Transport Industry Faces Longer Haul Impact of Semiconductor Shortages

The global semiconductor chip shortage continues to affect production across multiple industries, including commercial transportation. Since early 2021, the global supply has been insufficient, an issue exacerbated by a fire and historic weather conditions in Austin, Texas, pandemic shutdowns in multiple APAC countries, and the worst drought in Taiwan in over 50 years. The shortage has been complicated by vehicle OEM’s greater than expected requirements, which were drastically reduced in Spring 2020, in some cases through force majeure. As demand grew quickly and exponentially in late 2020, significant capacity had been filled, including from FAMGA (Facebook, Apple, Microsoft, Google, and Amazon). Companies including TSMC, Intel, and Samsung have committed to additional capacity, yet the time to bring new fabs online continues to impact current industry shortages, potentially into 2023.

As the demand for chips continues to exceed supply into the second half of 2021, the vehicle industry is expected to be hit the hardest as they struggle to source or redesign products. New vehicle order times have extended to up to 4-6 months, with vehicle order boards headed to 2022. Mack Trucks had to suspend some of its production periodically over the last month, Daimler included a warning in its recent earnings report, and Volvo Trucks warned of future disruptions to their production. Telematics providers must determine how to address an estimated 650,000 devices remaining on 3G, as of last quarter. Ford has been forced to shut multiple factories, including the plant for Transit models, popular for last mile deliveries in Europe.

APAC companies are also facing significant challenges, with manufacturing growth at a four-month low in China, and Japan’s growth falling 6% YoY in May as production of vehicles and machinery fell. While production has been improving, shortages remain and continue to impact manufacturing in Asia. TSMC’s CEO has said it may take at least six months for OEMs to see any improvement due to slower chip production and supply chain difficulties, with vessel congestion at ports in the US and China.

The shortage of semiconductors and other components have also created challenges for many Telematics Service Providers (TSPs). The greater lead times and higher prices for components has led to difficulties in manufacturing certain products and accessories. The shortages have also impacted the cost of their products and development timelines.

The shortage in supply of semiconductors may ease somewhat later this year, but that is dependent on a variety of global challenges from the pandemic to forecasting accuracy, global trade, and weather conditions. Securing new vehicles, telematics devices, and trailers will remain a challenge with no immediate short-term solutions. Longer term, companies need to ensure they have robust end-to-end supply chain solutions, down to raw materials, visibility, and flexibility, which may involve carrying greater inventory than previous corporate strategies allowed. Build-in companies may consider dual-sourcing and reshoring as well as shared investments, take and pay agreements, and risk waver start contractual agreements.

Improved planning and capacity commitments are needed, along with a pivot in inventory management to avoid repeating these scenarios. Hundreds of billions of dollars will be spent in the next few years on the production of semiconductors. In the US, a bill has passed to provide US$50 billion to support semiconductor research and production, including a TSMC plant in Arizona and a Samsung plant in Texas. Europe and APAC are also planning significant investment over the next few years, with Europe aiming to double chip production to 20% of the global market by 2030.