IMPACT OF THE 2011 EARTHQUAKE AND TSUNAMI ON JAPANESE INDUSTRY
fire in Sendai's industrial area A total of27,149 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 Factories
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]
Initial Impact of the Earthquake and Tsunami on the Automobile Industry
Short term shortages in Sendai 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.”
Economic and Infrastructure Damage from the 2004 Niigata Earthquake
At 5:56pm on October 23, 2004, an earthquake measuring 6.8 on the Richter scale hit the Chuetsu region of Niigata prefecture. A total of 67 people died and 4,805 were injured. About 13,000 buildings were destroyed or severely damaged and more that 100,000 people were evacuated. The 6.8 earthquake was one jolt in series of seven earthquakes that occurred over a two hour period that were followed by a series of aftershocks, some of them quite strong, that continued into December.
By some estimates the earthquake caused $13 billion in economic damage because of delays and lower production. Factories in Niigata that produce fine fabrics and precision equipment were forced to shut down. A large Sanyo chip-making plant was shut down. Sanyo had originally planned to post record profits but the earthquake caused it to post loses for the year. Matsushita and Sharp factories in the area were also affected.
Niigata Earthquake in 2007 and the Automobile Industry
On July 16, 2007, an earthquake measuring 6.8 on the Richter scale struck Kashiwazaki in Niigata Prefecture, killing 15 people, injuring 2,300 and damaging 14,000 homes. Cracks opened up on roads and major expressways. A fire broke out at a nuclear power plant. Tremors were felt as far away as Tokyo. Damages from the quake were estimated do be around ¥1.5 trillion.
The earthquake affected he automobile industry by closing or slowing suppliers whose factories were damaged by the quake which in turn forced the temporary closure of some assembly plants that relied on parts from these suppliers. Toyota was forced to halt production at all of its plants for two days ands saw production drop 9.5 percent for the month, showing vulnerabilities of the “Just in time” production strategy.
The closure of an auto parts plant that made piston rings in Kashiwazaaki affected the production of engines outside the region and that in turn affected the making of cars, and caused all 12 Japanese car makers to shut their production lines. The plant, owned by the Riken Corp., makes 50 percent of the piston rings for the Japanese market The rings are made to very precise specifications. Bringing in other manufacturers would require Riken to reveal production secrets.
Automakers production fell by 120,000 units. Toyota alone had to suspend operations at 30 plants because of the piston ring shortage. The automakers dispatched a huge number of employees to the Riken plant to get the plant back in operation, a goal that was achieved in less than a week after the earthquake. A number of other factories and businesses were also affected.
Thai Floods Impact Japanese Industries and Consumers
In the autumn of 2011 stocks of printers, glasses, hard disk drives ran low in Japan as plants affected by flooding in Thailand suspended production. The Yomiuri Shimbun reported, “The severe flooding in Thailand is making itself felt in the Japanese consumer market, as some electronic goods have become scarce and prices are surging. Stocks of such products as hard disk drives used in personal computers, printers, cameras, refrigerators and eyeglass lenses have dwindled, and suppliers have failed to deliver products on schedule due to the flood. [Source: Yomiuri Shimbun, November 5, 2011]
“A PC parts shop in Tokyo's Akihabara district increased all its HDD prices. The price of a 500 gigabyte HDD was raised by about 1.8 times the original price of 7,980 yen. Prices of other products were also increased by about 1.5 times. "This is the third time for us to raise prices since the flooding started. I think they'll go up further," the shop's owner said. [Ibid]
“Manufacturers of electronic goods are also being hurt by the flood. Toshiba Corp. decided to postpone the launch of new products, including refrigerators and microwave ovens, which it had planned to begin selling in November. Sony Corp. also postponed the launch of a new digital single-lens reflex camera. Nikon Corp., which makes 90 percent of its products in Thailand, has been forced to halt production as its plant was inundated by two-meter-high floodwaters. [Ibid]
“Canon Inc. said its production of printers, used by many people to make New Year's cards, will likely be affected. The company has suspended production since Oct. 6 at the thai plant that made its ink jet printers and related items. "[Printers] will be in short supply until the end of this year. We don't know how many popular products we can put in the shop," an employee at an electronics store in Akihabara said. [Ibid]
“Major optical glassmaker Hoya Corp. has shut down its plant for eyeglass lenses in Ayutthaya since Oct. 12 due to flooding. The company has no idea when it will be able to resume operations as floodwaters have yet to recede, it said. Under these circumstances, Hoya stopped accepting orders of custom-made colored prescription lenses. It also was late delivering bifocal lenses, according to the company. [Ibid]
“Automakers have been particularly hard-hit by the flooding in major industrial parks in the country. Honda Motor Co.'s plant in Ayutthaya has been inundated by floodwater, making it likely the factory's operations will be suspended for about six months. Because the floods also prevented the automaker from producing parts in Thailand, Honda has been forced to cut production at its Japanese and North American plants as well. Toyota Motor Corp. also suspended operations at its Thai plants because of the difficulty of procuring parts from its suppliers. Just like Honda, Toyota was forced to reduce production at its plants in North America and other parts in the world. [Ibid]
Flooding at a Thai Industrial Park used by Japanese High-Tech Firms
Junichi Fukasawa wrote in the Yomiuri Shimbun: “It has one month since the flooding began “at the Saha Rattana Nakorn Industrial Estate, one of seven inundated industrial parks in Ayutthaya and Pathum Thani provinces north of Bangkok and the first affected by flooding. All the industrial parks have been transformed into huge muddy ponds, and no one can reach factory buildings there without a boat. There was no indication when work to drain the parks would start. Several people were moving parts and other items from a plant by boat at the Hi-Tech Industrial Estate in Ayutthaya, but the area was mostly blanketed in silence. [Source: Junichi Fukasawa, Yomiuri Shimbun, November 5, 2011]
“About 100 of the 143 firms hit by flooding at the Hi-Tech Industrial Estate are Japanese. All their plants, including those for Sony Corp. digital cameras and Canon Inc. printers, were flooded nearly up to the first-floor ceilings. Although the water level has begun dropping, it was still 2.2 meters high. The tops of street lamps could just be seen above the water. The situation was essentially the same at the Nava Nakorn Industrial Promotion Zone in Pathum Thani Province. Oil was floating on the water, and there was a foul odor. A large truck and a drainage pump had been abandoned in the water. [Ibid]
“More than 400 Japanese companies have been flooded at the seven industrial parks. One company hired a diver to retrieve an essential mold from the water. The president of another Japanese firm said he felt like he had been hit by a tsunami of muddy water. thai Justice Minister Pracha Promnok, head of the nation's flood task force, said nowhere in Bangkok is safe from the advancing waters, indicating his concern about flooding of the central area of the capital. [Ibid]
The flooding in Thailand forced Japanese manufacturers to drastically reduce their production. Coupled with the soaring yen, there are now concerns that the floods will deal a serious blow to their year-end sales and business performance. Many major Japanese manufacturers have concentrated their manufacturing plants and parts supply chains in Thailand. But this time, such steps have completely worked against the companies. [Source: Yomiuri Shimbun, November 4, 2011]
“As part of their cost-cutting efforts, Japanese car manufacturers have embraced the so-called just-in-time production system, which is designed to avoid excess parts inventory, and consolidated their parts supply networks in Thailand. This efficient management style has helped make them competitive. However, the current situation has revealed once again that it can also be a weakness when it comes to crisis management, as shown by the Great East Japan Earthquake, which disrupted supplies. [Ibid]
“Other industries are facing similar problems. Disruptions in parts supply chains are delaying productions of various items, forcing Toshiba Corp. and Sony Corp. to put off product launches of refrigerators and digital cameras, respectively. There will likely be a shortage of hard disk drives (HDDs), a key component for personal computers, which will certainly influence PC manufacturers' year-end sales. [Ibid]
“The government's white paper on manufacturing industries this year showed Japanese companies' unpreparedness for such a situation. Asked in a survey in February what countermeasures would be implemented if parts procurement was cut off, more than 90 percent of the companies said their measures were insufficient or they had not established any. [Ibid]
“Companies affected by the floods in Thailand tried to resume operations at their plants as quickly as possible by procuring alternative parts from Japan, China and elsewhere, and supporting restoration of their suppliers' factories. In the future they will need to develop parts that can be easily replaced with substitutes and manage their inventory more appropriately. [Ibid]
Image Sources: 2011 tsunami Pictures: US Navy; Niigata: Image Archives M. Yoshimine, Tokyo Metropolitan University
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.
© 2008 Jeffrey Hays
Last updated October 2012