrosive.”
“I think you have to ask yourself, if any factory in the world were submerged in that much water, how much damage would there be?” he said.
Mr. Schudel predicted that the majority of companies affected by the flooding would rebuild their factories in Thailand. “Their customers are here and their suppliers are here,” he said.
But like other investors, Mr. Schudel said he was looking to the government to put in place flood prevention measures.
A large share of the industrial growth in Thailand has occurred on the flood plain north of Bangkok. Rice paddies were paved over to make way for factories, suburban housing and shopping malls, blocking the natural path and absorption of water during the monsoon season.
Last week, Thailand’s science and technology minister, Plodprasop Surasawadi, told a Thai newspaper that he was “one million percent sure” there would be flooding again next year.
“This is a natural phenomenon that you cannot escape,” he said. “We are living in a period of climate change.”
The country must build canals and drainage systems and adapt its roads and crop-planting schedule to mitigate future flooding, Mr. Plodprasop said.
One problem is that the Thai government lacks a master plan for flooding, said David Lyman, chairman of Tilleke & Gibbons, a prominent law firm in Bangkok. Flood prevention is hampered by interagency jealousies and the vested interests of landowners who are reluctant to give up property for flood-mitigation projects, he said.
Foreign companies affected by the flooding will not leave the country en masse, Mr. Lyman said. The country remains relatively inexpensive and a “nice place to live” despite the flooding, he said.
“Thailand will be able to get away with this once — but not twice,” he said. “They will have to do everything humanly possible to make sure it doesn’t happen again.”