View: The ‘new normal’ in supply chains includes geopolitical dynamics and climate change
A global container shortage and chaos at ports have stifled the flow of goods and hurt many businesses. Worse yet, semiconductor shortages have crippled global manufacturing. It looks like a perfect storm is brewing.
Goldman Sachs analysis indicates that the semiconductor shortage will impact 169 industries – from the most obvious like vehicles, smartphones, computers, automation equipment and consumer durables, to military systems, aerospace, steel products, machine tools, agrochemicals, soap, breweries, even toothbrushes.
Semiconductors are made from silicon, a good conductor of electricity. The microcircuits on these chips run the various electronic products we use, enabling computing, processing, storage, wireless connectivity, and advanced technologies. Semiconductors could well be considered essential to economic progress, for all the equipment in which they are used and all the industries they impact. And, until now, they got faster, cheaper, more compact and more efficient with every passing year.
The major players in the semiconductor industry are Intel, Texas Instruments (TI), Advanced Micro Devices (AMD), Qualcomm, Nvidia, Broadcom, Samsung, Taiwan Semiconductor (TSMC) and Semiconductor Manufacturing International China (SMIC). The chip itself was invented in the United States, which continues to dominate the world in advanced research, design and manufacturing, while Taiwan is the world leader in assembly, packaging, and manufacturing. tests.
China has steadily ramped up semiconductor manufacturing capacity, and South Korea dominates memory chips with a 65% share. The complexity along the value chain in design, manufacture and assembly will ensure that global dependencies will not materially change any time soon.
On the one hand, Covid and Work from Home (WFH) restrictions have created an urgency for customers to purchase efficiency laptops, game consoles, TVs and devices, sparking demand. Many suppliers, as a security response to the pandemic, compounded by the anticipation of reduced demand, have closed their factories partially or totally for varying periods of time. Sanctions against China have further restricted supply. And, as you might expect, it caused overstocking.
More chip shape
Climate change has also played a role. A harsh winter in Texas temporarily shut down Samsung, NXP and Infineon factories. Taiwan has been caught in the midst of its worst drought in decades, starving chipmakers of pure water for wafers. Imagine the situation at TSMC, which uses 63,000 tonnes of water per day. To top it off, there has been a fire at Renesas Electronics in Japan, which meets nearly a third of the world’s requirements for microcontrollers.
A big change is underway in the $ 500 billion (37.8 lakh crore) chip industry – power is shifting from buyers to producers who have invested to create foundries that produce chips for others. Contracts now favor chipmakers, reflecting their new market power. Prices are heading north and lead times are stretching to their elastic limit. Chipmakers decide priorities and allocations, while the backlog and suppressed demand increases market pressures on both sides. It is important to note that the focus on new product features enabled by advanced chips, seen as a competitive advantage by manufacturers and marketers, will certainly diminish in the short term.
Some of the big issues we have all heard about include low availability of electricity in China, coal shortages in India, lack of truck drivers in Britain, backlogs at various ports and mobility restrictions. In all areas. This highlights the potential weaknesses of the global supply chain, whether it be labor, roads, railways, ports, inland waterways or the last mile.
On March 23, 2021, a transport vessel got stuck in the Suez Canal, blocking a major global trade artery for nearly a week. Then, Covid played a spoiler, forcing stops. In June, a spike in infections suspended operations at the Chinese port of Yantian, which manages 90% of the world’s electronics. Congestion has spread to Shenzhen and Guangzhou, among the world’s largest full container ports. Shipping giants Maersk, Hapag-Lloyd, Mediterranean Shipping Co (MSC) and Cosco have already notified delays and raised their rates. The ports of Los Angeles and Long Island, entry points for 40% of American imports, are also blocked. The domino effect will last for a while.
Destroy the new block
The drastic reduction in ship movements has also resulted in the blockage of containers in ports and inland depots. Many countries are willing to pay extra for empty containers, which confuses the situation. Industry organizations and exporters have also called on government agencies to speed up the release of detained and abandoned containers in order to increase supply. Large loaders repair and use old containers, while speeding up fill and unload times. The chaos is also spreading to warehouses and distribution centers.
The conflict between China and Taiwan could well be an impending global catastrophe. Because it’s also about who controls the semiconductor industry, which has a disproportionate impact on global trade. The ânew normalâ in supply chains and logistics now includes geopolitical dynamics, climate change and health security. The world must adapt quickly. Which, no doubt, strengthens the arguments in favor of aatmanirbharta.