News from the northern provinces is improving; the water runoff is finally translating into lowering water levels in those areas, including the northern industrial parks (see this recent report from Reuters). While the process is relatively slow, the fact that the water, which continues to flow downstream, is not being replaced by either additional rains or runoff, means that we may be approaching the downside of this human and economic tragedy that has claimed over 533 lives.
Future flood prevention and improvement plans are underway for the industrial parks, but the questions to answer will be to what extent will manufacturers increase diversification strategies for production locations and how many will stay in Thailand? (see this report from New York Times).
The situation for the northern provinces is not, however, the same as for parts of Bangkok nor the southeastern parts of Bangkok, such as the Bang Chan Industrial Estate (see here and here for more about the emergent situation due to the northern runoff).
Suvarnabhumi International Airport, which is located to the east of Bangkok, where current flood alerts are on high, is still expected by the Thai government and Irrigation Department to remain free from flood impact. However, because of the problems experienced throughout the flooded areas, including most parts of Bangkok, skepticism around such certitude and government proclamations lingers (see here and here from Wall Street Journal's SE Asia Realtime).
Noteworthy are the reports that within the capital city of Bangkok, pumping and sludge removal is already underway. According to the Irrigation Department, "nearly half of the northern runoff […] has now flowed into the sea and the rest will be drained out soon," as cited here in Bangkok Post. This assessment means that Bangkok may be dry of water in (roughly) 11 days, according to the same article.
Supply chain visibility improving
In the most devastated northern industrial parks, where water levels reached 2.80+ meters (over 9 feet) and breached flood embankments, dykes and retention walls, such as in the Bang Pa-In and Rojana estates, there is at least a 10% water level retreat with more to come. With the receding water, we at Smith are expecting that more substantive assessments and forecasts by the companies themselves will begin to come out in the second half of November; the shortage duration will, of course, vary based on manufacturer, but for some this could last through 1H12.
The estimated duration for water drainage at these hardest hit sites is still in the one-month range, but pumping equipment and new 4 meter (13 foot) dyke plans are already in place and ready once water levels recedes to the level of the existing dyke walls. Once the water has been removed, the numbers coming from estate park officials are holding in the 45-day range for "the situation [to return] to normal," as cited here by Reuters .
While the estimates for the industrial parks to resume operations is realtively short given the severity of the flooding, industry analysts are still forecasting a 6-12 month time frame until "makers of electronics components could start producing normally again," according to the Reuters report. Financial analysts are similarly downgrading 1H12 forecasts for many of those companies directly affected by the flooding, particularly those in the PC and hard disk drive (HDD) sectors (see this Bloomberg report).
Because of the serious shortage of HDDs, PC shipments are expected to already decline 2.2 – 3.4% in 4Q11, according to analyst group IDC (as cited in the Bloomberg report). According to the IDC research, the present HDD shortages will continue through 1Q12, likely increasing from the present 10% depressed shipment levels to up to 20% decrease in HDD shipments. Those are significant levels for the industry and will be felt throughout the supply chain, likely resulting in price increases that will be passed along at the point of purchase. Goldman Sachs' forecast is slightly more conservative, at roughly 8.5% decrease in shipment rates for PCs due to HDD shortfalls, but still in line (see the Bloomberg report here).
The higher prices might sound like relief to companies who have faced weakening consumer confidence, but the higher costs are instead being seen as negatively impacting margins (see, for example this report on Toyota's forecasts from BBC). Even with the pass-through of some costs at the point-of-purchase, the reduction in volume from the lost components and products will pose significant challenges, especially for the mid- to smaller-sized manufacturers.