The Global Supply Chain Domino Effect
Updated March 14th, 2022.
Years ago, the Internet of Things began to skyrocket. That is the number of objects that require sensors, software, and other technologies. Since 2016, the “demand for both new and used equipment for making chips has only grown.” Two years prior, equipment to create chips only cost $100,000 and now costs $1.7million. Not only do more items require chips, but items also require more chips than ever before!
The 2020 pandemic only intensified every aspect of this technological growth. At the beginning of quarantine, many factors impacted chip manufacturing. The COVID-19 virus spread throughout factory workers, shutting down factories in Asia for large chunks of time. Weather, including unprecedented cold winters in Texas and factory fires in Asia, also halted assembly lines. Lastly, chip-reliant industries were having to be extremely reactionary. In the spring of 2020, automakers laid off their workers and shut down their factories to save money during a season of next to no purchases. All the chips they weren’t purchasing, the technology industry began swiping up. At-home workout equipment, entertainment systems, and technology required for working and learning at home, all required chips at a quick moment’s notice.
As lockdowns began to loosen up, stimulus checks and a lack of spending for months, prompted consumers to buy like never before. Every industry tried to respond accordingly, but couldn’t. All the chips that had gone to technology, weren’t available when automakers went back online. Cars are still sitting in lots, losing companies tens of thousands of dollars, all because they’re missing one of the hundreds of chips required to make the car work properly. To add to that, not all chip manufacturers are continuing to make older chip models that some industries still rely on, as automakers use for simple operations, such as overhead lights and automatic windows.
Not only did people have extra spending money, but they also were benefitting from unemployment, or quitting their jobs at alarming rates. Therefore, even when there are products ready to be purchased, they weren’t, and still aren’t, able to be properly distributed. There’s a nationwide shortage of an estimated 60,000 semi-truck drivers, causing cargo containers to sit on the US coasts, awaiting nonexistent trucks for delivery. Having to wait at all, let alone weeks, was unusual before the pandemic.
“This is the Everything Shortage—In short, supply chains depend on containers, ports, railroads, warehouses, and trucks. Every stage of this international assembly line is breaking down in its own unique way. When the global supply chain works, it’s like a beautifully invisible system of dominoes clicking forward. Today’s omnishambles is a reminder that dominoes can fall backward too,” says Derek Thompson with The Atlantic.
While industries continue to operate in a reactionary manner (out of necessity!), they’re also pivoting as best they can. Food Lion President, Meg Ham, is “sourcing products from new companies and engaging with local manufacturers.” The Transportation Department is extending the hours truck drivers can drive; The Federal Maritime Commission is exempting fees for night and weekend pickup of containers. Tesla is constantly tweaking their designs to accommodate whatever chips they can get ahold of. Higher-end vehicles with extra electronics and large screens are getting all the chips available. Other industries are responding similarly. SonicWall and Dell are using all the chips they can get ahold of in their premium models. On top of already being the premium model, they’re also raising the prices by 50%, knowing the faster shipment time and availability will keep up purchases.
Meanwhile, low- and mid-range versions have indefinite shipment times or sparse availability. Computers with quick shipment times are far and few between for our outsourced IT clients. We used to buy ethernet routers for $60, and now they cost $126, plus $51.98 for shipping, and won’t arrive till February! Every bit of the supply chain is impacted by this. Chip delivery time used to be 12.8 weeks in October of 2020, but in October it was up to 21.9 weeks. A newer pivot we are seeing because of this is scaled-back models. Everything from snowmobiles to printer toner is being shipped out with far less high-tech gadgetry. After all, “It still does the job. It was done this way for 30 years,” says Rick Rodier, a Toro executive.
Despite innovative ways to get products into customers’ laps, there still simply isn’t enough. Whether that’s hands to manufacturing the product or distributing it, we are seeing this issue carry into 2022. Egg and supermarket CEOs are predicting a six-week rise in grocery prices and a dip in meat & egg supply. This is due to many variables, still–the Omnicron variant, government restrictions and lockdowns, the rising cost of oil, and staff shortages. Whether the latter is because of the Great Resignation or employees having to isolate for five days, there are inevitable interruptions to the system.
As of now, we are only going to continue to see how interdependent and interconnected our world is. Despite new chip manufacturers being launched in the US, there is still an international dependency. “Chip assembly can require that parts travel up to 25,000 miles before becoming finished products.”
Therefore, before we get out of this bottleneck-induced shortage, stock up. For the first time in 30 years, we’re keeping extra Dell workstations and firewalls at our office. In the meantime, we highly suggest IT support companies and clients stock up to cover both computer repairs and new purchases. If you know of a maintenance issue or an incoming employee, tell your computer support provider now! If you’re a client, we will place the order(s) ASAP and keep you up-to-date on the pending delivery date.
Russia-Ukraine War Update… Beginning in November of 2021, Russian troops were found at the border of Ukraine. After months of tension, they invaded the nation on February 24th, 2022. For a little over two weeks now, we have seen the conflict unfold on the news daily, with global involvement, thanks largely to social media. One of the many global ramifications? Russia and Ukraine provide much of the world with their neon gas supply and palladium supply–two key ingredients to produce semiconductor chips. Two neon gas suppliers in Ukraine, Cryoin, and Ingas suspended production within the first two weeks of the invasion. This war is not just about boots on the ground and shots fired, it is occurring on a technological and financial battleground as well. Dependencies on these nations, and the escalation of cyberattacks, give Americans much to be cautiously aware of. One fear to have is Russia weaponizing its control of neon gas, or China providing Russia with chips to get through sanctions. That said, read this article to learn more about avoiding cyberattacks, and continue to be patient as the world operates on less than normal chip numbers.
