Consultant Insight: Semiconductor demand not met by supply chain

The significant shortage of semiconductors is having an impact across multiple industries. Early in 2020, the COVID-19 pandemic shut down manufacturing facilities worldwide, and the demand for semiconductors initially fell before picking up again as manufacturing reopened. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] A lot goes into the manufacturing of semiconductors and the semiconductor supply chain is global. According to the U.S. Census Bureau’s USA Trade database, U.S. imports of semiconductors (harmonized code 8541) by air volume declined by 5.3% to 12.9 million kg last year through November. In terms of air customs value, semiconductor imports fell 11.8% to $3.4 billion. While air is often considered the primary transportation mode for semiconductors, there was strong ocean transport growth last year due to the capacity constraints in the airfreight market. For 2020 through November, U.S. imports of semiconductors increased 42.4% to 1.7 billion kg by ocean volume, while by customs value, semiconductor imports increased 44.3% to $7.6 billion. The first driver of semiconductor demand in 2020 was the increased need for personal computers, smartphones and other equipment for home offices and students attending schools remotely because of COVID-19 related lockdowns. Global computer sales increased 11% year over year to 72.3 million units in Q2 of 2020, according to market research firm IDC. During the Q3 of 2020, PC shipments increased 14.6% year over year to 81.3 million units worldwide, according to IDC. However, “the PC industry rode into the third quarter with a sizable backlog of unfulfilled orders, and it appears the quarter will end under the same auspices, Linn Huang, research vice president of devices and displays at IDC, cautioned . “Given that the shortages have been due more to a shortfall of business planning than a technical glitch, we do not anticipate a sudden surge in capacity. Consequently, this backlog will likely carry into 2021.” The automotive industry, an increasingly large customer of semiconductors, has been slow to restart after it was forced to shut down earlier in 2020 because of COVID-19. At that time, automotive manufacturers cut orders for semiconductors ahead of anticipated sales declines. Most of today’s cars have at least 40 different chips, with higher-end models having up to 150, Sam Abuelsamid, an analyst at Guidehouse Insights, told the Wall Street Journal . The industry continues to recover but is faced with various issues impacting production, including mandated social distancing throughout facilities, worker shortages, shipping issues like capacity constraints and higher rates, and shortages of parts, including semiconductors. Some airfreight routes and charters have been added to support the supply chain, but capacity constraints continue to negatively impact production. The shortage is also playing a role in the decline in U.S. vehicle sales. After declining by as much as 80% in April 2020, U.S. retail sales rebounded. For the entire year, Edmunds, a provider of vehicle reviews and pricing, expects U.S. new vehicle sales to be down by 15.5%, the fourth-largest annual decline for the U.S. auto industry since 1980. Meanwhile, Fitch anticipates improvements in 2021, but sales are expected to be about 8% below 2019. The credit rating agency does not expect sales to return to 2019 levels until 2022 at the earliest. Many of the anticipated improvements in 2021 for the automotive industry are contingent on the COVID-19 vaccine roll-out and effectiveness, and the availability of semiconductors. According to industry analysts, shortages of semiconductors are expected to last well into 2021 because it takes semiconductor manufacturers six to nine months to realign production from computers, smartphones and other consumer electronics to satisfy the automotive industry’s requirements. According to the latest figures from the Semiconductor Industry Association (SIA), worldwide sales of semiconductors were $39.4 billion in November 2020, an increase of 7.0% compared to November 2019, and 1.1% higher than October 2020. “Global sales of semiconductors continued to rise in November, increasing on a year-to-year basis by the highest percentage since March,” said SIA president and CEO John Neuffer. “Annual sales in 2020 are tracking well ahead of the total from 2019, despite substantial headwinds caused by the pandemic and other macroeconomic factors. Sales into the Americas remained strong in November, increasing year-to-year by a double-digit percentage [12.5%] for the eleventh consecutive month.” Industries dependent on semiconductors will not fully recover, in terms of demand and manufacturing, until the COVID-19 pandemic has eased and supply chains have adapted to market changes. However, the automotive industry will likely take longer to recover than others due to its strategic and manufacturing shift to electric vehicles, which require even more semiconductors.

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