Bangkok Flood Latest: Hurts Businesess, Increases Prices Worldwide

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By Brendan Giusti, Christian Post Reporter
November 3, 2011|12:46 pm

The rising waters in Thailand that have claimed more than 400 lives and displaced thousands of residents have also shuttered more than 1,000 factories in the flood-stricken country, creating a ripple effect in economies around the globe.

The result is a drop in production and a corresponding spike in prices worldwide. Automakers around the world are struggling to maintain production due to a shortage of some parts manufactured in Thailand, according to reports. Honda cut production in its factories in the United States, Canada and the United Kingdom in half because of the catastrophic flooding.

Workers at plants in the U.K. moved to a three-day workweek because of the decreased production, the BBC reported.

Delays and work shortages could last up to a month or more, sources said.

"We are working closely with our suppliers in Thailand and throughout our global network to reestablish the flow of parts," said a Honda representative.

Toyota cancelled overtime work at its plants in Indiana, Kentucky and Canada last week, also citing a similar shortage in parts. The cancelled overtime is expected to last through the month.

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The recent shut downs come as the two automakers just reached full-production again after a similar slowdown in the wake of the earthquake and tsunami that rattled Japan in March, according to The Canadian Press.

Ford, Mazda, Hino, Isuzu, Mitsubishi and Nissan have all reported a decrease in production.

Electronics makers are also feeling the pinch from the disruption in the supply chain as factories in Thailand that produce hard drives have closed.

The prices of hard drives have increased by 20 to 40 percent, which is in turn raising the prices of computers, Reuters reported.

That coincides with approximately 25 to 28 percent shortage in hard drives, according to a report by International Data Corporation, a global market research firm. Western Digital, the largest producer of hard drives, may lose 75 percent of its production.

Camera shipments by Sony, Nikon and Canon are likely to drop as parts production has also hit smaller electronics companies, according to market research firm IHS iSuppli.

Sony announced it expects profits for the year to drop by 90 percent because of the flood, the Financial Post reported.

The increasingly dire reports surfacing out of Thailand have economists worried.

“The impact on global growth could be more significant than what is currently expected,” said Jimmy Jean, economic strategist with Desjardins Capital Markets, to the Financial Post.

Thailand, a major producer or rice, lost more than 10 percent of its farmable land from the floods, according to an Oct. 21 United Nations report.

It is unclear how much additional farmland has been lost since floodwaters spread in the past few weeks.

“The scale of the floods is unprecedented, and therefore, the threat on regional food security is also unprecedented,” said Yang Razali Kassim, a senior fellow and analyst at the S. Rajaratnam School of International Studies of Nanyang Technological University in Singapore, to Voice of America.

“Rice supplies to the region is bound to be affected, adding to the pressure on food prices that have already seen rises in recent times due to shortages caused by erratic weather,” Kassim added.

Economists and analysts are warning of fallout from the flooding well past the time when waters recede in Thailand.

“This is still an unfolding situation, but the impact on global trade and inflation may be greater than expected,” Jean said to the Financial Post.

 

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