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"The pressures on global supply chains have not eased” - UPDATE on the latest supply shortages

Porsche is using dummy chips to keep its production running, more and more chinese ports are closed due to new COVID-19 cases. US-VP Kamala Harris calls the Semiconductor Supply Chain issues “very real” during her latest trip to Asia. Read our update about the latest developments in shortages and broken supply chains 

When US Vice President Kamala Harris headed to Asia in late August, her trip was aimed at building trade relationships with countries seen as crucial to the supply chain – like Singapore and Vietnam. Issues stemming from a global chip shortage are “very real”, she said.

Singapore was an important stop, because the city-state has sought to increase its chip-making talent and manufacturing capability. U.S.-based GlobalFoundries Inc. recently said it planned to build a $4 billion plant there, slated to start in 2023, and the facility is expected to primarily serve smartphone and auto industry demand.

Vietnam, in particular, plays an increasingly important role in many supply chains, as companies in recent years moved operations there from China. The pandemic has forced factory shutdowns in Vietnam, where a tiny fraction of the population is currently vaccinated. 

Dummy chips to avoid production stop

Automakers have had to work hard to keep plants running due to shortfalls in chip supplies, which has forced them to limit production and see inventories dwindle. At the Porsche plants, they found an unusual and innovative solution for avoiding a total production stop: “We produce vehicles with so-called dummy chips,” CEO Oliver Blume told the Stuttgarter Zeitung newspaper. “As soon as the real chips are available, we will retrofit these vehicles.” He said this would involve a low five-digit number of vehicles. 

According to a recent study, the shortage of semiconductors will lead to a production shortfall of about five million cars in the car industry this year.  VW, BMW, Daimler and other manufacturers have interrupted production in various plants. By the end of the year, 74.8 million new registrations are expected worldwide, which would be 9.3 per cent more than in the Corona year 2020, according to the analysis by Ferdinand Dudenhöffer’s Duisburg-based Center Automotive Research. Without a bottleneck, however, around 80 million cars could be sold.
Dudenhöffer’s institute assumes that the shortage of semiconductors, the basic material of microchips, will have an impact until the beginning of 2023. After that, a new bottleneck is likely to make itself felt – in battery cells for electric cars.

“Delivery times will get longer, and there will still be production losses in 2022.”
Ferdinand Dudenhöffer, Center Automotive Research

Closed ports in China disrupting other ports

The latest obstacle is in China, where a terminal at the Ningbo-Zhoushan Port south of Shanghai has been shut since August 11 after a dock worker tested positive for Covid-19. The terminal shutdown in Ningbo will add to bottlenecks arising from the closure in June of Yantian, a port about 50 miles north of Hong Kong, after coronavirus infections were detected among dock workers. Major international shipping lines, including Maersk, Hapag-Lloyd and CMA CGM have adjusted schedules to avoid the port and are warning customers of delays.

The partial closure of the world’s third busiest container port is disrupting other ports in China, stretching supply chains that were already suffering from recent problems at Yantian port, ongoing container shortages, coronavirus-related factory shutdowns in Vietnam and the lingering effects of the Suez Canal blockage in March.

Shipping companies expect the global crunch to continue. This is massively increasing the cost of moving cargo and could add to the upward pressure on consumer prices. “We currently expect the market situation only to ease in the first quarter of 2022 at the earliest”, Rolf Habben Jansen, Hapag-Lloyd chief executive, said.

The closure of the Shanghai Pudong Airport does not make global trading easier. One of the airport’s terminals, PACTL, closed due to the new cases, with around one-third of flights out of PVG airport affected. Before the closure took place, Shanghai Pudong airport was only operating at 33% capacity due to China’s quarantine measures.

“The pressures on global supply chains have not eased, and we do not expect them to any time soon.”
Bob Biesterfeld, CEO of C.H. Robinson

Chip shortages will continue into the coming year

According to experts, the shortage of semiconductors with its negative consequences for car manufacturers, for example, will continue well into the coming year. In some areas, such as memory chips, the situation is not likely to ease until fresh capacity comes on stream in 2023 to 2024, Alan Priestley of the analyst firm Gartner told Deutsche Presse-Agentur. The recovery in individual sectors will vary given the different origins of the problems, he said. 

Chip giant Intel expects the global semiconductor shortage to worsen in the coming months and may last into 2023. “While I expect bottlenecks to bottom out in the second half of the year, it will take another year or two for the industry to fully meet demand,” Intel chief Pat Gelsinger said.

Chip makers are responding to sustained demand by increasing capacity but that takes time, says Koray Köse, an analyst at Gartner, not least because semiconductor factories cost billions of dollars to build.
“That is not going to be solved by this Christmas and I find it hard to believe it will be solved by the next Black Friday [November 2022],” he says.

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