economies are to remain competitive going forward. I’m certain that equilibrium will eventually be restored but given the optimistic demand forecasts for electronic components in the long term we must expect some overcapacity in semiconductor supply over the next couple of years at least. Historically, state investment by market economies in semiconductor technologies has not been as successful as it has been in more centrally planned economies, where funding is usually provided by a few private sector champions, but anecdotally state investment does appear to be yield a wider overall benefit to society, as over time it leads to unplanned but welcome gains across multiple sectors of the global economy.
Balance Sheet Efficiency or Supply Security... The trend away from balance sheet ‘efficiency’ (lowest price sourcing) in favour of balance sheet ‘security’ (lowest total cost of ownership) appears to be escalating. Many large organisations are in the process of migrating away from their established strategy of using single source China-based supply hubs and are beginning to favour sourcing from diverse multiple geographic locations. Not that China has much to worry about: The country’s position as the predominant manufacturing base is secure due to its low-cost factors (land, labour etc.,) and only a fraction of the country’s current manufacturing capability is likely to move back to the US or western Europe, but a greater geographic “spread” of manufacturing operations will knock-on to deliver significant benefits to other global economies.
Geopolitical Tension...
Geopolitical tensions have the potential to destabilise the global economy and in turn, negatively impact global electronic components markets. The economic sanctions the NATO countries have imposed on Russia in response to its invasion of Ukraine appear to be having a significant impact on international stock markets, global trade and logistics, but European markets for electronic components have - so far - been largely unaffected! The continuing tensions between China and Taiwan is perhaps a more immediate threat: Advice directed at the US military suggesting that removing TSMC [Taiwan Semiconductor Manufacturing Company Ltd.] from the equation would make much of this tension “go away” was greeted by knowledgeable insiders as “naïve at best and extremely worrying”. On the plus side the ongoing sanctions between the US and China over intellectual property protection rights that has stifled both economies is beginning to force positive change, albeit at a snail’s pace.
Transportation and Logistics...
Disruption in the global transportation and logistics markets due to the COVID pandemic shows no immediate signs of abating although the situation did seem to be easing in the final quarter last year prompting hopes of a marked improvement in both availability of electronic components and pricing. The conflict in the Baltics has significantly and very negatively changed the market dynamics. Except for pharmaceuticals, healthcare and humanitarian supplies most large international transport and logistics organisations have halted shipments from Russia. Flights in Russian airspace have been grounded and sea freight in Russian ports has been embargoed, all of which has to be knocking onto rail freight shipments. Rail freight movements into the West from China have become very important: Heavily promoted as part of the ‘Silk Road’ initiative Rail has become a favoured method of moving mid-weight or bulky goods such as PCBs, power supplies, fans, metalwork etc., out of China and into Europe, travelling across Kazakhstan, Russia and into Poland, bypassing Ukraine before arriving in Germany – a journey time of around 28 days. This method of transport
has been significantly boosted over the last two years due to the ongoing disruption to sea freight but may yet be subject to embargo and disruption that could ‘knock-on’ to adversely affect a wide range of European organisations, including manufacturers of electronic components and electronic equipment. And when you consider that these organisations have only four weeks (approx.) of their material requirements in-transit at any point in time this could be a big problem for them...
A COVID-19 update ecsn/afdec member organisations are continuing to transition their operations to reflect the evolving COVID-19 situation both domestically and internationally, always ensuring they comply with appropriate guidance and regulations. Most appear to be content operating a hybrid system where employees able to work from home are continuing to do so, whilst ensuring that those needed on site are able to function there safely and effectively. Face-to-face engagements with customers - site visits, meetings, training etc., - for so long a cornerstone of the authorised distributor/customer relationship is slowly returning, but it’s likely that the hybrid work model will remain for some time to come, with employees themselves determining how best to interface with their colleagues and their customers.
Concluding Thoughts... Whilst the economic sanctions the NATO countries have imposed on Russia appear to be having only a modest impact on UK electronic components markets western economies must brace themselves to contend with significant longer-term effects on logistics and reliability of supply. At the same time, it’s incumbent on ecsn members companies and everyone in the customer companies they serve to recognise that the impact of such commercial disruptions on their businesses and their way- of-life pale into insignificance when compared to the wholly unacceptable and tragic levels of human suffering that Russian aggression is currently imposing on the Ukrainian people. We must all sincerely hope for a speedy resolution to the conflict. In the meantime, ecsn member companies remain committed to providing the highest possible level of customer support. The UK electronic components industry is still a people- based business so frank and honest engagement with partners both up and down the supply network is a simple but effective way to boost the performance of both your partners’ organisations and your own… Stay Safe…
For information
Adam Fletcher is Chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to arrive at and share best industry practice.
www.ecsn-uk.org “…Promoting Positive Collaboration Throughout the Electronic Components Supply Network to Benefit Members and the Economy…” vii
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