DEVASTATING JOLT IN JAPAN : Rebuilding Will Be Lengthy : Kobe Disaster Is Expected to Disrupt Port City for Months

The devastating earthquake that hit the western Japanese city of Kobe has disrupted economic activities across Japan, and it will continue to paralyze the city’s important port for several months.

The destruction of transportation infrastructure in the region means that any company dependent on parts and supplies that must pass through the affected area--the source of an estimated 20% of Japan’s economic output--faces difficulty in maintaining normal operations.

Meanwhile, the damage suffered by many smaller companies located in the Kobe area is affecting not only their own production but that of companies they supply. Kobe also is Japan’s leading container shipping port, and 12% of Japan’s prodigious export volume normally passes through it.

Authorities said portions of Kobe’s docks have collapsed or sunk, and that repairs will be complicated because undersea foundations were disturbed. Ships were unable to dock and ferry services were canceled. Only supply vessels or search and rescue craft were being allowed to use the port.

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The impact of Tuesday’s quake spread throughout Japan’s intricate manufacturing network. Japanese companies are known for their highly efficient “just-in-time” parts delivery systems, in which components arrive as needed instead of being held in storage. Thus, even minor delays can wreak havoc on production.

This was starkly illustrated when the biggest auto manufacturer, Toyota Motor Corp., said it will temporarily close all its domestic factories because of damage to parts suppliers and disruption to transportation lines, even though none of its own plants suffered any damage.

Toyota, which pioneered the “just-in-time” system, said it will begin closing assembly lines today and shut down the rest on Friday, at a cost of 20,000 vehicles per day in lost production. Whether the plants can reopen Monday was not yet determined, the company said.

Honda Motor Co. announced the shutdown of motorcycle production at its Kumamoto plant at least for today and Friday.

U.S. firms such as consumer products giant Procter & Gamble Co. and Eli Lilly & Co. also reported quake-related damage to Kobe-area facilities.

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Other major Japanese companies reported difficulty even finding out the extent of damage to their operations and product distribution centers in the Kansai region because the earthquake knocked out telephone lines.

The quake ripped through several steel plants, a major gas utility, railway operators and at least three computer factories. Several steel plants, including ones run by Nippon Steel Co. and Kawasaki Steel Corp., were closed due to power outages rather than structural damage.

A Kobe Steel Ltd. plant suffered equipment damage. Kobe Steel said it may take a month for its Kobe steelworks to resume full operation. Sumitomo Metal Industries Ltd., the nation’s third-largest steelmaker, said the earthquake broke electric cables in its Osaka plant, and that it did not know when operations could resume.

Osaka Gas Co. reported more than $100 million in damage, and it suspended gas supply to about 850,000 households. Hankyu Corp., a leading private railway operator, faces estimated damages of $800 million.

Matsushita Electric Industrial Co., maker of Panasonic products, said disruption of its computerized order-placement system and local transportation lines forced it to curtail shipments of products to many outlets in the Kobe-Osaka area.