Navigating the Semiconductor Industry: Trends in Nearshoring and implications for Air Freight

First, a look at the semiconductor industry. The global semiconductor industry has seen significant growth, with chip production surpassing 953 billion units in 2020 and 1.11 trillion chips in 2022, contributing to a market valued at USD$471 billion and USD$618 billion, respectively, according to the latest data by the Semiconductor Industry Association (SIA). The industry’s value is expected to exceed USD$700 billion by 2025 (see Figure 1 for semiconductor sales by region over the last seven years). However, the memory chip market has seen fluctuating demand and excessive inventory, leading to declining prices. Despite this, Samsung Electronics post-pandemic managed to expand its market share and increase its chip spending by capitalizing on opportunities from China's zero-COVID policy.

The demand for microchips is increasing due to rising populations, urbanization, shift towards renewable energy, and electrification supporting smart mobility. The increased demand is met by developing new and advanced chips for emerging applications like smart homes, cities, healthcare, wearables, and robotics. Despite these advancements, SIA is estimating a contraction of 2.5% in 2023 following a remarkable expansion of 26.3% in 2021, indicating a reversion to seasonal patterns. Figure 1 – Semiconductor Sales (in USD) by region 2015 – 2022

Source: Semiconductor Industry Association

Trends in near shoring

Nearshoring, the practice of relocating operations to neighboring regions with similar trade and business practices, is gaining momentum as companies seek shorter supply lines and more reliable trade. Recent developments, such as the bipartisan CHIPS and Science Act, which promotes semiconductor manufacturing and international cooperation with countries like Mexico.

In early 2022, the enactment of the CHIPS and Science Act allocated $52 billion to accelerate semiconductor manufacturing in the United States. Recognizing that it is impractical to relocate all semiconductor manufacturing to the U.S., the act also included $500 million for international cooperation, particularly with countries like Mexico. Consequently, organizations and businesses in both the U.S. and Mexico are collaborating to train workers and enhance production capabilities along the border. These shifts are aimed at reducing the reliance of American manufacturing on Asian markets.

According to data analyzed by Cargo Facts Consulting, in August 2022, the trade between the United States and Mexico reached $70 billion. Between January 2022 and January 2023, exports grew by 28%, while imports increased by 23%, as reported by the US Census Bureau. To enhance competitiveness in the electronics market, companies are adopting regionalization strategies, with estimates suggesting that a significant portion of global goods exports may transition to new countries within five years. However, successful nearshoring requires a thorough understanding of local manufacturing landscapes, regulations, and supplier capabilities, as well as addressing challenges such as cultural differences and logistical obstacles. Responsible sourcing, risk management, and regional engineering capabilities are now crucial for resilient value chains. Nearshoring electronics manufacturing offers advantages in terms of speed, agility, and cost optimization, but careful evaluation, research, planning, and strong partnerships are essential to overcome challenges and make informed decisions, especially when considering nearshoring to Mexico.

Implications for the air freight industry

The semiconductor industry's growth and challenges have industry which is adapting to meet the unique demands of semiconductor supply chains. Companies like Kuehne+Nagel and DSV are introducing specialized services and expanding their operations to support the semiconductor industry's needs and ensure reliable and efficient transportation of semiconductor products.

Specifically, This offering aims to establish reliable, agile supply chains and addresses the growing demand for semiconductors and the pressures on manufacturing. The service ensures improved visibility, security, risk reduction, and process automation for customers. The service also emphasizes time-defined services for predictability, particularly crucial in time-critical situations. The offering includes appropriate handling controls, airside services, prioritized flights, and risk mitigation tools to provide full visibility to all stakeholders and minimize potential disruptions for reliable planning.

Freight forwarding company DSV is expanding its operations in Arizona by adding Phoenix-Mesa Gateway Airport to its freighter network. The move aims to reduce lead times for semiconductor shipments by bypassing congested airports. DSV's new flights, operated by Atlas Air, will provide the first regular air cargo charter service in the area, connecting Latin America and Europe. To support the growing semiconductor industry in Arizona, DSV will have its own leased air cargo hangar and ground-handling equipment. The expansion aligns with DSV's recent acquisitions of US logistics firms S&M Moving Systems West and Global Diversity Logistics, further bolstering their support for the semiconductor industry.

The semiconductor industry continues to demonstrate its dynamism in the supply chain, as evidenced by the introduction of new products and services. Despite the trend towards near-shoring of manufacturing operations, the industry remains vibrant and innovative. However, it raises the question of how long this dynamism will persist in the face of evolving supply chain strategies. As companies adapt and explore new manufacturing approaches, it remains to be seen how the semiconductor industry will navigate future challenges and maintain its momentum. Will near-shoring continue to be the dominant trend, or will other strategies emerge to shape the industry's future? Air freight executives should continue to monitor this market segment for an answer to that question.

Navigating the Semiconductor Industry: Trends in Nearshoring and implications for Air Freight

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