The global shortage of semiconductors imposes a considerable effect on land freight
The shortage of semiconductors, which became a global problem in 2021, affected many industries, from car to refrigerator manufacturers. This issue also left its mark on the land freight industry, restricting the production and sale of new trucks.
Where’s the beginning?
Although the shortage of semiconductors hit the world in 2021, the roots go back to 2020 with the arrival of the Covid virus. Countries, in an effort to protect society from a deadly disease, have forced everyone to isolate themselves by shutting down factories and halting many production processes, including car production. With the closure of factories and low demand for new vehicles, car manufacturers had cancelled orders for microchips one after another. As people’s need for a new car declined, their desire to buy electrical appliances increased, and so did the industry’s demand for semiconductors. While the demand for the product decreased in one industry and increased in the other, everything was fine. The problem began when countries eased the restrictions and people began to buy cars to avoid using public transport. On top of that, the growing demand for delivery service of various goods, and therefore for new trucks, was surging. As a result, microchip manufacturers now had to supply enough semiconductors to meet the needs of the industry as well. At this point, microchip manufacturers no longer had the capacity to produce so many products to meet the needs of all industries. In other words, the demand for semiconductors was much higher than the supply.
The already difficult situation in the industry has also been exacerbated by natural disasters, such as the fire at a Japanese microchip factory, which produced around 30% of the world’s microcontroller chips used in cars. The same microchips are used not only in the production of cars, but also in the production of trucks.
Where does it lead us?
As in any industry, the demand execution time was affected by the fact that the demand exceeded the supply. The production and delivery of new cars took at least three times longer than before the market crisis. According to ACT Research, manufacturers of Class 8 cars produced a total of 262,100 units in July 2020, but the plant was only able to produce 14,920 units in a month due to a shortage of semiconductors, according to the Wall Streat Journal. This affected not only factory revenues but also logistics companies. In the past, buying new cars was a way to successfully increase work capacity, but now that you had to wait at least three times longer for a new vehicle than before, it no longer seemed like a good decision. Therefore, logistics companies relied on the purchase of a used car, but there they also received an unpleasant surprise – a rise in prices. According to the Cox Automotive Manheim Used Vehicle Value Index, wholesale prices for second-hand vehicles in the first 15 days of March 2021 increased by 3.74% compared to average prices in February. In the middle of March, the index reached an all-time high of 175.5, which is 24% more than a year ago and 8% more than at the beginning of 2021, USA Today reported.
What is being done to remedy the situation?
Many technology-based industries suffer from a lack of semiconductors, so everyone is ready to make a difference as soon as possible. For example, Samsung has announced it will invest $ 17 billion (€ 15 billion) in the construction of a new microchip plant in Texas. The new plant is expected to start operations in 2024. STMicroelectronics, one of the largest French and Italian microchip manufacturers, is also building a new plant near Milan, Italy. Car customers are expected to receive chips from this plant by the end of 2023. These are just some of the companies that are willing to invest extra money to grow the microchip industry and put an end to this crisis. While this is definitely better than sitting with your arms folded, the construction of factories does not solve the current situation. Yes, it will help avoid similar incidents in the future, but what can car manufacturers and logistics companies do now? Settle on the situation, rely on existing trucks and temporarily abandon the idea of growing the company and buying a new one? Or should you decide to buy a car as an investment into the future? The answers to these questions can be found within each company.
Where’s the end?
We can speculate on various predictions about when the semiconductor crisis will cease, but unfortunately there is no concrete answer to this question. According to new estimates from AutoForecast Solutions, the number of vehicles removed from production plans worldwide due to a lack of chips in the second week of February was up by 61% from the previous week. This shows that the problem has persisted in 2022 and that again this year, manufacturers and customers will have to deal with the shortage of semiconductors and its consequences.
Author: Roland Peterson, logistics expert