The Impact of the Chip Shortage on Supply Chains

The Impact of the Chip Shortage on Supply Chains

Since early 2021, the world has been impacted by a shortage of semiconductor chips that are used in many electronics to store data and programs. These chips are used in products ranging from medical devices and smartphones to cars and household appliances. This shortage has heavily impacted global economies and supply chains, including the transportation industry, for more than a year. So how did we get here, and is there an end in sight?

How did the chip shortage start?

There are a wide variety of reasons that have brought us to this point in the global chip shortage, all of which have compounded to create the current situation.

  • Demand for computers and other electronic devices vastly increased with people stuck at home during the pandemic.

  • As global demand for goods picked back up, the need for trucks and truck parts (including chips) increased.

  • A winter storm impacted chip production at Intel plants in Austin, Texas.

  • A large fire occurred at a major chip supplier in Japan.

  • The pandemic shut down production capacities across multiple chip-producing Asian countries.

  • There was a historic drought in Taiwan, which is one of the biggest chip makers in the world, and chips require large amounts of water to make.

  • Global staffing shortages have made it hard for chip manufacturers to find employees.

  • Overall supply chain delays and shipping bottlenecks have caused long lead times on chip order deliveries.

How is the chip shortage impacting transportation?

The transportation industry suppliers saw decreased demand at the beginning of the pandemic which caused them to cancel a lot of chip orders, putting them in shorter supply than other industries. This shortage has heavily impacted the production of Class 8 vehicles, causing delays in the manufacturing of trucks and replacement parts, like power windows, batteries, safety systems, vehicle computers and more.

ACT Research reported the production of Class 8 trucks hit its lowest level since May 2020, with 14,920 units produced. The backlog of orders for trucks has skyrocketed to over 250,000, with lead times of 14+ months in some cases. ACT also reported the number of November 2021 Class 8 truck orders was the lowest November total in 26 years. This was likely in part to Original Equipment Manufacturers (OEMs) decreasing the number of orders booked to avoid over-promising on delivery expectations to customers.

The shortage of new trucks and replacement parts has led to extremely high used truck prices and a used truck shortage. This truck shortage, created by the chip shortage, has contributed to delivery delays and overall supply chain bottlenecks here in the United States, and across the globe, as shippers and brokers fight to book trucks in high demand. Both rates and capacity have been extremely volatile over the last two years as a result of supply chain chaos.

When will the chip shortage end?

The short answer is “not soon.” The long answer is a little more complicated.

Late in 2021, multiple transportation stakeholders sent letters to President Biden and his administration, asking for semiconductor production to be prioritized in their attempt at quelling supply chain issues. Stakeholders included American Trucking Associations, UPS Inc., the American Highway Users Alliance and more. They argued that starting with the chip shortage would significantly impact the rest of the supply chain.

Then in November 2021, Commerce Secretary Gina Raimondo made a push for the U.S. Congress to enact legislation towards easing the shortage, recommending $52 billion towards semiconductor chip manufacturing within the U.S. Very few are opposed to increasing U.S.-based chip production because the shortage has highlighted how far the U.S. has fallen behind other countries in technology manufacturing. The hope for increasing chip production domestically is based on the desire to boost the country’s share of the chip market, globally. Improving domestic manufacturing would also positively impact the U.S. transportation economy as outbound orders increase.

Additionally, companies like TSMC, Intel and Samsung have all promised a push for more production capacity, but their efforts likely won’t be felt until at least 2023 because it takes years to ramp up production. Intel, based in Texas, just began building two new fab facilities in Arizona, but those facilities won’t begin manufacturing until late 2024.

So, the long answer is the chip shortage can be expected to last well into 2022, if not early 2023.

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