Lead times vary and prices are volatile but 2022 will be worse, not better.
In 2019, a ‘perfect storm’ caused an 18-month (and counting) chip shortage globally.
Wafers and other key components in short supply
- A series of devastating fires in Japan severely impacted major wafer and electronic component manufacturers, causing supplies to become scarce.
- As a result of the drought, 2 more major suppliers in Taiwan suffered a significant reduction in water supply (each supplier needed 41 million gallons of water per day to operate) resulting in a shortage of components and parts.
Car industry demand shot up
- As a result of COVID, car manufacturers predicted and prepared for a drop in car sales. They significantly cut back on their orders. The demand for chips skyrocketed 6 months later, causing a shortage.
- EV sales increased in parallel with general demand, and purchase momentum increased. An EV has around 3000 chips, compared to around 300 in a non-electric vehicle.
Electronic device demand soared
- With COVID, personal electronic device demand has grown by an average of 40% thanks to remote connectivity.
Shipping container shortage
- As consumer demand skyrocketed, shipping containers were in short supply, pushing up the price of shipping.
Electronics-dependent businesses were advised to plan ahead due to the unprecedented demand combined with the shortage of supplies that resulted in an average increase of 10% across the board by 2021.
False demand throughout 2021
Several businesses have strategically ordered parts from several distributors, then canceled the order once parts arrived from a single supplier. To eliminate false demand, distributors are now requiring non-cancelable and non-refundable orders. This not only impacts market price but also inflates demand.
2022 forecast to see prices further increase across the board
Parts manufacturers will continue to raise prices and lead times into 2022.
The below chart shows the latest average lead times and price increases for electronic parts.
Suppliers are trying to increase capacity, but it is not looking to normalize until 2023 at the earliest.
The below video is from medical device industry leader ResMed, outlining their views on the market trend and outlook.
Orders and prices are not guaranteed
Even at a higher rate, suppliers are not guaranteeing orders or prices. As market supplies shift unexpectedly, we are seeing supply orders confirmed then repriced at a higher premium. These costs are being passed on to suppliers and buyers. Due to a sudden drop in availability, we are also seeing orders scheduled, then canceled without warning.
You need to act now – order beyond your normal timeline
Product companies should look beyond their usual production lines. We are working with clients to ensure orders are in place through to 2023.
In such a volatile period, product companies must also assess cost and price to maintain profitability.
Now is the time to coordinate long-term supplies with your procurement team or electronics solution provider.
Talk to us today so that you can avoid further production volatility and secure a pipeline for your product distribution.
