IMPACT OF THE MARCH 2011 EARTHQUAKE AND TSUNAMI ON THE JAPANESE ECONOMY, FACTORIES AND COMPANIES

IMPACT OF THE EARTHQUAKE AND TSUNAMI ON THE JAPANESE ECONOMY

20110413-Kelly Kaneshiro Japan_earthquake_store_shelves.jpg
Short term shortages in Sendai
A total of 27,149 businesses in three prefectures were damaged by the March 2011 earth. Among commercial and industrial businesses affected by the disaster in Iwate, Miyagi and Fukushima prefectures, 22 percent were closed temporarily or permanently. Progress has been slow in rebuilding main industries in coastal areas, such as seafood processing, and about 65,000 people were still looking for work at the end of 2011.

In March 2012, the Yomiuri Shimbun reported: Among listed companies, 1,356, or about 40 percent, have declared special losses due to the Great East Japan Earthquake in their full- or half-year earning results, according to Tokyo Shoko Research Ltd. The credit research firm said total losses had reached 4.07 trillion yen.The largest loss--2.1 trillion yen--was recorded by Tokyo Electric Power Co. because of compensation to victims of the nuclear disaster at the Fukushima No. 1 nuclear power plant. The company's figure alone accounted for about half of the total losses. [Source: Yomiuri Shimbun, March 12, 2012]

Tohoku Electric Power Co. suffered 173.1 billion yen in losses because of severe damage to its electric power facilities, while JX Holdings Inc. incurred a 137.4 billion yen loss as its refinery was damaged by the disaster. Sumitomo Metal Industries Ltd. incurred a 74.3 billion yen loss, and Nippon Paper Group Inc., 71.1 billion yen.

Initial Impact of the Earthquake and Tsunami on the Economy

The New York Times reported: The disruptions to Japan's $5 trillion economy, the third-largest in the world, and collective anxiety over the stricken reactors caused a bear run in the Japanese stock market that was felt across the region and reverberated globally. In the early days following the disaster the prospect of a nuclear catastrophe led to heavy selling on global markets, driving the benchmark index in Tokyo down more than 16 percent, while Frankfurt tumbled over 7.4 percent in Europe. Then after that the Tokyo market rose as foreigners snapped stocks of companies that had been oversold in panic selling. Billionaire Warren Buffet said that technology provided buying opportunities.

The Bank of Japan (BOJ), which injected a record $183.8 billion into the economy on the first workday following the earthquake and tsunami to maintain liquidity, poured in tens of billions of dollars more the next day. The Japanese central bank raced to shield the country’s economy and plunging financial markets from the impact of the devastating earthquake and tsunami by pumping liquidity into the financial system and easing monetary policy further through an expansion of asset purchases. Later the BOJ offered $12 billion in loans as quake aid and bout TEPCO bonds to keep their value propped up.

The United States and other major industrial nations in the Group of Seven (G-7) joined Japan in a highly unusual effort to stabilize the value of the yen by intervening in currency markets after the yen rose to a postwar record value of 76.25 yen to the dollar. It was the first time the G-7 had jointly intervened on currency markets in over a decade. The record was far below the previous record of ¥79.25 set in April 1995. Before the quake it was around 82 yen to the dollar. The spike was short lived. Several weeks after the quake the value yen stabilized at around 84 to the dollar. The surge too ¥76.25 is believed to have been at least partly the result of speculators buying up yen in anticipation of many Japanese firms being forced to repatriate capital in order to deal with the disaster.

After of the disaster, Japanese ports were closed, and so were several airports, including Narita International Airport, which serves Tokyo. This caused delays in shipping goods, and caused the prices of certain products and components to rise. In China prices for made-in-Japan products rose amid supply shortages. In some cases price gouging and other underhanded tactic were suspected as customers in some shops were told things like they had better a Japanese-made digital camera today as the price will go up tomorrow. But overall the impact was relatively modest and short-lived.

Websites, Links and Resources

Links to Articles in this Website About the 2011 Tsunami and Earthquake: 2011 EAST JAPAN EARTHQUAKE AND TSUNAMI: DEATH TOLL, GEOLOGY AND THEORIES Factsanddetails.com/Japan ; ACCOUNTS OF THE 2011 EARTHQUAKE Factsanddetails.com/Japan ; DAMAGE FROM 2011 EARTHQUAKE AND TSUNAMI Factsanddetails.com/Japan ; EYEWITNESS ACCOUNTS AND SURVIVOR STORIES Factsanddetails.com/Japan ; TSUNAMI WIPES OUT MINAMISANRIKU Factsanddetails.com/Japan ; SURVIVORS OF THE 2011 TSUNAMI Factsanddetails.com/Japan ; DEAD AND MISSING FROM THE 2011 TSUNAMI Factsanddetails.com/Japan ; RESCUE, RELIEF, REBUILDING AFTER TSUNAMI Factsanddetails.com/Japan ; LIFE FOR SURVIVORS AFTER THE TSUNAMI Factsanddetails.com/Japan ; CRISIS AT THE FUKUSHIMA NUCLEAR POWER PLANT Factsanddetails.com/Japan ; TEPCO, AND THE SAFETY OF FUKUSHIMA NUCLEAR PLANT Factsanddetails.com/Japan ; MELTDOWNS AT THE FUKUSHIMA Factsanddetails.com/Japan ; EARLY HOURS AT FUKUSHIMA AFTER THE TSUNAMI STRUCK Factsanddetails.com/Japan ; WHO’s TO BLAME FOR THE FUKUSHIMA Factsanddetails.com/Japan ; DAMAGE CONTROL AT FUKUSHIMA NUCLEAR POWER PLANT Factsanddetails.com/Japan ; RADIATION RELEASED FROM FUKUSHIMA Factsanddetails.com/Japan ; IMPACT OF EARTHQUAKE AND TSUNAMI OF MARCH 11, 2011 ON TOKYO, TRANSPORTATION AND ELECTRICITY Factsanddetails.com/Japan ; IMPACT OF 2011 EAST JAPAN EARTHQUAKE AND TSUNAMI ON THE ECONOMY Factsanddetails.com/Japan ; NUCLEAR ENERGY IN JAPAN Factsanddetails.com/Japan ;

Links to Articles in this Website About Earthquakes, Volcanoes and Tsunamis: VOLCANOS AND JAPAN Factsanddetails.com/Japan ; MAJOR VOLCANOS AND ERUPTIONS IN JAPAN Factsanddetails.com/Japan ; EARTHQUAKES AND JAPAN Factsanddetails.com/Japan ; EARTHQUAKES AND LIFE IN JAPAN Factsanddetails.com/Japan ; LARGE EARTHQUAKES IN JAPAN Factsanddetails.com/Japan ; KOBE EARTHQUAKE OF 1995 Factsanddetails.com/Japan ; LARGE EARTHQUAKES IN JAPAN IN THE 2000s Factsanddetails.com/Japan ; TSUNAMIS IN JAPAN Factsanddetails.com/Japan

Good Websites and Sources on Tsunamis: Wikipedia article on Tsunamis Wikipedia ; Surviving a Tsunami, Lessons from Chile, Hawaii and Japan pubs.usgs.gov ; Tsunami Warning System in Japan jma.go.jp/jma ; Tsunami Warnings from Japan Meteorological Agency jma.go.jp/en/tsunami ; Book: Tsunami: The Underrated Hazard by Edward Bryant. Tsunamis That Struck Japan Major Tsunamis in Japan in the 20th Century tsunami.civil.tohoku.ac.jp ; Major Earthquakes and Tsunamis in Japan in the 20th Century drgeorgepc.com ; 1933 Earthquake and Tsunami pdf file cidbimena.desastres.hn ; 1983 Tsunami drgeorgepc.com ; Report on the 1993 Tsunami nctr.pmel.noaa.gov ; Small Tsunami in 2010 reuters.com ;

Good Websites and Sources on Earthquakes: U.S. Geological Survey (USGS) National Earthquake Information Center earthquake.usgs.gov ; Wikipedia article on Earthquakes Wikipedia ; Earthquake severity pubs.usgs.gov ; USGS Earthquake Frequently Asked Questions earthquake.usgs.gov/learn/faq ; Collection of Images from Historic Earthquakes Pacific Earthquake Engineering Research Center, Jan Kozak Collection ; World Earthquake Map iris.edu/seismon ; Most Recent Earthquakes earthquake.usgs.gov ; Interactive Earthquake Guide guardian.co.uk ; USGS Earthquakes for Kids earthquake.usgs.gov/learn/kids ; Earthquake Preparedness and Safety Surviving an Earthquake edu4hazards.org ; Earthquake Pamphlet pubs.usgs.gov ; Earthquake Preparedness Guide earthquakepreparednessguide.com ; Earthquake Safety Site earthquakecountry.info ;

Earthquake Information for Japan Earthquake Information from Japan Meteorological Agency jma.go.jp/en/quake ; F-Net Broadband Seismography Network fnet.bosai.go.jp ; USGS Japan Earthquake Information earthquake.usgs.gov/earthquakes/world ; Tectonics and Volcanos of Japan volcano.oregonstate.edu ; MCEER Earthquake Engineering on Major Earthquakes in Japan in the 20th Century mceer.buffalo.edu ; Major Earthquakes in Japan in the 20th Century drgeorgepc.com ; Sesimic Hazard Map earthquake.usgs.gov ; Earthquake Density Map earthquake.usgs.gov ; Seismicity Map earthquake.usgs.gov ; Blogs About Japanese Earthquakes blogged.com/topics/japan-earthquake ; Geological Maps aist.go.jp/GSJ ; Earthquake Engineering and Disaster Prevention: Disaster Prevention Research Institute, University of Kyoto dpri.kyoto-u.ac.jp/web ; Japan Association of Earthquake Engineering jaee.gr.jp/english ; Earthquake Preparedness in Japan Earthquake Preparedness Survey whatjapanthinks.com ;U.S. Embassy Disaster Preparedness Checklist tokyo.usembassy.gov ; U.K. Embassy on Earthquake Preparedness v ; Report on Fastening Furniture pdf file iiasa.ac.at/Research/RAV ;Earthquake Preparedness Guide earthquakepreparednessguide.com ;

Earthquake Research in Japan: Headquarters of Earthquake Research Promotion jishin.go.jp ; Active Fault Research Center unit.aist.go.jp ; Institute of Geology and Geoinformation unit.aist.go.jp ; Tokai Earthquake Prediction from Japan Meteorological Agency jma.go.jp/en/quake_tokai ;Research Center for Earthquake Prediction, University of Kyoto rcep.dpri.kyoto-u.ac.jp ; Earthquake Prediction Research Center, Tokyo University eri.u-tokyo.ac.jp/ ; Earthquake and Science Museums Shinagawa City Disaster Prevention site city.shinagawa.tokyo.jp ; Earthquake Museum (Kita Ward, near the Nishigahara Station on the Naboku subway line), Tokyo Essentials tokyoessentials.com ; Honjo Life Safety Learning Center (Sumida Ward) simulates an earthquake and fire in a 3-D theater. There is also a room that simulates a storm with wind sped of 30 meters per second. Tokyo City PDF file bousai.metro.tokyo.jp

Recent Earthquakes in Japan : USGS Last Earthquake in Japan neic.usgs.gov/neis/last_event/world_japan ; Recent Earthquakes eri.u-tokyo.ac.jp ; Info for the Previous Week jma.go.jp/en/quake ; Major Earthquakes in Japan Wikipedia List of Earthquakes in Japan Wikipedia ; USGS Historic Earthquakes earthquake.usgs.gov/earthquakes/world/historical ;Major Earthquakes in Japan in the 20th Century drgeorgepc.com ; 1923 Tokyo Earthquake: 1923 Tokyo Earthquake Images eas.slu.edu/Earthquake_Center ; Great Kanto earthquake of 1923 dl.lib.brown.edu/kanto ; 1923 Tokyo Earthquake Photo Gallery japan-guide.com ; Earthquake Pictures: Earthquake Image Archive geot.civil.metro-u.ac.jp ; BBC Pictures of 2007 Niigata Earthquake BBC Pictures of 2007 Niigata Earthquake ; Kobe Earthquake Site seismo.unr.edu

Shortages and Losses After the Earthquake and Tsunami

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7-11 in Sendai
On the early days of the crisis there were breakdowns of transportation and distribution and panic buying and this led to shortages of milk, rice, bottled water and other essentials not only in the quake-stricken areas but also in Tokyo. In some supermarkets and convenience stores the shelves were stripped bare of almost everything. In the quick-stricken areas there were serious shortages of gasoline, kerosene and heating fuel---made worse by power shortages and the crisis at Fukushima nuclear power plant---and military ships and tanker trucks---braving destroyed ports and roads blocked with debris---were mobilized to deliver fuel to places that needed them most. But even there wasn’t enough. Some waited all night in lines that stretched over 1.7 kilometers to get gasoline.

In Japan there were shortages of drinks and insulations because the factories that produced bottle tops and insulation materials were badly damaged by the quake. Many sake and miso producers suffered from damage to their facilities and worked hard to restore their ability to make traditional and unique flavors.

Many products were not produced because of shortages of boxes, plastic film and packaging. Among these were paper diapers (shortages of tape used to wrap the diapers); milk (shortages of cartons and boxes that hold cartons ); canned food (shortages of cans); bleach (shortages of hydrogen peroxide); shampoo (shortages of surfactant); and books and magazines (shortages of glue and ink). The shortage of plastic film caused problems for a lot of food makers. It was caused by earthquake damage to a petrochemical plant in Kamisu, Ibaraki Prefecture where ethyl and other materials used make film were made. Some publishers postponed the release of magazines because they couldn’t get enough ink. That shortage was caused by earthquake damage to the Maruzen Petrochemical plant in Ichihara, Chiba Prefecture which made Diisobutylene, a key ingredient of ink.

Some people had difficulty getting their prescriptions filled because production of various medicines at drug factories in northern Japan and the Tokyo area was halted because of earthquake and tsunami damage. Ninety-eight percent of the supply of the hyperthyroidism drug levothyroxine sodium, for example, was cut off when production stopped at the Aska Pharmaceutical C factory in Iwaki, Fukushima Prefecture. Drug companies scrambled to import foreign replacements are encouraged doctors not to issue long-term prescriptions.

There were beer shortages in northern Japan and the Tokyo area as a result of severe earthquake and tsunami damage to Asahi, Sapporo and Kirin plants. Aerial images of the Kirin plant in Sendai showed masses of broken bottles and scattered cans and kegs, crumpled four-story-high storage tanks and damage to production buildings. That plant is expected to stay closed until September. At Tsukiji the problem was not a lack of supplies but a lack of demand as price collapsed for some domestic seafood because demand declines linked to radiation fears.

Research Institutes in Tsukuba in Ibaraki Prefecture---which includes the world’s largest facilities for elemental particle studies and Japan’s central facilities for disaster research---were badly damaged. Tremors dislodged electromagnets in particle beam accelerators and cut off electricity vital to many projects. Much of the facility’s research requires huge amounts of electricity to carry out. These activities were cut back to reduce consumption of energy that could be used by residents in the earthquake- and tsunami-hit areas.

Family registry data---legal documents as important as birth certificates and social security cards in the U.S.” for many devastated towns was irrevocably lost in tsunami waves that carried away government offices and computers. Local government had a hard time figuring out what to do with safes and other valuable items found during the recovery whose owners could not be identified. A housewife who went to a police station to try and locate her family safe told the Yomiuri Shimbun, “There are so many safes and most are either rusty or lost their original shape. I have no idea which one is ours.” She gave up trying to find it after trying her key in the locks of nearly 200 safes kept at the station.

Initial Impact of the Earthquake and Tsunami on Factories

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fire in Sendai's industrial area
A total of 1,135 of Japan’s 1,597 listed firms---including some of Japan’s best known companies’suffered earthquake and tsunami damage. Of these 529 companies said they suffered building damage. In the tsunami-devastated areas even factories two kilometers inland were wiped out. These included a Sony factory that made Blu-ray discs, a Hitachi factory that makes parts for nuclear reactors and Renesas Electronic factory that makes LSI chips. Inland a Shiseido shampoo was decimated by the earthquake. There many companies had to start from scratch in their rebuilding efforts.

The disaster also immediately affected the supply of all sorts of components used in myriad consumer electronics and other products. Toyota, for one, closed all its factories for at least a few days and it stock value tumble by as much as 6 percent. Globally there were shortages of everything from video tape to I-phones because key components were manufactured in northen Japan. [Ibid]

Steve Lohr wrote in the New York Times: Japan is a major exporter of cars, consumer electronics goods, and parts and sophisticated industrial machinery... A high-tech factory does not have to topple to halt production. A strong shaking, like that generated by the magnitude-8.9 earthquake can upset the delicate machinery used in production. Recalibrating the machines, analyst say, can take a week or two, crimping supplies.” “We do expect some upward price pressure because of this,” said Dale Ford, an analyst at IHS iSuppli, a technology market research firm. But it is too soon, Mr. Ford noted, to predict how much prices might rise, though it should not have a long-term impact.[Source: Steve Lohr, New York Times, March 11, 2011]

In the electronics industry some producers were unable to resume production because their factories were located within the 20-kilometer evacuation zone around the Fukushima nuclear power plant. In many cases companies that usually competed against one another to provide assistance to their common parts suppliers and helped each other secure needed parts.

Things could have been worse. Japan, for example, produces 40 percent of lightweight memory chips most commonly used for storage in digital music players, smart phones and tablet computers, estimated Jim Handy, an analyst at Objective Analysis, a research firm. But most of the plants that make such chips, and other electronics components, are south and west of Tokyo. [Ibid]

Short Term Economic Impact of the 2011 Earthquake and Tsunami

GDP shrunk 2.1 percent in the three months after the disaster (April, May and June). Before the earthquake and tsunami the economy of Japan was beginning to pick up after the Lehman shock and years of stagnation. Growth in 2010 was 3.9 percent. Factory output was up; unemployment was down; holiday sales around the New year were brisk.

In April 2011,the IMF cut the growth forecast for Japan from 1.6 percent for 2011 to 1.4 percent because of the negative impact of the March 11 earthquake and tsunami and possible power shortages in the summer. The OECD cut its growth forecast for Japan from 1.7 percent for 2011 to 0.8 percent with a strong rebound of 2.8 percent growth occurring in 2012. The Bank of Japan cut its projects from 1.6 percent to 0.6 percent with a rebound of 2.9 percent in fiscal 2012 and said that Japan will have no serious problems financing its recovery effort although industrial output could take some time to recover.

A total of 1,135 listed companies said they were forced to suspend operations or suffered other setbacks as a result of the disaster, Of these 481 said they had partial or light damage while said they had to suspend business operations. Industrial production fell by 15.3 percent in March not so much because factories were destroyed but by factories that produced key parts were damaged and shortages of these part upset the supply chain. Rolling blackout also adversely affected some enterprises. Half of the 105 major firms contacted in a Yomiuri Shimbun survey in April said they had been hit hard by the disaster,

As of mid April, businesses applied for $75 billion in loans from Japan’s largest banks; consumer confidence had deteriorated at its fastest pace on record; some shelves were still empty at convenience stores in Sendai

Immediately after the disaster the unemployment rate in march remained at 4.6 percent. Average wages in March fell, mainly as a result of the rolling blackouts. New vehicle sales 51 percent in April, the biggest ever drop for that month mainly due the effects of the earthquake and tsunami on production and supplies to dealers. In the bond market, TEPCO bond yields soared as the trouble company was expected to have to offer high interest rates to attract buyers and the sale of all bonds was down 50 percent from the previous year.

The Japan Research institute, a subsidiary of Sumitomo Mitsui Financial Group Inc., estimated that 450,000 to 650,000 jobs could be lost throughout Japan as a result of the disaster and the number of jobs lost might worsen as radiation fears stemming from the disaster at the Fukushima Daiichi nuclear power plant spread further. Some 140,000 to 200,000 workers may have lost their jobs in the three prefectures hardest hit by the disaster---Iwate, Miyagi and Fukushima--- where local farming and fisheries industries in particular incurred tremendous damage, according to the report. Some 120,000 to 250,000 jobs might be lost as automobile production is being disrupted due to the damage to the parts supply chain, the institute added. The institute also warned that a dramatic decrease in foreign visitors to Japan presents a serious concern on the labor scene, as companies in the tourism industry are going under. [Source: Kyodo, May 19, 2011]

Initially the basic cause of the downturn in consumption in eastern Japan was consumer "jishuku" (self-restraint) after the quake. This was exacerbated by public anxiety over the nuclear disaster, is depressing consumer spending, especially in the service sector. Not surprisingly land prices in the area of Fukushima nuclear power plant and places stricken by the earthquake and tsunami have plummeted.

Japan’s economy shrunk by a worse than expected 3.7 percent in annualized terms in the first quarter of 2011, The May 2011 trade deficit of ¥853.7 billion was the second largest on record as exports continued to be held up by parts shortage and factory and supply-chain disruptions. Economic growth for fiscal 2011-2012 will be less than 1 percent. The Japanese government has estimated it will be around 0.6 to 0.7 percent. The IMF said the Japanese economy will shrink 0.7 percent in 2011 but will grow 2.9 percent in 2012.

At major international meetings such as the APEC meeting in May 2011, Japanese representatives urged other countries to buy Japanese products to help Japan recover.

Impact of Electricity Losses on the Economy

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Damage to Matsushima port
In addition the dangerously crippled Fukushima Daiichi nuclear power plant, three other nuclear plants, six coal-fired plants and 11 oil-fired power plants were initially shut down, according to PFC Energy, an international consulting firm. By some measures, as much as 20 percent of the total generating capacity of TEPCO, the region’s dominant utility---or an estimated 11 percent of Japan’s total power---was out of service. [Source: New York Times]

According to the New York Times: “Until all the lost or suspended generating capacity is replaced, economists say, factories will operate at reduced levels, untold numbers of cars and other products will go unbuilt and legions of shoppers will cut back their buying---all taking a big toll on Japan’s economy. The greater Tokyo region represents one-third of the nation’s economic output.” [Ibid]

Masaaki Kanno, chief economist at JP Morgan Securities Japan, estimates that the country’s gross domestic product will shrink in the second quarter by about 3 percent on an annualized basis, with about half of that decline resulting from the power shortage. A recovery will gradually begin to take hold in the third quarter, he said, as the need to rebuild the northeast portion of Japan’s main island, Honshu, acts as a major economic stimulus. But the power shortage will be a drag on economic growth for some time to come. “We hadn’t initially expected the quake to impact the national economy to this degree,” Mr. Kanno said. But the lingering power shortages will be widespread, he said. Besides the direct effects on businesses, consumers “won’t go out as much and they’ll have to get home earlier,” he said, meaning they will not spend as much. The jeweler Tiffany & Co. was among those that cut its earning forecasts because of store closures and power outages. [Ibid]

Industry quickly recognized the importance of a coordinated response. Members of the Japan Automobile Manufacturers’ Association, including Toyota, Nissan and Honda, are considering apportioning full days of power cuts among themselves, according to the Nikkei newspaper, as they seek to avoid power cuts that wreak havoc on manufacturing equipment. [Ibid]

Initial Impact of the Earthquake and Tsunami on the Automobile Industry

The car industry was hard hit because about 30,000 parts are needed to make a car and many precision parts are so specialized they have no substitutes. This means that if production of these parts is disrupted then production of the cars made them also have to be halted.

Among the auto parts factories shut down by the disaster were: 1) Kanto Auto Works in Kanegasakicho, Iwate Prefecture which makes body parts assembly for Toyota; 2) Central Motors’s Miyagi in Ohiramura which makes body parts assembly for Toyota; ; 3) Keihin Corp’s Kakuda plants in Kakuda, Miyagi Prefecture which make vehicle parts for Honda; 4) Iwaki Diecast Co. in Yamamotocho, Miyagi Prefecture which makes auto parts; 5) Naime Japan Brake Co. in Namiemachi, Fukushima Prefecture which makes brake parts; and 6) Nissan’s plant in Iwaki, Fukushima which makes engines.

Toyota, Honda, Nissan, Mazda and other Japanese automakers shut down production for several weeks at their plants in Japan. But Toyota resumed production at all of its Japanese plants within six weeks after the quake. “Japan’s major automakers have long had contingency plans in place to keep supplies moving,” Lohr wrote. “Car companies did report damage to some factories and offices, and Honda said one employee was killed at a research center in Tochigi, north of Tokyo, when a cafeteria wall collapsed, Toyota, Japan’s largest automaker, reported that its car assembly plants had resumed production after a brief stoppage---though four factories operated by Toyota subsidiaries remained closed while workers were evacuated to safer areas. But most of Toyota’s Japanese production is done south of Tokyo, especially around Nagoya, including the Prius hybrid, which is built only in Japan.” [Source: Steve Lohr, New York Times, March 11, 2011]

The effects of the earthquake were felt not only in Japan by the Japanese car industry. Honda cut production by half at its plant in Swindon, England. Citreon temporarily laid off workers in its French plants to conserve parts from Japan. Ford closed a plant in Belgium for the same reason. General Motors had to temporarily shut down production and lay off workers because of a lack of parts from Japan. As a result of this many automakers took another look at the global supply chain strategy

Economic Impact of Tsunami on the Auto Market

Production at Japans’ automakers in terms of domestic output fell between 50 percent and 65 in March 2011, when the earthquake and tsunami occurred, and the months that followed main due to supply chain disruptions caused by a shortage of parts. Automobile production in April fell 60.1 percent from what it was the previous year. Only 292,001 vehicles were produced, down from 731,829 made in the same month a year earlier.

Auto factories that stopped production were able to restart production within a few weeks the plants were unable to operate at full capacity because of parts shortages, In the early going about 500 parts were hard to get. By late April 150 parts were hard to get. These included microcontrollers that regulate the engine and other systems. Brake parts and chemical products such as coating materials and paint---most of which modern 30,000-part cars can not be produced without. By May the number of kinds of parts needed by Toyota had fallen to 30.

Car sales in Japan in April 2011 were 51 percent power than the year before and even lower than April 2009 when the car industry was suffering during the fallout of Lehman Brother shock. In the United States, Bloomberg reported, “other automakers---particularly Hyundai, Kia, Ford and General Motors---were celebrating record first-quarter profits, largely on the backs of new, compact, fuel-efficient models. The success of small cars from Korean and American manufacturers comes at the expense of sales from Japanese brands.” The trend continued for several months. U.S. Sales for Toyota and Honda fell 21 percent in June while sales for the “Big Three” American autmakers recorded double-digit growth.

The release of new models was delayed and dealers suffered as their stocks of new cars dwindled as new supplies arrived from the factories. Even showrooms were empty, One salesperson told the Yomiuri Shimbun, “We get customers coming in, but we don’t have cars to sell them.

Supply chain disruptions caused by a dearth of parts is to expected to be fully repaired until the end of 2011. Even if that problem is solved quickly car companies still have deal with power shortages in the summer of 2011. Declines in the auto industry hurt the Japanese economy as a whole. It also hurts materials producers and parts suppliers and hurts the competitiveness of Japanese brands overseas.

Japanese Factories Recover After Quake

Reporting from Shibata-machi seven weeks after the disaster , Andrew Pollack wrote in the New York Times, “When the ground shook violently on the afternoon of March 11, the ceiling collapsed in part of the huge Ricoh copier factory here, exposing the vents and wires above. The offices at the Ricoh plant near Sendai are still in disrepair; workers have focused on restoring the factory and production. The ceiling is still not fixed. But employees are back at their posts, working under temporary lighting and wearing hard hats to protect themselves in case debris falls.” [Source: Andrew Pollack, New York Times, May 1, 2011]

“The factory may be a case study for the can-do recovery of Japan’s manufacturing industry. Only seven weeks after the huge earthquake in northeastern Japan collapsed the ceiling, toppled a huge water tank and upended assembly line equipment, the Ricoh factory here is nearly back to full production. And so, for the most part, is all of Ricoh, a nearly $25 billion company that makes copiers and other office equipment.” “The influence of this disaster is not as large as the world thinks,” Shiro Kondo, Ricoh’s president, said in an interview at the company headquarters in Tokyo. [Ibid]

“At varying speeds, Ricoh’s story is being played out all over the quake-affected parts of Japan. The pattern suggests that whatever the long-term effect of the natural and nuclear disasters on this country, manufacturing---the most important cog in Japan’s export-oriented economy---might largely rebound within a few months.”

“Without doubt, things are not back to normal yet. And some sectors, particularly automobile manufacturing, are suffering more than others. Still, almost every day companies are reporting progress on some of the hundreds of factories knocked out of commission by the quake or ensuing tsunami. The government estimates that 7 percent of Japanese factories were in the region heavily affected by the earthquake. A survey of 70 damaged factories released in late April by Japan’s Ministry of Economy, Trade and Industry found that nearly two-thirds of them had recovered while most of the rest in the survey group expected to do so by summer.” [Ibid]

“Shin-Etsu Chemical, a leading producer of silicon wafers used to make computer chips, said last week that it expected to return to pre-earthquake production levels by July. Sony has resumed operations at nine of its 10 halted factories, with the 10th expected to come online in phases from May to July.” [Ibid]

“Mr. Kondo, Ricoh’s president, said it would probably take half a year for the company to be fully back to normal. He declined to say how much the lost production and the lower economic activity expected in Japan this year would hurt the company’s sales and profits.”We have many problems, so it’s very difficult to think about the results of this year,” he said. His main concern was that a drop in industrial and consumer spending would mean less photocopying. Japan accounts for about 45 percent of Ricoh’s sales.” [Ibid]

Parts Shortages and Weak Emergency Planning

Andrew Pollack wrote in the New York Times, “The biggest susceptibility for Ricoh and many other companies has proven to be parts shortages. Although Japanese manufacturers have spread their factories around the world---Ricoh makes 70 percent of its products outside of Japan---many of those overseas plants often still depend on parts made in Japan.” [Source: Andrew Pollack, New York Times, May 1, 2011]

“For example, Tohoku Ricoh, as this plant is known, is the company’s only factory making a particular motor used in copiers. When the factory here went down, a giant Ricoh plant in Shenzhen, China---which supplies most of the Ricoh copiers sold in the United States---had to stop production for a full week. Ricoh is also dependent on parts from various suppliers in Japan, some of which suffered their own damage from the earthquake. That is forcing Ricoh to live off its inventory of certain computer chips and connectors. If production of those parts does not resume in the next couple of months, Ricoh might have to slow or halt production.” [Ibid]

“Another weakness was in emergency planning. Tohoku Ricoh, for instance, had 200 metric tons of backup water for cooling and ink production, in case water service was disrupted. But when the power also went out, it could not pump the water to where it was needed. Workers had to deliver the water, one ton at a time, by truck. The emergency plan at Ricoh’s headquarters was designed to cope with a big earthquake in Tokyo, not one in northeastern Japan. “We had a manual of what to do in such cases, but things did not go as written,” said Toshihiro Kenmoku, a leader of the recovery task force at headquarters. [Ibid]

Companies Cooperate and Workers Rally to Get Factories Open After Quake

Masatomo Onishi of Kansai University, who studied the recovery after the 1995 Kobe earthquake, told the New York Times that when a disaster strikes, Japanese companies tend to cooperate with one another and workers rally to the cause. [Source: Andrew Pollack, New York Times, May 1, 2011]

Andrew Pollack wrote in the New York Times, “That seems to be the case at the Ricoh factory here. Even many of the Ricoh workers who lost family members to the tsunami came to work. Some whose homes were destroyed or flooded slept on blankets on the floor of a factory conference room. With gasoline scarce, many rode bicycles. And with bathrooms not working because of blocked sewer lines, employees improvised with plastic bags.” [Ibid]

“When the earthquake occurred, powder started coming out of the walls and ceilings of the office of Hiroshi Tsuruga, the president of Tohoku Ricoh. “I felt like I would be crushed with the building and die,” Mr. Tsuruga recalled. The day after the quake, 70 factory employees gathered in the gym to plan the recovery, posting the plans on the walls. A similar scene was taking place at headquarters in Tokyo, where a conference room was converted into a war room for a recovery task force. The table soon became covered by phones, documents and packages of instant noodles. [Ibid]

One of the first tasks was to send 10,000 bottles of water, as well as food, blankets and other supplies, to Ricoh’s stricken factories using the company’s own trucks. Besides Tohoku Ricoh, three other Ricoh factories making a variety of products and one research center were damaged. But Tohoku Ricoh---which accounts for about $60 million in annual revenue, or one-fortieth of Ricoh’s total---posed the biggest challenge.” [Ibid]

“The priority was to restore production of ink and the motors made only at the Tohoku plant. Finally, by April 6, all the production lines were back in operation, with the exception of toner manufacturing. (Toner is used for machines that can print, copy and scan, while ink is used for some copiers.) Then, On April 7, an aftershock of magnitude 7.1 jolted the region. Electricity and water were knocked out again and many repairs undone. “Production went back to zero again,” said Hiroyuki Murakami, a general manager. It took until April 15 to restore motor production. [Ibid]

“At Ricoh headquarters, the war room has reverted to a conference room. But a new challenge looms. Because of the power plants disabled by the earthquake and tsunami, big companies like Ricoh will have to cut their use of electricity by up to 25 percent in the summer, which could also disrupt production.”

Importers Demand Radiation Testing from Japanese Exporters

Mamoru Kurihara and Koichi Uetake wrote in theYomiuri Shimbun, “Exporters are facing demands from an increasing number of countries to provide proof that their products have been screened for radiation. Companies and industry organizations are working to handle pressure for radiation screening in the wake of leaks from Tokyo Electric Power Co.'s Fukushima No. 1 nuclear power plant, but radioactivity tests are time-consuming and costly. [Source: Mamoru Kurihara and Koichi Uetake, Yomiuri Shimbun, April 24, 2011]

“Observers have raised concerns that pressure to conduct the tests could negatively impact the nation's exports. The Japan Iron and Steel Federation has said it plans to disseminate guidelines for radiation inspections. Fujitsu Ltd. and NEC Corp. also have prepared a system to independently conduct screening.” [Ibid]

“Nissan Motor Co. staged public radiation screenings of vehicles for export at its Oppama factory in Yokosuka, Kanagawa Prefecture. The factory selected 10 cars due to be loaded onto a carrier vessel and subjected each to an about-five-minute test that checked radiation levels in three places, including the hood. In an effort to reassure people, Japan Automobile Manufacturers Association Inc. Chairman Toshiyuki Shiga issued a statement that said all the association's member companies would voluntarily carry out radiation screening of their vehicles. At the Shanghai Motor Show...all cars on exhibit are subjected to radiation tests, regardless of their country of origin.” [Ibid]

“Tokyo Metropolitan Industrial Technology Research Institute in Tokyo, said it has received many requests to conduct radiation tests on products ranging from precision machinery to synthetic fibers. A radiation screening costs about $600 to $830. Local governments provide screening tests for free, but can perform them only so fast. "At most, we can inspect products for 30 companies in a day. And the entire process for one company---including the actual test and all the other procedures involved---takes about three to four days," an official of the Fukushima prefectural government said. [Ibid]

“Such circumstances will inevitably slow product shipments, observers said. Businesses can obtain documents from their local chambers of commerce and industry that state the radiation levels in the air around production centers. These documents can cost up to several thousand yen, and are free of charge in some areas. The first supplementary budget for fiscal 2011 included 700 million yen for Economy, Trade and Industry Ministry subsidies to help cover export firms' radiation-screening expenses. The ministry has also set up an insurance scheme that covers export companies whose products are rejected by other nations.” [Ibid]

Economic Impact of Tsunami in the United States and Abroad

“In the United States, The economic impact of the March 11 disaster has been particularly felt by retailers and manufacturers in certain parts of the country as supplies of high-quality parts and materials from Japan have been cut off, a recent report from the U.S. Federal Reserve Board has shown. The report found that seven of 12 districts across the United States had suffered a negative impact from the disaster on their regional economies. The districts were Atlanta, Boston, Chicago, Dallas, Minneapolis, Philadelphia and Richmond, Virginia. [Source: Yomiuri Shimbun, April 16, 2011]

“Released in mid April the Fed report said Japanese products ranging from automobile parts to paint were in short supply throughout the United States. Tires, for example, were running low in the Chicago district. Based on an emergency survey conducted late March, the Federal Reserve Bank of Minneapolis reported that 41 percent of manufacturers saw an unfavorable impact on their business. Deliveries of plastic resin, material important to the strong automobile-related and electric industries in the district, were behind schedule, according to the bank.” [Ibid]

“In the Atlanta district, temporary disruptions were reported regarding the distribution of Japanese automobile parts and IT products. Companies in the Boston district are concerned about possible disruptions in the supply of Japanese electronic parts, while companies in the Dallas district also have voiced growing concern over an insufficient supply of Japanese parts. The Federal Reserve Bank of Chicago said it is highly likely that electronic parts such as fuel injection sensors---parts indispensable to improving a car's fuel efficiency---will be in short supply. There are fears that these and a growing number of other parts may completely run out and not reach manufacturers.” [Ibid]

“U.S. companies that export products to Japan also have been seriously affected by the disaster. In the Dallas district, home to the head office of major semiconductor maker Texas Instruments Inc., there are companies whose ratio of export to Japan is high.” [Ibid]

“The disruption of supply chains after the March 11 earthquake and tsunami also has affected nonmanufacturers. Retailers in the Philadelphia district are unable to purchase Japanese electrical appliances, while car dealers in the Richmond district stopped accepting orders for models in particular colors due to low supplies of Japanese paint. The Fed report said the flow of Japanese products would not be normalized until September.” [Ibid]

Image Sources: 1) U.S. Navy except Kelly Kaneshiro (shortage shots)

Text Sources: New York Times, Yomiuri Shimbun, Daily Yomiuri, Washington Post, Los Angeles Times, Kyodo News, National Geographic, The Guardian. Times of London, The New Yorker, Time, Newsweek, Reuters, AP, AFP, and various books and other publications.

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© 2008 Jeffrey Hays

Last updated October 2012

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