Examining the impact of the Taiwan earthquake on global supply chain operations

Following the most powerful earthquake to hit Taiwan in 25 years on Tuesday, supply chain analysts offered up their respective takes on this situation and, by extension, on the global supply chain, too.

NBC News reported that the earthquake killed at least nine people, injured a thousand more, collapsed hundreds of buildings, and triggered tsunami warnings across the region.

And a Bloomberg report noted that Taiwan Semiconductor Manufacturing Company, or TSMC, resumed operations earlier today and expects its most advanced factory— located in the southern Taiwanese city of Tainan, is the leading producer of advanced chips for Apple Inc. and Nvidia Corp.—to reach full recovery later today, after it earlier evacuated staff and halted operations.

“Taiwan plays an outsized role in the global economy because its companies craft the semiconductors at the foundation of technologies like artificial intelligence, smartphones and electric vehicles,” the report stated. “Led by TSMC, national players produce an estimated 80% to 90% of the highest-end chips.”

John Donigian, Senior Director, Supply Chain Strategy, for Moody’s, wrote that the Taiwan earthquake demonstrates that concentration risk with suppliers is never an issue until an event like this happens.

“Diversifying suppliers from a geographic standpoint allows supply chains to be more resilient in these situations,” he noted. “It also underscores how integrating climate data into supply chain risk management is critical for enhancing resilience—something we see our customers doing more frequently and systematically. This approach enables companies to proactively assess and mitigate risks associated with natural disasters ensuring continuity and reducing vulnerabilities in their supply chains.”

What’s more, he explained that when diversifying suppliers, it is also essential to have a holistic view of different risks instead of treating them in isolation.

“Otherwise, diversification efforts could inadvertently lead to a trade-off with other types of risks that impede the overall goal of increasing resilience,” he added.

Donigian's colleague, Steve Cochrane, Chief APAC Economist, for Moody’s Analytics, said that it appears the economic impact will be minimal, because the earthquake was centered in Hualien County on Taiwan’s east coast, which is known more as a center of tourism rather than a center of business or commerce.

“If the quake had been centered in Taipei or on the west coast where much of the semiconductor industry is located, the economic impact would be much greater,” he noted. “Thus, the economic impact should be moderate in the near term. Much depends upon whether the semiconductor fabs find any damage, even microscopic, in their equipment that would cause production delays. Fabs are reported to have been closed for a half-day or the entire day, but not longer. Thus, barring the discovery of damage to manufacturing equipment, production delays will be minimal.”

From an operational perspective, Jena Santoro, Senior Manager of Risk Intelligence, for Everstream Analytics, said that the earthquake has brought about more than a dozen aftershocks,

With some measuring above magnitude 5, having compounded the region, disrupting transportation networks, jeopardizing manufacturing, and resulting in power outages affecting an estimated 91,000 customers. And due to rockfall and landslides, she said regional road and rail connections have also been disrupted.

And she said that major players like TSMC, United Microelectronics Corporation, and Innolux Corporation have all reported material damages, preventive shutdowns, and facility evacuations.

“The ripple effects are affecting global supply chains for microchips, LCD panels, integrated circuits, and more,” said Santoro. “Authorities have closed the Suhua Highway, which connects Su'ao Township in Yilan County to Hualien City in Hualien County. Meanwhile, rail links between Yilan County and Taitung County that cross through Hualien Country remain suspended. With road and rail connections disrupted and power outages affecting thousands, the flow of goods and materials in and out of Taiwan face significant hurdles. As recovery efforts continue in Hualien County and assessments of damages progress, the possibility of prolonged operational halts looms. Potential aftershocks and ongoing infrastructure challenges could exacerbate supply chain disruptions in the weeks ahead.”

In comments written prior to TSMC reopening operations, Simon Geale, Executive Vice President, Procurement, for Proxima, observed that while the earthquake is obviously bad news for companies like TSMC, at a time when companies are desperate for cost savings, there may be very little impact on global supply chains, adding that the cost of change and dominant market position of TSMC makes it too complex and too expensive to uproot and make any significant supply chain changes in the short term.

“However, the situation has brought the world’s attention to the fact that the capacity and capability simply does not exist at scale in other locations,” he said. “Businesses today are worried about political instability in the short term and climate events in the longer term and Taiwan is immune to neither. Whilst that is a cause for concern, CEOs ultimately remain hyper focused on reducing costs in the short term. However, in the mid-term something has to change, with America’s CHIPS Act signalling a growing prioritization of nearshoring supply.”

This earthquake is the latest in an ostensible series of events impacting the global supply chain, right on the heels last week’s tragic bridge collapse in Baltimore, which was preceded by the ongoing Red Sea and Panama Canal issues. There is truly no down time in the supply chain, something which has been made abundantly clear going back to the onset of the pandemic. That said, supply chains continue to learn, evolve, and adapt, and will continue to do so, for these situations and others that will be sure to come in the future.