According to a new study to be issued by ABSG Consulting Inc. and its subsidiary, EQECAT, Inc., “Japan’s chemical industry surprisingly could suffer financial losses equal to more than two years of pre-tax earnings, while the precision machinery and petroleum industries could suffer damage equal to more than one year of pre-tax earnings, from a very large earthquake.”
The study is to be formally presented at a seminar in Tokyo on November 14. EQECAT senior vice President Dennis Kuzak said the study also shows that five other industry groups in the study have significant loss exposure. These include steel, non-ferrous metals, automobiles, electronics and pharmaceuticals. He added that the “study does not represent all Japanese industrial companies, but demonstrates that the earnings impact for many industries can be very substantial.”
The study used EQECAT’s probabilistic “JapanQuakeTM earthquake model to simulate the ground motions from earthquake events and to estimate the consequent industry damage,” Kuzak explained. It “incorporates the most recent Japanese government findings of increased risk in portions of Japan, including the potential for a magnitude 8-plus earthquake caused by a rupture in the Tonankai deep sea ocean trenches,” said the bulletin. “Such an event is estimated to have an occurrence probability of 60-70 percent during the next 30 years, according to Japanese scientists.”
Kuzak noted that recent earthquake activity in Japan has heightened the “interest and concern” of Japanese business leaders regarding the threat to their operations from earthquake events. As an example he cited the Niigata prefecture Chuetsu-oki earthquake earlier this year. The “automobile industry suffered a production drop of about 120,000 units caused by damage to a critical supplier’s facility that manufactured piston rings.”
He stressed that while property damage and loss of life are the well known consequences of severe earthquakes, they can also “severely affect business revenue and profit. To help protect their businesses and control possible losses, senior corporate officers should initiate studies to fully understand all their earthquake exposure, and if warranted, implement prudent, pre-emptive risk mitigation strategies to manage earthquake risk.”
“Even earthquakes such as the Chuetsu-oki event, well below a magnitude 8 at a magnitude 6.8, caused considerable business losses,” Kuzak added. “Japan’s Ministry of Economy, Trade and Industry estimated that industrial production in Japan shrank by 0.4 percent due to that earthquake.
The ABS Consulting/EQECAT study examined the potential earthquake damage and loss for 32 corporations in the eight industry groups. The number of enterprises in each group ranged from three to nine. An executive summary of the report is available at: www.absconsulting.com and www.EQECAT.com.
ABS Consulting will host a free, half-day seminar on November 14 at the Toranomon Pastoral Hotel, Tokyo, to present the research findings and discuss new ways to assess and manage supply chain risk. For conference reservations, please contact:
Address: Toranomon 5-12-1 Toranomon Waiko Bldg 5f
Minato-ku, Tokyo 105-0001
Fax: 03-5425-2720 / Tel : 03-6825-4885
Source: ABS Consulting/EQECAT