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When the Ever Given, a container ship that’s longer than the Empire State Building laid on its side, got stuck in Suez Canal on Tuesday, a supply chain already affected by a shortage of semiconductors over the past year got even more bad news.
Companies like electronics manufacturers and automakers have already been hit hard by the effects of the pandemic in both supply and demand.
Now, it’s likely that an already fragile supply chain is getting closer to the breaking point.
Ford, for example, had stopped making its iconic F-150 pickup truck because it couldn’t get the chips it needed, and has now resorted to partially building what it can while waiting to finish them with missing components when they become available. Some companies, including General Motors, had expressed optimism that the shortage was nearing its end and that delays that had forced companies to stop production would soon be resolved.
Some companies and manufactures have been working to find alternative ways to manage the shortage this year, but the blockage in the canal is likely to disrupt any and all backup plans. Even companies like Toyota, which had stockpiled a supply of the processors it needed and had been less affected by the shortage, have now had to halt production. And it isn’t just automakers.
Earlier this month, Samsung said that it was feeling the effect of the shortage as well, warning of a “serious imbalance of supply and demand in the IT sector globally.” And Sony has had a hard time keeping up with demand for its latest-generation gaming console, the PlayStation 5.
Intel announced that it was investing $20 billion in new fabrication facilities in Arizona, but that will take years to come online. That could be even further delayed as materials needed have been halted within blocked cargo lines.
Currently, the Ever Given is blocking the way for as many as 300 other ships attempting to make the trip between Asia and Europe. Traffic in the Suez Canal carries roughly 10% of all global trade, according to Lloyds of London. That’s almost $10 billion worth of goods every day, none of which is going anywhere right now.
Ships like the Ever Given aren’t usually carrying semiconductors — those are usually delivered by air. Instead, they often carry finished products, at least in the case of electronics. Those devices and gadgets are manufactured at factories in Asia and then sold throughout Europe. That means that consumers are likely to face much longer shipping times on everything from exercise equipment to laptops.
Even though the US receives most of its imports from Asia on the West Coast through ports in Seattle, San Francisco, Los Angeles, and San Diego, the disruption could easily start to ripple through the entire supply chain if it lasts more than a few days. So far, every effort to refloat the Ever Given has failed.
Egyptian officials have said they believe the boat will be freed in the next few days, hopefully over the weekend. However, Peter Berdowski, CEO of Dutch shipping company Boskalis, told CBS News that it was too early to tell and that it “might take weeks.”
Even in the best-case scenario, there’s another problem beyond just whatever’s on the boats right now.
All of those containers eventually need to find their way back to ports in Asia in order to be loaded again. If they aren’t, it means that the companies who expected to be able to ship out products and materials could have to halt production to cope with a backlog of goods.
While the problem in the Suez Canal comes at an especially bad time for electronics manufacturers, automakers, and other companies who depend on microprocessors, it didn’t start with a container ship getting stuck in the canal. This is a problem that’s been a long time coming.
For years, manufacturers of everything from iPhones to laptops to pickup trucks have cut down on the inventory of parts and supplies used to make those products. Known as “just in time” manufacturing, companies only keep a few days worth of components on hand. That reduces the expense of storing excess materials, but it also means that any disruption can have a severe ripple effect.
This is especially true with electronics companies, which often manufacture devices when consumers place an order and depend on a steady flow of components arriving exactly when they’re needed.
There’s also the problem that the production of semiconductors is largely controlled by just a handful of companies.
Samsung, Intel, and Taiwan Semiconductor Manufacturing Company (TSMC) are already at capacity trying to keep up with current demand. That means that companies can’t simply switch to another supplier in the event one is unable to meet their demand.
It also means that any small disruption in the overall supply chain can quickly lead to a much wider problem.
That’s exactly what happened last year when companies were forced to shut down factories as the pandemic began to spread. Automakers, facing uncertainty in terms of when they would get their plants running again, stopped ordering parts.
At the same time, demand for devices like laptops, tablets, and smartphones surged as the world adjusted to working from home. That meant that it became difficult to buy a new computer for work or virtual school.
PC manufacturers were using every chip they could get their hands on and maxed out production capacity. That meant companies that slowed production had to get back in line when they started ordering chips again. Now, just as production started to catch up, something as unexpected as a giant container ship running aground in the Suez Canal can disrupt everything all over again.