European companies importing semiconductors from Asia are facing shipment delays and increased transportation costs following the outbreak of the Iran conflict. The disruption stems from the closure of key air routes over the Middle East, which were previously used by cargo flights for transit and refueling. According to data from logistics firm DSV, global air cargo capacity for shipping high-value electronics like semiconductors has decreased by approximately 9%.
Industry sources indicate that European semiconductor importers are responding by utilizing backup inventories and paying higher fees for freight. Since the conflict began on February 28, attacks on shipping routes and airport infrastructure have severely impacted logistics. This has resulted in cost increases and delays for European firms sourcing chips from Asia, with some manufacturers reducing import volumes due to capacity constraints.
Semiconductors are essential components in all electronic devices. A wide range of businesses, from industrial giants and data centers to automotive manufacturers, import specific chips from regions like mainland China and Taiwan.
Stefan Krikken, DSV's Air Freight Director, told CNBC that inventory levels are expected to continue declining in the coming weeks as companies hope for a normalization of logistics costs. He highlighted European car manufacturers, which use semiconductors in various vehicle electronic systems.
Krikken noted that other European firms are absorbing the increased costs of airfreighting chips. While DSV has not observed a significant overall drop in chip imports despite the ongoing conflict, many buyers are paying premiums to ensure continuous delivery. An anonymous source familiar with the matter confirmed that some semiconductor deliveries for a European chip firm have been delayed by several days, with rising air freight costs and uncertainty about future price reductions.
Attacks on Middle Eastern infrastructure, including airports, have reduced global air cargo capacity. Many cargo flights from Asia to Europe previously flew over Middle Eastern airspace or stopped at hub airports in the region for refueling. Krikken explained that this has forced more airlines to opt for direct flights, requiring them to carry extra fuel at the expense of cargo payload. With jet fuel accounting for 50% of airline operating costs and oil prices surging, fuel expenses have risen significantly. Consequently, importers planning shipments from Asia to Europe are forced to pay premium rates for transport.
A spokesperson for German automotive supplier ZF stated that while their semiconductor air shipments are proceeding normally, they are incurring higher costs to maintain supply chain operations.
Krikken added that companies importing very high-value products, such as advanced chips, can better absorb these costs. However, buyers of lower-value commodities are more inclined to use existing inventory, hoping for a near-term reduction in air freight expenses. He emphasized the vast range within the tech industry, from chips worth a few cents to high-end chips and data cabinets worth millions of dollars, noting that lower-value products are more significantly impacted.
Rajesh Gaur, CEO of supply chain software platform Kinaxis, reported that some European chip foundries, original equipment manufacturers, and contract manufacturers are experiencing semiconductor delivery delays. He added that depending on the business, chip buyers have inventory buffers lasting from one week to several months. Global supply chains and inventory levels were strengthened following the chip shortages triggered by the COVID-19 pandemic.
Krikken mentioned that many shippers adjusted their supply chains post-pandemic to maintain higher inventory levels, and numerous firms have begun diversifying their chip suppliers. A Volkswagen spokesperson confirmed that their production remains unaffected currently, with the company closely monitoring the supply chain and observing no signs of bottlenecks.
Gaur stated that as disruptions to key routes like the Strait of Hormuz and Dubai Airport ripple through global supply chains, companies are conducting proactive stress tests on chip flows. He noted volatility in freight rates for Asia-to-Middle East and Asia-to-Europe shipments, depletion of buffer stocks, rising logistics costs, and real-time assessments of supplier risk, transport route adjustments, and inventory rebalancing.