By JARED SHELLY, senior editor/web editor of Risk & Insurance®
As Manila braces itself for yet another tropical storm due to hit the area Wednesday, the Philippine capital is still recovering from last week's deluge that killed 95 people and displaced hundreds of thousands while saturating homes and vital farm lands.
With transportation stalled and farm land ruined, food supply chains are certainly going to be strained, which could trigger a buying frenzy.
"We can expect some temporary spike in food inflation as there may also be some temporary disruption to the supply chain," central bank Governor Amando Tetangco told Bloomberg Businessweek. To respond, the government announced a price freeze on basic goods.
As the nation mourns lost loved ones and tries to rebuild homes, risk managers around the world are wondering if the flood will damage their supply chains sometime in the near future. After all, the impact of the last year's Thailand floods could still be fresh in their minds.
While the extent of damage is still unknown, the possibility of supply-chain interruption exists in multiple industries, said Linda Conrad, director of strategic business risk management at Zurich.
The country is home to many call centers, and with labor shortages expected because of the vast displacements and possible power outages, that could affect businesses overseas.
"That could impact [a company's] ability to book revenue going forward," said Conrad. "Without call centers, you can't book hotel rooms or run an IT center."
The country is also a big producer of transportation equipment -- which could potentially cascade deep into supply chains. A shortage of equipment to transport goods means that companies across a multitude of industries won't be able to move their products.
Other industries that could be affected are software development, semiconductors and electronic products, garment production, copper products and petroleum products, said Conrad.
However, David Jacoby, president of Boston Strategies International, said most factories in the affected region are above the flood line.
"This is a very small incident from a [global] supply-chain point of view," said Jacoby.
In addition, he noted, ports are open, transportation has not been impeded too much and damage has been mostly to homes, rice farms and roads.
He did agree that the flooding could result in a shortage of labor at Philippine factories because so many people were displaced from their homes.
"We may see late orders being fulfilled as a secondary impact of it," said Jacoby. "There may be a lag in a week or two or three."
The Manila flood is different from the severe floods that hit Thailand last year and sent massive disruptions to global supply chains because there is more foreign investment in Thailand, with major companies such as Intel having built factories there.
Foreign investment in the Filipino economy is much smaller, he said, and is concentrated mainly in transportation, apparel and food stuffs.
"There doesn't appear to be long-term impact here," said Jacoby. "There has been a severe displacement of people but the industrial infrastructure seems to continue to function."
August 14, 2012
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