[News] The microchip crisis, a global challenge for the consumer society

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So small and so powerful. More and more sophisticated, more and more in demand. We don't usually see them, but they are in the guts of almost all digital products: they are microchips.

Without them the manufacturing processes of vehicles, mobile phones, medical equipment, computers, even a simple ball, stop. And that is precisely what is happening. The global shortage of semiconductors has extended in time much longer than anticipated. To this must be added the current moment in which demand is skyrocketing after the stoppage of the COVID-19 pandemic.

Factory stoppages
The production stoppage caused by the coronoavirus is at the base of the problem. The pandemic coincided with factory closures during lockdown with an explosion in demand for electronic devices. The few microchips that were made in factories in China or Taiwan were for new buyers.

With the reopening of factories and increasing demand, especially in the automotive world, the waiting list for chip shipments can be extended by several months. "Right now in Chinese factories there are times each month when they have to stop. In January they are already insisting that these monthly stoppages of the companies are going to be much greater because there is not enough energy to supply the entire industry to the citizens of the country ”, explains the CEO of the Injusa toy industry, Luis Berbegal Pina.

The automotive industry, one of the sectors most affected
The automotive sector, where Spain is the second largest producer in Europe and eighth in the world, is one of the most affected by the lack of supply of microchips necessary for assembly: from parking sensors to windshield wipers. "A car can have up to 5,000 microchips," says the general director of the Spanish Association of Automobile and Truck Manufacturers (ANFAC), José López Tafall.

In the Spanish case, the drop in production is estimated to be around 25% compared to a normal year. This has not yet meant that any plant is closed, but "temporary adjustment measures, such as ERTE, are being applied to reduce shifts or reduce production capacity because there are no inputs," laments López Tafall. "There are vehicles that cannot be finished manufacturing." Virtually all manufacturers have announced work stoppages and are negotiating flexibility and readjustment measures with their unions to avoid further production stoppages.

The collapse of ports and containers
The container shipping crisis further accentuates the global shortage of microchips. The trade is delayed by the shortage of ships, the collapse in the American ports or the closures of Asian ports due to the delta variant of the coronavirus.

Between May and June "there was a stoppage with the closure of the port of Shanghai", recalls the coordinator of the Master of Logistics at ESIC, Antonio Iglesias. "If we add to that the stop of the ship in the Suez Canal, we already have a perfect cocktail that is representing very high increases in freight rates," argues Iglesias.

Before COVID, shipping companies used to have weekly departures, now they do so biweekly. Freight forwarding companies such as Operinter, of the Alonso group, with offices all over the world and agreements with the main shipping companies, currently only reserve containers one month in advance.

"If before the pandemic a container between China and Spain cost between two thousand and three thousand dollars, now we are talking about 14,000 and 16,000 dollars," explains Pedro Manuel López, CEO of Alonso Frowarding. Something similar happens with the times. “A port operation that would have to be done in one or two days for that ship to unload and load the containers back, has to be in the bay for eight days. That boat can no longer rotate, the rotation is broken, ”argues López.

Regarding the lack of containers, the ESIC logistics expert, Antonio Iglesias, points out that "it is not that there is a lack of containers, but that the containers are not in the positions where they should be in order to be loaded."

Bid for freight
In recent weeks, exporting companies have been forced to bid on freight. Whoever pays the most gets the container. Out-of-stock and delays complicate the “Black Friday” and Christmas campaigns. Especially in the toy and technology sector. Some companies, however, are managing to get around the difficulties.

The director of operations of the Korean company LG, Gabriel Mesas, recalls that Korea is one of the countries that manufactures the most chips in the world and “that helps us to have an assured supply. Right now those factories are at full capacity for the Christmas season ”.

Given the increase in demand in the market, they have been anticipating for months both in the supply of components and in the reservation of transport for their merchandise. Something that smaller companies cannot guarantee. Companies like LG are looking for alternative routes. Given the lack of transport capacity by ship, air transport and even by train began to increase.

Asian hyperdependence
This globalization has led western consumer societies to hyper-dependence on the Asian zone due to the relocation of many factories. In many cases, the cost of freight is higher than that of the merchandise, especially in the toy industry where the size of the packages is very large.

The decision of Injusa, a family toy company founded in 1947, to implement 100% of the production process in Spain is allowing them to overcome the shortage of components and transportation problems. What they are suffering, like the entire sector, is the increase in prices; both transport and raw material.

Part of the price increases that are taking place will have to be transmitted to the market, which means that families will have to pay more for the same products. In such a globalized world, if the supply chain fails, the entire sector fails.

Effects of offshoring
Mass relocation to third countries in search of cheap labor and higher profitability is taking its toll. In the current scenario of scarcity, increased demand and higher prices, inflation could be entering the system.

The European Union seems to be losing the microchip war, but there is still time. Some multinational company has already announced the opening of a semiconductor factory in Europe. Timidly they begin to put in place policies to mobilize the industrial fabric and recover part of the lost technological sovereignty.

LINK: https://www.rtve.es/noticias/20211031/informe-semanal-crisis-microchips-materias-primas/2209060.shtml