With the Iran war disrupting air shipping routes through the Middle East, European companies importing semiconductors from Asia are using backup warehouses and increasing shipping fees, industry sources told CNBC.
The Iran war has disrupted cargo routes, with ships and airports targeted since the war began on February 28. Global air cargo capacity, which transports cargo such as semiconductors and other expensive electronic equipment, is down about 9% from pre-war levels, according to data from logistics company DSV.
This has resulted in higher costs and delivery delays for European companies that import semiconductors from Asia, and some manufacturers are reducing the amount of chips they import from the region due to production capacity constraints.
Chips are important components of all electronic devices. Companies ranging from industrial giants and data centers to automakers import certain chips from countries such as China and Taiwan.
“What we’ll see in the coming weeks is that inventory levels are trending down in the hope that (logistics costs) will normalize,” Stefan Kricken, head of air cargo at DSV, told CNBC, citing European automakers that use semiconductors in various electronic systems in their cars.
Other European companies are absorbing increased airfare costs from chip imports, Kricken said. He added that while DSV has not yet seen a “significant” decline in overall chip imports as a result of the dispute, many buyers are paying a premium to ensure continued deliveries.
One European semiconductor company was experiencing delays of several days on some semiconductor deliveries, a person with direct knowledge of the matter told CNBC on condition of anonymity to discuss private company matters. Airfares are rising, the person said, adding that the airline has no idea whether prices will come down again in the coming months.
chip import
Iranian attacks on infrastructure, including airports in the Middle East, are taking a toll on global air cargo capacity. Many cargo planes heading from Asia to Europe previously passed through Middle Eastern airspace or stopped to refuel at hubs in the region.
This means more airlines are using direct flights and have to reduce the amount of cargo they carry to make room for additional fuel, which could mean a reduction in payload, Kricken said. Jet fuel accounts for 50% of airline operating costs, and rising oil prices have pushed up prices, Kricken said.
As a result, buyers seeking to import goods from Asia to Europe must pay a premium for shipping.
German auto parts maker ZF continues to transport semiconductors by air freight, but is paying more to maintain its supply chain, a spokesperson told CNBC.
Companies that import high-value products, including cutting-edge chips and other high-tech products, are absorbing those costs, while companies that buy lower-priced goods are likely to put money into inventory stores in hopes of lowering air freight costs in the near future, Kricken said.
“There’s a very wide range of technologies within technology that range from high-end chips to chips that are worth a few pennies compared to data racks that are worth millions of dollars,” he told CNBC. “So the lower the value, the greater the impact.”
delay
Razat Gaurav, CEO of supply chain software platform Kinaxis, told CNBC that some chip foundry companies, original car manufacturers and contract manufacturers in Europe are experiencing delays in semiconductor deliveries.
Many customers who buy these chips have inventories that can last anywhere from a week to several months, depending on the business, he added.
Supply chains and inventories have been strengthened since the chip shortage caused by the coronavirus.
Since COVID-19, “many shippers have adjusted their supply chains to be able to maintain higher inventory levels,” Kricken said, adding that many companies are moving to diversify their providers of these chips.
“We are not seeing any impact on production at this time,” a Volkswagen spokesperson told CNBC, adding that the company is “closely monitoring” its supply chain and is not seeing any signs of bottlenecks at this time.
“Companies are aggressively stress-testing semiconductor flows as disruptions to key routes such as the Strait of Hormuz and Dubai’s airport ripple through global supply chains,” Gaurav said.
“As organizations assess supplier exposure, reroute shipments, and rebalance inventory in real time, we are seeing freight disruptions, depletion of buffer stocks, and increased logistics costs for flows from Asia to the Middle East and Europe.”
