The electronics manufacturers planned accordingly and secured their supply lines prior to November 2020. As vehicle sales began to rebound in the third quarter, automakers were slow to order more semiconductors and then lost out to more nimble electronics manufacturers that had visibility into the bigger picture and longstanding relationships with semiconductor manufacturers. For example, aggressive lean inventory practices left many manufacturers vulnerable. No one likes to hear “I told you so,” but organizations could have done a better job planning for these shortages.
The grounding of the Boeing 777 fleet with Pratt & Whitney engines following the failure of an engine on a plane over Colorado has further exacerbated capacity constraints. In fact, global air-cargo capacity in first quarter of 2021 is 25% less than last year. But the airfreight system has been experiencing higher demand due to global shipments of the Covid-19 vaccine even as its capacity has been reduced due to the pandemic-related drop in passenger travel, which has meant that there are fewer passenger planes available to carry freight. As of late February, the plant was still down.Īs if all these disruptions weren’t enough, there have also been constraints in the global transportation system. According to Clear Metal, which monitors over 90% of ocean freight, nearly 7% of ocean freight is not making it out of China ports this quarter. Shortages of shipping containers resulted in companies having to pay premiums for shipping and drove demand towards airfreight. Then in October, a fire at a Japanese plant belonging to Asahi Kasei Microdevices took advanced sensing devices used in automotive and other industries out of circulation.
In July, a fire at a Japanese factory cut off supplies of special fiberglass used for printed circuit boards. At the same time, American firms were cut off from chips made by China’s Semiconductor Manufacturing International Corporation after the federal government blacklisted the firm. Those companies began stockpiling chips essential to 5G smartphones and other products. Geopolitical factors also played a role, specifically when the Trump administration began tightly regulating sales of semiconductors to Huawei Technologies, ZTE, and other Chinese firms. Then in the third quarter, when demand for passenger vehicles rebounded, chip manufacturers were already committed to supplying their big customers in consumer electronics and IT. When the Covid-19 pandemic caused a precipitous drop in vehicle sales in spring 2020, automakers cut their orders of all parts and materials - including the chips needed for functions ranging from touchscreen displays to collision-avoidance systems. To a great extent, the chip shortage has been a ticking time bomb, building since late last year due to a few (unrelated) supply-chain disruptions. But funding and building a new semiconductor fab is at least a five-year process. And in response to the shortages, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor manufacturer, has increased its 2021 capital spending budget to $28 billion. The chip shortages are expected to cause widespread shortages of everything, from electronics to medical devices to technology and networking equipment.Īs recently reported by Reuters, automakers and medical device manufacturers have asked the Biden administration to subsidize construction of new U.S. And it’s not just carmakers that are in trouble. Other carmakers have announced they’ll likely miss their 2021 targets.
Business and financial media have detailed how the shortage of semiconductors has caused production cutbacks in the automotive industry: Ford, Toyota, Nissan, VW, and Fiat Chrysler Automobiles (now a part of Stellantis) are among global carmakers that have scaled back output. Lead times for many semiconductors are one year out right now, and these devices are in just about everything we use. Indeed, concerns about disruptions to supply chains and shortages that have occurred during the pandemic sparked the Biden administration to order a review of critical areas.Ī major example is semiconductors. economy expected to gather steam this year as more and more Americans are vaccinated, one of the biggest cautions to consider is whether supply chains will be able to keep up with growing demand.
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