Global Shortages: Apocalypse in the Tech Sector

For the first time in years, the economy is threatened by shortages of raw materials and not only as a consequence of the coronavirus pandemic.

 

It is enough to want to buy the latest game console, the latest Smartphone or the electric car that we often see in advertisements, to realize that the stock is empty. Customers who wish to consume these products must sign up on a waiting list, which in some cases could last up to two years to finally purchase the product.

It is a problem that has arisen due to the lack of raw materials for manufacturing, the cost of these and the subsequent supply.

Therefore, more and more companies are calling for measures to solve the problems of supplying raw materials to the European Union. Today, more than 83% of all industries are affected by the rise in costs as a result of this problem. So questions arise about what are the true causes of the bottleneck that has been created in the supply chain.

Confrontation and power between the causes of shortages

 

The origin dates back four years, specifically in 2018, when the United States began a trade war with China in which former US President Donald Trump imposed tariffs of more than 50 million dollars on Chinese products. He accuses him of plagiarism of intellectual property and disloyalty in matters of commercial collaboration. China also responds with sanctions on US products.

This situation generates great tension with the arrival of Joe Biden to the White House, in which both powers fight to obtain the greatest amount of materials for different sectors.

The Asian giant has acquired a larger supply of materials such as iron, steel, aluminum, copper, nickel and plastic, a situation that does not seem to be ending anytime soon, and on the contrary, it may worsen. over time.

In addition to the trade war, we must add other causes:

    • The tensions caused by Brexit in the commercial relationship with the United Kingdom.
    • Jams in shipping.
    • The ballast caused by the stoppage caused by the Covid-19 pandemic.

A perfect mix to trigger a shortage problem never seen in history.

How does it affect European companies?

Since mid-2020, the European industry has been seriously affected by the bottlenecks generated in the raw material supply chain, both due to the transport problem and the increase in their prices. What causes companies to stop the production of products and services; and that finally do not cover the needs demanded by consumers.

To the lack of raw material, the increase in the price of these is added. In the case of plastic, its cost has increased between 20% and 50% compared to the previous year. Steel has doubled its price, from 450 or 600 euros per ton to 900 or 1000 euros. Similarly for the price of wood.

Copper has also doubled its price, a material used mainly for the manufacture of kitchens and ovens, induction hobs or refrigerators.

On the other hand, there are the problems caused by the transport crisis. Shipping containers has also become a real challenge. A container that used to cost $2,000 to rent now costs $15,000, not to mention the fact that there are no holes in the ships due to the disorganization of maritime transport. Therefore, what used to take 2 weeks to arrive can take up to 8 weeks to do so.

Many manufacturers are holding out and extending production because they have reserves of raw materials, but there are other sectors that cannot afford it, such as chip manufacturing. A moment in history that some already tend to call: the digital apocalypse.

The “Chip Armageddon”

 

As we well know, chips are the engine of the digital economy. In China, microchip manufacturing is a national priority, while in the United States they are working on moving forward with a domestic manufacturing supply chain project. We are still in the trade war.

The companies dedicated to the manufacture of machinery have been affected by the lack of certain components. This situation directly impacts technology companies that use robotics in the manufacture of products, which results in not being able to meet the demands of their consumers.

 

Un ejemplo de esto lo tenemos en el sector de los videojuegos, quienes no han podido cubrir la demanda de sus clientes por la escasez de los microchips para consolas de última generación como la Xbox Series de Microsoft o la PlayStation 5 de Sony. De hecho, han sido los clientes de este sector uno de los primeros en darse cuenta de que existía un problema de demanda y suministro el mismo día del lanzamiento de ambas consolas.

Lo mismo sucede en la industria automotriz, donde la producción se ha ralentizado por el mismo motivo. Pero en este caso es mucho peor porque es un sector que funciona con muy poco margen y cuando quisieron reanudar la fabricación de automóviles, luego del confinamiento generado por la pandemia, se toparon con que otros sectores estaban cubriendo el hueco que habían dejado en ese momento.

La Economía Circular como alternativa a largo plazo

Una de las alternativas que viene pisando fuerte y de la que escuchamos hablar con mayor énfasis es la economía circular o lo que es lo mismo, un modelo de producción y consumo en el que se comparte reutiliza, repara, recicla y renueva materiales y productos todas las veces posibles.

A chip is manufactured in a period of three months, using dust-free laboratories, high-cost machines, molten tin, and lasers. In this procedure, silicon wafers are transformed into an innumerable number of connectors that will serve as the basis for the manufacture of mobile phones, automobiles, cameras, household appliances, and an endless number of consumer products.

Even though chip factories work 24/7, there is not enough production to meet global demand.

Currently TSMC in Taiwan, Samsung in South Korea and Intel in the United States are the global chipmakers and the situation is not expected to break the logjam during 2022, nor until mid-2023.

However, there is the permanent threat from China that claims Taiwan as its own, which would lead to Intel and Samsung being the only manufacturers for the rest of the world.

Quite the opposite of the economic model used up to now, based on the use and subsequent disposal of materials or what is the same concept of using and throwing away.

 

In the circular economy model, the product continues to have life after it has been used for as long as possible, being able to keep its materials for later purposes. Under this modality, waste is reduced to a minimum and therefore creates a more sustainable value chain.

The main reason to migrate to this type of model is precisely the scarcity of raw materials. Humanity grows and therefore the demand also, but the resources are not unlimited.

The world population grows at around 1% per year, while demand grows at 3% per year, which would result in a permanent shortage if immediate measures are not taken to curb the continuous growth curve.

Immediate measures to alleviate the shortage of raw materials

Alliances outside the European Union are being prepared from Brussels to depend as little as possible on Asia in some key sectors.

 

Europe imports almost 75% of sensitive products for mass consumption from Asia, which translates into a high dependence on Asia. The EC wants to address this dependency by creating policies for public and private alliances with projects of common European interest.

Among the most immediate measures to deal with the shortage of raw materials, we also have the urgent need to restructure supply chains with allies and partners outside the EU.

Improving the speed and flexibility of operations is also a short-term solution to alleviate raw material shortages and realign adequate supply. However, the change in consumption and the behavior of the population towards a more sustainable thinking could yield good results to alleviate the crisis.

All is not lost, but all those measures that are applied will require a great effort to try to balance the supply and demand of products from the synergy of all the economic and business agents, the different national Administrations and from the EU.

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