It’s been a month since we did a supply chain forecast for 2021. However, events come thick and fast, which is why we are keen to draw attention once again to the current challenges in the procurement market.
The Current Market Situation
China – the only economy in the world to report positive economic growth in 2020 – increased its GDP by 2.3% in the previous year. In comparison: according to initial forecasts, the USA reported a decline of approx. 3.5%, Germany even – 9.8%. The strong business recovery in Asia is driven by a wide variety of factors. Data centers and infrastructure products as well as laptops and other home office equipment, but also the rapid expansion of 5G are significant drivers of this development.
Covid-19 also continues to have a significant impact on electronics manufacturing. On the one hand, the global increase of home office is creating more demand for consumer electronics, while on the other hand, regional or local lockdowns continue to pose challenges in the supply chain. This in turn affects production processes and capacities.
On a global level, the automotive sector is also starting to grow again, driven in particular by electric cars and the associated infrastructure. After the massive drop in demand in Q2 2020, we are now back to roughly the same level as in 2019. Electronics suppliers to these industries already noted extended lead times. Moreover, this trend is expected to spill over to a broader range of products in the coming months. Ultimately, this could result into speculative demand from customers.
While the EMS industry should not complain about insufficient orders, the challenges described above also have consequences for customers:
Airfreight remains very cost-intensive, if it is available at all. Sea freight, on the other hand, is following the price trend due to increased demand – especially from Asia to Europe. Container spot prices have increased by up to 50% compared to mid-2019. In general, freight rates are not yet at the peak level we saw in spring 2020, but could fall back to this level if demand continues to increase. Therefore, no price reductions are to be expected in mid term.
It can therefore be stated that prices will continue to rise. This is due to the reasons mentioned above. Silicon Labs, NXP and STM have also already announced that they will significantly increase their prices on a broader basis. Increased demand with still scarce logistics resources will ultimately lead to an increase in delivery times, which is partly already noticeable now.
In order to be best prepared for the coming months, we recommend that placing orders early so that we can plan together in the best possible way.
Thank you for your trust – your Variosystems Team!