If ever there were a real-world example of Murphy’s Law in the supply chain, it may be most evident in the current challenges with access to semiconductors.
Predominantly known for use in consumer electronics, semiconductors – often referred to as microchips, or chips – are built into everything from iPads and PlayStation 5 video game consoles to household appliances. Semiconductors, also used more readily and frequently for various systems on late model cars and trucks, are the technological wonder responsible for numerous vehicle technology systems ranging from onboard computers to LED dashboard displays.
While the chip shortage has plagued many on the light-duty vehicle OEM production side, it’s now making its way to heavy-duty truck makers. FTR sources expect the shortage could last until August. Class 8 trucks require between 15 and 35 semiconductor chips per vehicle, depending on the type of technology on that unit.
The impact is evident as Class 8 orders continue to tick up while production levels have dipped from a peak 24,000 units in October of 2020 to 19,000 units this past February.
While several raw materials and components can be attributed to production challenges and parts shortages, you can add semiconductor chips to that ever-growing list.
There are two major issues that have come out of the pandemic as it relates to manufacturing in general. We saw the first at the onset of the pandemic in early 2020 with product delays when facilities temporarily shut assembly lines to help “flatten the curve” of spreading the coronavirus.
As buying habits have adapted in response to more people spending time at home, so has the increased demand for certain technology products necessary for both professional and personal use.
Semiconductor manufacturing is predominantly managed overseas, with TrendForce Department of Semiconductor Research reporting Taiwan held 63% of chip production globally in 2020. South Korea and China rank second and third, at 18% and 6% respectively. With the global trade market already stressed, other notable disruptions have further delayed manufacturing of an already high-demand product, including:
- Top Chinese semiconductor chip maker, SMIC, hit with U.S. sanctions in December 2020. SMIC is responsible for production of relatively less “cutting edge” chip technology compared to technology utilized in smartphones. Their current technology is more often used in vehicle manufacturing.
- A fire that occurred in mid-March at the Renesas Electronics Corp. Naka, Japan facility, halting production of semiconductors at the facility. The supplier expects to be back up and running by end of May.
- Severe cold weather in Texas throughout February caused closures of a Samsung chip plant.
According to research analysis firm IHS Markit, lead time for semiconductors for vehicle manufacturing has doubled.
“The semiconductor supply chain for microcontroller unit (MCUs) normally has 12 to 16 weeks lead time from order to delivery to OEM/Tier 1,” noted the recent IHS Markit report. “So, today's issues in the semiconductor production have approximately doubled the normal lead time to at least 26 weeks. We expect the situation to hit bottom around the end of March, although the supply chain will still be constrained into Q3.”
In an attempt to address the product shortage, in February President Biden signed an executive order, the CHIPS for America Act, to conduct a 100-day review to address the semiconductor chip shortage.
According to a statement issued from the Semiconductor Industry Association (SIA), semiconductor manufacturing in the U.S. fell from 37% in 1990 to just 12% today. “Federal investments in chip research have held flat as a share of (gross domestic product), while other countries have significantly ramped up research investments,” noted the SIA.
As part of that review the administration conducted a summit with key industry stakeholders, including representatives from chip suppliers and auto makers, to discuss possible solutions. The reality, though, is it’s a complex problem with no one solution, and it will take time to address various challenges. Overall, it highlights the volatility of the supply chain and how unforeseen issues can further challenge the transportation industry.
As the world becomes increasingly reliant on these technologies – for everything from home appliances to the vehicles that move freight across the U.S. – it is abundantly clear that more attention must be brought to the priority of having this type of technology available, and the inevitable challenges we face when this type of technology is no longer at our fingertips.
An added challenge will be the continued advancements in anything and everything involving vehicle electronics, including sensors all the way up to batteries used for electric vehicles. These types of parts and components have historically been built overseas.
