Almost five years and a month to the day, a powerful earthquake that registered as a magnitude 6.4 again hit Japan with the epicenter located on the island of Kyushu, one of the four largest in Japan. Aftershocks were equally strong hitting nearly the same magnitude and lasting well into the night. The quake was believed to have occurred at a depth of 10km and aftershocks, while extensive and strong, the epicenter was inland near the rural town of Mashiki, and hence did not trigger any tsunami warnings, unlike the devastating situation in 2011. This earthquake was, however, at a similarly highest rating of 7 on the Japanese seismic intensity scale.
The Japan Meteorological Agency issued warnings that aftershocks could continue for roughly one week, adding to the damage and impeding recovery and reconstruction. There have already been roughly 140 aftershocks reported, a few registered as high as 5.8 in magnitude and potentially affecting the structure of a large dam in the prefecture. The tragedy of this recent earthquake extends to the nine lives lost though the number may rise as rescue efforts continue. Additionally, roughly 1,000 people were reported injured, and there is significant damage to the city of Kumamoto and throughout the wider Kumamoto prefecture, according to The New York Times.
The recent earthquake has and will affect Japan’s economy on multiple levels. For one, there is the ongoing concern over the country’s energy generation, as the vast majority of its once large-scale nuclear energy plants remain off-line since the disaster of March 2011. The recent quake does not appear to have damaged the three online nuclear plants; one of the remaining on-line nuclear facilities, Sendai, is located 125km southwest of the epicenter. The economic impact of the current quake has affected the semiconductor, industrial equipment, and automotive industries as major manufacturers’ facilities have been shut down to assess damage and as precautionary measures.
According to Bloomberg:
All Nippon Airways Co. canceled two flights from Kumamoto, with all other flights operating as normal. Honda Motor Co. halted production lines at its Kumamoto plant, Bridgestone Corp. closed a factory producing rubber hoses to perform safety checks, and Sony Corp. evacuated a factory as a precaution but said there was no fire or injury. Damage at other companies including Renesas Electronics Corp. and Suntory Holdings Ltd. appeared minimal.
Reports and assessments of damage to these companies is still mostly unavailable and will likely remain so until full assessments can be done after the period of aftershocks has passed. While most companies are yet unable to provide detailed information regarding the impact of the quake on their facilities and operations, there are some initial reports coming in such as from Renesas’ statement release:
- Renesas Semiconductor Manufacturing Co., Ltd., Kawashiri Factory (Kumamoto city, Kumamoto): We have terminated the operation immediately after the earthquake and are currently assessing the status. The Group intends to add details of the impact from the earthquake as soon as any confirmed information is available. All employees evacuated safely and we confirmed no casualties.
- Renesas Semiconductor Package & Test Solutions Co., Ltd., Nishiki Factory (Kuma district, Kumamoto): We confirmed no impact on the operations.
- We are also assessing the impact of the earthquake on our overall supply chain including the suppliers and partner companies in the Kumamoto Prefecture
The risk management situation pertaining to the Renesas’ factories is particularly important because, as noted in an early 2015 article in Automotive News: With a 42 percent share of the global market for automotive microcontrollers, Renesas can single-handedly bring global production to a halt if it is crippled by a natural disaster. Renesas confirmed in 2015, that it had put in place several risk mitigation measures to be in a better situation than in post-2011. Among the disaster prevention actions to prevent a multi-month shutdown include:
- Warehouses four- to 12-week supplies of chips, depending upon the product line.
- Has retrofitted its factories to make them earthquake-resistant.
- Is dual-sourcing some products with backup production in a second plant.
- Has made contingency plans to transfer chipmaking equipment to other plants.
[…] Now, the production facilities have flexible fittings, hoses and cables that are less prone to rupture. Key chipmaking equipment is stored in electronically stabilized, earthquake-proof rooms. The company also has devised a recovery plan to reopen damaged factories within four weeks, rather than the eight weeks it took to repair Naka.
The Sony factory, located in the Kumamoto prefecture, was shut down is reported to be a CMOS facility that produces image sensors. The factory was immediately evacuated after the earthquake. There is no current assessment of damage nor impact on productions, these will follow, according to Morningstar. There are other companies that have been affected as reported in various international news sources, but until there can be verification from either mainstream sources or the company websites, EPS will hold reporting specifics.
Risk management should never be far from anyone’s thoughts in the global supply chain, regardless of industry. While the remote prefectures of Kyushu island are not as dense with international factories as other locations, the main port of Sedai has been devastated and the ground infrastructure for transportation of goods and people is in a severely disastrous condition with rail lines blocked, roads and bridges affected, and a slowing in air traffic continues. These problems will have an impact on Japan’s GDP and the ongoing work to rebuild its economy, likely leading to a dip in second quarter financials, and hence the overall GDP, according to the BBC. Further citing the BBC, “Analysts agree that the damage to infrastructure will inevitably hit economic output for the next three to six months. […] And depending on how long the uncertainty continues around power shortages and supply chain disruptions, it could have a longer lasting impact.” This May, Japan’s Prime Minister Abe will be hosting the G7, certainly there will be an inclusion of risk management and redevelopment added to the agenda.
Finally, the fault line upon which this recent earthquake hit is one that is forecasted to continue to be active and threaten Japan both inland and offshore (with offshore earthquakes being the most likely to trigger tsunamis). The region is sensitive for the wider global supply chain as the radius encompasses mainland Asian counties including South Korea and critical ports in China such as Shanghai. Remembering the devastation of both the March 2011 earthquake and tsunami in Japan as well as the devastating Thailand flooding in October 2011, it is imperative that risk management and diverse supplier planning be updated regularly. Being able to withstand inventory halts and shortages for months, as experienced in 2011, is not a thing of the past as this week reminds us. The recent earthquake will likely not have a major negative impact on the electronics industry, although there may be some impact on automotive especially, there will be future natural disasters that will affect supply and production.
Planning is everything.