Following the enormous market disruptions and supply-chain difficulties in 2020 due to COVID-19, 2021 is also going to remain a challenging year in the electronics industry. In short: expect increasing prices and long lead times throughout 2021.
We are providing you an overview of the situation and the reasons behind it in order to help you optimize your purchasing decisions and secure your supply chain.
Price Increases
Nearly every leading electronic component manufacturer, especially the areas of active and electromechanical, has announced across-the-board price increases, on average of 5%–10%. In some cases, the manufacturers have required distributors to apply these price increases to backlog orders (e.g. orders placed and confirmed in 2020).
Manufacturers cite different reasons for these price increases, including increased shipment and logistics costs due to Coronavirus and increased costs for raw materials. This situation is also complicated by the fact that many manufacturers closed factories in 2020 (permanently or due to Coronavirus restrictions) leading to reduced availability of production capacity. This is a major factor behind the price increases.
Reduced availability of component materials, especially copper and gold, technical plastics an additives, and semiconductor wafers are contributing to price increases. PCB prices are also on the rise.
Long Lead Times
Coronavirus-related closures throughout 2020 contributed to enormous production backlogs at many Asian manufacturing sites. Other manufacturers closed factories due to decreased demand in 2020.
Together, this has created a shortage of available production capacity, resulting in long lead times (30+ weeks). Some manufacturers are effectively in allocation, as their entire production capacity for 2021 is already completely booked.
Global Chip Shortages
After a tough year in 2020, automotive and 5G production is ramping up in 2021. The world's largest foundries in Asia are prioritizing production of automotive chips, which is leading to reduced capacity and long lead times for other industry customers.
This shortage of key electronic components has caused massive delays and production stops around the world, which is jeopardizing economic recovery for many companies. Volkswagen in Germany and GM and Ford in the United States, for instance, have announced production delays and shutdowns due to chip shortages.
The global chip shortage is so economically critical that it has become a political problem: the governments of the United States and Germany, for instance, are negotiating solutions with Asian governments to alleviate these shortages.
For more, see this short video from CNBC on the current implications of the global chip shortage.
Shipping Delays
The Coronavirus pandemic has caused massive delays in global logistics and continues to disrupt trade. Ports are understaffed due to social distancing restrictions for Coronavirus, resulting in processing and customs delays.
This is compounded by the fact that there are currently not enough containers to ship goods. Earlier in the pandemic, many containers were shipped to Africa and Latin America with masks, where they remain empty, waiting to be collected. Meanwhile, shippers are focusing on getting goods shipped on the most heavily trafficked routes between East Asia and the United States and Europe. This has caused a global shortage of shipping containers, which is also driving up the costs of shipping goods and resulting in delays at ports.
Next Steps
Due to the global chip shortage and shipping challenges, component availability will be critical in 2021: placing your orders as soon as possible will help make sure that you get your boards when you need them. We urge you to plan your orders for 2021 and Q1-Q2 of 2022 to keep your supply chain moving as planned.
ESO Electronic is there to help you secure your supply chain and navigate these global industry challenges.