David Noble speaks to Reuters Insider about Supply Chain disruption and "Phantom" demand after the Japanese earthquake.
Amid the human cost of the japanese crisis, some companies are beginning to become concerned about disruption and delay to their supply chain, if transport links and power continue to be affected. The main impact has been to operations as the Japanese Government has ordered manufacturers to shut down to divert power to other areas, which affects production and supply. This can cause a "Phantom" demand leading companies to buy extra inventory to keep manufacturing running which can drive up prices.
He comments on how the disaster can have a substantial effect on developing BRIC countries, as when their exporter is suffering they may not have the same ability as larger countries to switch providers.
In an official statement David Noble said, “The situation in Japan is inevitably creating uncertainty in global supply chains which will be a concern for UK businesses.
“UK supply chains have relatively low direct exposure to Japan compared to its neighbours in Asia and the BRIC countries, who will be impacted more significantly. Official ONS data shows direct imports from Japan to the UK have declined dramatically over the last two decades. However, there will still be a knock-on effect to some UK businesses, due to countries that the UK imports from being more reliant on supplies from Japan.
“With some of the world’s largest producers of semiconductors based in Japan, there is likely to be an impact on the global electronics industry. Global supply chains are so interconnected now that a crisis in one country can have a surprisingly large impact on other countries, even when there is little direct trade.
“The longer term impact remains to be seen, but there could be significant cost inflation for businesses in the UK, particularly when increased demand for raw materials to aid the reconstruction of Japan’s infrastructure kicks in. This is something that was seen in the aftermath of the 1995 Kobe disaster, when the Markit/CIPS PMI input price index rose to a then record-high and supplier delivery times slowed significantly.
“This will be an added challenge to UK companies, particularly in manufacturing and construction who are already suffering the pressure of higher price inflation.”
Watch the video online.