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Saturday, January 14, 2012
The Rising Cost of Natural Disasters
Global supply chains were just recovering from Japan's earthquake and sunami last spring, when unusually heavy monsoon rains severed them again this past October. Floodwaters eventually reached Bangkok.
Bangkok is home to many links in the world’s automotive and technology supply chains. Western Digital, a maker of computer disk drives which has 60% of its production in Thailand, had two of its factories closed by the floods, sending the global price of drives soaring.
Thailand, no stranger to floods, was once called the “Venice of Asia”. But rarely have they done so much economic damage. October’s flooding cost $40 billion, the most expensive disaster in the country’s history.
Such multi-billion-dollar natural disasters are increasingly common. Five of the ten costliest, in terms of money rather than lives, were in the past four years (see map). Munich Re, a reinsurer, reckons their economic costs were $378 billion last year, breaking the previous record of $262 billion in 2005 (in constant 2011 dollars).
Chart from Munich Re showing regional economic losses and deaths from natural disasters since 1980
Even without labor and material input inflation, it is no wonder that product and insurance costs have risen and may continue rising.