March 24 (Bloomberg) -- Microsoft Corp.’s repair operations for Xbox units ground to a halt in Japan’s Fukushima prefecture when the earthquake knocked out power. Then the lights came on to reveal another hurdle: Shipments of the game consoles had been impaired after the disaster two weeks ago.
Microsoft is among hundreds of companies affected by the loss of normal pickups and deliveries. United Parcel Service Inc. and FedEx Corp. couldn’t reach the facility in northeast Japan for several days, said a person familiar with the matter who isn’t authorized to comment publicly.
Truck shipments to Fukushima used to take a few hours from Tokyo, over roads and bridges now impassable in some cases. The earthquake ruptured the weakest links in a logistical chain designed to move packages overnight from U.S. hubs for UPS and FedEx more than 6,500 miles (10,500 kilometers) away.
“The last mile is so critical,” said Charles Clowdis, a transportation adviser at IHS Global Insight, a forecasting firm in Lexington, Massachusetts. “They may be able to get into the country, but to get into those areas that have been devastated will continue to be difficult for a long time.”
UPS and FedEx, the world’s largest package-shipping companies, face combined costs of $4.4 million for each day of major disruptions, Barclays Capital estimates. UPS fell 2.7 percent from the March 11 quake through today to $72.10 in New York Stock Exchange composite trading, while FedEx gained 8 cents to at $90.79. The Standard & Poor’s 500 Index advanced 0.4 percent.
Passing Out Packages
FedEx still can’t serve 140 postal codes in northeast Japan and completes some shipments by driving vans to the outskirts of those areas and passing out packages from the vehicles. Atlanta-based UPS is rerouting trucks to reach customers while delivery service is suspended in six prefectures.
Sales in Japan, the world’s third-biggest economy, total about $1.7 billion a year for FedEx, or 4 percent of revenue, and $800 million, or 1.5 percent, for UPS, estimates Gary Chase, an analyst at Barclays Capital in New York. UPS and FedEx don’t detail revenue by region.
Both companies resumed normal operations at Tokyo’s Narita airport within days, and Osaka flights were never interrupted. Beyond major cities, service to some regions remains spotty or delayed because of unreliable electricity and roads and bridges damaged by the quake and subsequent tsunami.
FedEx restored usual cutoff times and money-back guarantees yesterday for all of Japan except the hardest-hit regions because most service is “back to normal,” said David Cunningham, president of FedEx Express Asia-Pacific.
“The significantly impacted areas, you just can’t get into or out of,” Cunningham said in an interview. “We’re running vans to meet points, setting up hold locations or receive-over-counter locations.”
FedEx isn’t using its sorting and processing facility in Fukushima, site of the damaged Tokyo Electric Power Co. nuclear plant, said Sandra Munoz, a spokeswoman. While the building is outside the government-set evacuation area, nearby roads are too damaged to travel, she said.
The company operates the world’s largest cargo airline, running 40 flights a week each through Tokyo and Osaka. It has 1,600 employees and 510 ground vehicles in Japan, Cunningham said.
FedEx’s March 17 forecast for earnings of as much as $1.83 a share in the quarter ending in May “could prove optimistic” if quake-related disruptions in Japanese factory output ripple across Asia and around the globe, Ed Wolfe, an analyst at Wolfe Trahan & Co. in New York, wrote in a March 18 note. A FedEx spokesman, Jim McCluskey, declined to comment yesterday.
Gary Chase, the Barclays analyst in New York who projected the potential daily drag on FedEx and UPS, said that estimate assumed a “worst-case” scenario for the carriers’ package networks, which neither expects. He recommends buying the shares and said in a March 15 note he wasn’t changing his view.
UPS hasn’t commented on any impact from the quake. The company has 1,000 employees in Japan and 34 weekly flights to the country, with 10 pickup and delivery centers plus 42 other centers for operations, logistics and brokerage services, according to a UPS fact sheet.
UPS said today it is resuming deliveries to three more prefectures and will resume pickups in those areas beginning Friday. The company still can’t serve prefectures including Fukushima and Miyagi, and it’s using alternate routes to deliver to some districts in the rest of eastern Japan, Norman Black, a spokesman, said in an interview.
“You have to figure out ways to work around the sections that are closed off, and that’s been the main problem they’ve had in the east,” Black said. “It can lead to some delays.”
The repair center that lacked enough Xboxes to fix was just one of the companies cut off from the usual express networks radiating from FedEx’s hub in its hometown of Memphis and UPS’s base for air operations in Louisville, Kentucky.
Microsoft, based in Redmond, Washington, contracts with a third party to fix the game consoles in Fukushima. Julie Gates, a Microsoft spokeswoman, declined to comment.
Biogen Idec Inc., the world’s largest maker of multiple sclerosis medicines, had to hire local delivery firms to reach patients in northeast Japan, said Christina Chan, a spokeswoman. The Weston, Massachusetts-based company is sending emergency supplies to employees in Tokyo via FedEx and UPS, she said.
“We’re working with local vendors to try to make sure we get it to the hardest-hit areas,” she said. “There’s a logjam. It’s just an overload of people trying to get things to Tokyo.”
FedEx may see shipments increase as humanitarian aid and reconstruction materials flow into the country, Chief Executive Officer Fred Smith said on a March 17 conference call with investors. Volume in eastern Japan was 30,000 packages on March 22, “comparable to a peak day,” Cunningham said.
Navigating past quake-battered roads and bridges in the coming days may require some creativity, said Julie Swann, co-director of the Center for Health and Humanitarian Logistics at the Georgia Institute of Technology in Atlanta.
“You certainly try to look at alternate paths, maybe air or sea or bicycles -- things you wouldn’t use in normal times,” Swann said.
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