Supply chain threatened as industrial operations take a hit

With the threat of more flooding in the Central region, there could be greater disruptions to the supply chain.
 

While the floods have ravaged many parts of Thailand since August, manufacturing suffered relatively little damage, as most factories were situated away from the flooding areas. However, this changed on October 5 when water levels reached their highest point in recent times and Ayutthaya, home to many manufacturing units, was seriously affected.
 

Narumon Rodsiravoraphat, senior manager for industrial services at Colliers, said far greater damage was caused to industry in the past few days than in the previous few months.
 

“Industry has incurred more than a hundred times as much financial loss since October 5 after severe damage to two industrial estates, while two others have been evacuated in anticipation of flood waters reaching them,” Narumon said.
 

Many warehouses and distribution centres have been seriously affected, especially in the Ayutthaya area and along the main highway of Phahonyothin Road, which has in effect become the channel for water in the North to flow down to the Central provinces. Over the course of the week, further flooding is expected because of looming storms, and industrial facilities in Pathum Thani and Bangkok themselves are now in danger.
 

Narumon said more than 500 factories had been forced to close and more than 100,000 workers had been affected by this crisis.
 

“The damage from the flooding may take two or three months to be accessed and rectified after the water level decreases, as companies must take time for renovation of facilities as well as repair and restarting of machinery,” she added.
 

The industrial market has picked up rapidly from 2010 and there has been a shortage of warehouse space in some locations, especially good-quality large space in Ayutthaya and some Bang Na areas. Laem Chabang, where there is strong demand for free zones, also seems short of space.
 

“Developers should understand more of the market demands and requirements in terms of specification, locations, layout, and general/free trade zones, etc. And we do hope that all new warehouse developments will be raised-floor,” Narumon said.
 

Although the initial reaction after the floods will be for relocation of manufacturing, in reality manufacturers will remain rather sanguine, said Patima Jeerapaet, managing director of Colliers. “Many have invested significant amounts of money over time and they are just not going to walk away,” he said.
 

“It also takes time to create a supplier network.”
 

Patima also noted that serious damage was not limited to Thailand and the horrors of the flooding were also evident in Cambodia, Philippines and Laos.
“Manufacturers will be wary of relocating to countries with less reliable infrastructure to cope with floods, and they may decide that Thailand is a better location than, say, Vietnam or Cambodia because of |this fact.
 

“However, new investment for manufacturing locations may be shifted towards non-flood-prone areas in Thailand. All factories, distribution centres, and logistics companies also must create and work out their contingency plans well in advance,” Patima said.
 

One possible ramification could be the development of back-up storage centres in locations on higher ground, which can protect goods from damage.
 

“After the riots in 2010, many firms considered back-up locations. The same may now apply for industrial activity,” Patima said.
 

However, the flooding story has not run its course and a better assessment can be made in a week or so. “We only hope that further damage is kept to a minimum,” Patima added.