Water Risk in the Middle East

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Water scarcity has become a hot topic within the last few years (we ran a feature on the the risk of water scarcity and its effect on businesses in our June 2009 issue). That risk, however, is far greater in certain areas of the world than others. On March 22nd, Maplecroft warned that Middle East and North African (MENA) countries top the list for extreme water security risks, which could lead to further increases in global oil prices and heightened political tensions in the future.

Maplecroft rated 18 countries at “extreme risk” with 15 of those located in the MENA region. Of the 12 organizations of the Petroleum Exporting Countries (OPEC), six are rated as “high risk.”

“Water security has the potential to compound the already fragile state of societal affairs in some countries,” says Professor Alyson Warhurst, CEO of Maplecroft. “For example, in Egypt water security may intensify the on-going civil tensions. In turn it is not unrelated to food security, which leads to cost of living protests and in turn violent oppression in less democratic societies.”

The report states that technological innovations, such as the desalination of salt water, may alleviate some of these risks. Businesses that require intensive water use (food and beverage, semiconductor manufacturing, etc.) will also need to consider their impacts and analyze options for lessening their reliance on water, especially in regions already experiencing shortages.

Rebuilding Japan May Cost More Than $300 Billion

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According to the office of Prime Minister Naoto Kan, the cost of Japan’s rebuilding efforts following the earthquake may exceed $300 billion, which would easily make it the world’s most expensive natural disaster on record. (Hurricane Katrina, with an estimated $125 billion, inflicted the previous-record amount of damage.) There is often a big difference between early estimates and final tolls — particularly estimates coming from those who are directly affected — but the World Bank is also expecting the costs to come in around $250 billion.

Rebuilding after the 9.0-magnitude quake and tsunami, which ravaged the northeastern coast of the main Japanese island of Honshu, will cost up to $309 billion, Mr. Kan’s office said Wednesday. The World Bank, citing private estimates, said on Monday that the figure could reach $250 billion.

More on the insured loss estimates from the Japanese earthquake can be seen here.

Q&A: The Automotive Industry After the Quake

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Though many industries were affected after the Japan earthquake and tsunami, there were some that were hit especially hard — electronics and automotive.

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To get a better glimpse of what the automotive industry was going through, I contacted Fred Hubacker, automotive supplier expert with Conway MacKenzie, a Detroit-based crisis management firm. The following is what transposed:

The earthquake and tsunami in Japan has created chaos for most companies
with operations in the area. How has the automotive industry fared. In your
opinion, was it the industry hardest hit?

FH: In general, the automotive industry has suffered tremendous loss from this
tragedy. Lost auto production, in Japan, could reach 335,000 units by the
end of this week (3/25). In addition, the effect is starting to be felt in
North America with overtime elimination and at least one assembly facility
down (GM Shreveport [Louisiana]) and downtime in Europe. Automotive seems to be the
hardest hit, at least on an immediate basis, however, the effect on other
industries such as electronics and aviation have not been widely reported
yet.

What were the major risks posed to automotive companies with operations
in the affected areas?

FH: The major risks include damage to their own assembly and component
manufacturing facilities, damage to suppliers producing many components
including electronics, petro-chemical products and powertrain components,
the loss of infrastructure including power, roads, water and transportation,
and of course, the issues created from the huge loss of human lives.

Was there one particular automotive company that was hit hardest?

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FH: Not entirely clear at this point but it appears that Honda has a heavier
concentration of suppliers in the quake zone than the other manufacturers.
Toyota, for example, is losing all Prius model production at the moment.

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How will such business interruptions in the automotive industry affect
other industries?

FH: Widespread component shortages and production downtime could ripple effect
to thousands of other auto component and logistics suppliers who were not
directly affected by the quake. Normal just-in-time suppliers will not be
able to continue production.

What can be done, if anything, to prevent such interruptions in the wake
of a catastrophe?

FH: Alternative sources can be developed, but generally that is a lengthy and
expensive process.

Supply Chain Insurance Claims in the Wake of the Japanese Disaster

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The March 11 earthquake and tsunami in Japan will have lasting effects on companies worldwide. Of no small concern will be rebuilding broken supply chains and working to get businesses back to normal. Until this happens, however, there are sure to be significant economic consequences for many companies and they will have to turn to their insurance policies to cover their losses. In their latest column, Robert Horkovich and Finley Harckham of Anderson Kill & Olick discuss some of the coverages that may apply and how they might be triggered.

To cover losses suffered as a result of damage to third party property, most commercial property insurance policies include contingent business interruption and contingent extra expense insurance. Though these coverages are narrowly defined and may be subject to sublimits, they can be very valuable in the event of major disruptions to trade.

To read more on this important issue, please visit RMmagazine.com.

And if you haven’t already, please consider donating to a Japan disaster relief fund. PBS has compiled a helpful list of resources here.