Washed Away: Industry Trends & Analysis

News of natural and man-made disasters typically follows the same pattern. The first reports indicate something major has happened, but details are sketchy and the impact unclear. Each successive hour reveals more. As the news rippled out from the March 11 earthquake and tsunami in Japan, the scope of the disaster seemed almost unfathomable, with videos looking like special effects in a science fiction movie. But for the survivors in northern Japan, the news is all too real, with their homes and lives literally and figuratively turned upside down. The human catastrophe has morphed into a nuclear disaster into an ongoing economic crisis.

As of mid-March, it is hard to gauge the full impact of this disaster on Japan and the rest of the world. Based on experience, the direct economic impact of these events is pronounced for about 6 months, and felt mostly where the disaster occurs. Gradually, the reconstruction effort boosts economic growth. But the historic scale of Japan’s 3/11 earthquake and tsunami, given the profound damage to Japan’s electrical grid, means the economic problems could increase.

Because Japan is a key player in global supply chains, there may be significant ripple impacts on industries such as automotive, aerospace and machine tools—all of major interest to the U.S. metalworking industry. All automakers depend on complex global supply chains, and even GM, Ford and Chrysler cars built in the U.S. use some Japanese components. Also, if Boeing’s Japanese suppliers for the 787 Dreamliner are disrupted for more than several weeks, the company could face new production problems.

Japan’s seven largest automakers experienced nationwide production shutdowns after the earthquake due to supply chain interruptions, power shortages and shipping problems. Many of the automakers were unable to make contact with parts makers in the earthquake zone. These automakers’ U.S. production could be hurt as well if plants can’t get parts normally imported from Japan.

Japanese machine tool builders—which play a large role in supplying U.S. metalworking operations—may also be affected by the disaster due to supply chain disruptions. Fortunately, three of the largest Japanese machine tool builders—Makino, Mori Seiki and Mazak—reported that they had mostly escaped direct damage from the earthquake and that all of their employees had been accounted for. Mori Seiki reported only minor damage at one plant. Mazak noted that there was relatively minor damage only at two technology centers in the earthquake zone. Makino reported that its facilities remain undamaged. Mitsui Seiki Kogyo Ltd., a builder of ultraprecision machine tools, also reported its plants and staff to be safe.