Updates on the Global Semiconductor and Truck Shortage

Semiconductors, which are minuscule but vital components in almost every piece of electronics we use today, have been in the news a lot lately. Specifically, there have been lots of conversations regarding their scarcity and their importance to the trucking and automotive industries. Since the outbreak of the COVID-19 pandemic, the American Freight Industry has experienced a multitude of novel and unique challenges. The most recent hurdle to emerge has been the shortage of semiconductor chips and, as a result, the shortage of new trucks and vehicles being produced. As truck manufacturers scramble to source the required semiconductors for their trucks the demand for new and used trucks has been growing. With a recent spike in COVID cases in Malaysia, experts are predicting the gap between supply and demand for new trucks will only continue to grow. This article will discuss:

• What semiconductors are
• Why Malaysia is so important to the trucking industry right now
• The current state of the trucking industry in the United States
• The outlook for the next few years

What Are Semiconductor Chips?

Semiconductor chips are a vital component in almost every electronic device, from cell phones to a car’s power steering system. They are small devices, usually made of silicon, that need to be precisely machined and built. The number of chips required per vehicle has skyrocketed as car and truck makers have begun to add more electronic and “smart” components to their vehicles. These semiconductors are required for mandatory features, such as emergency braking assistance and driver aids all the way to creature comforts such as heated seats and air conditioning. Since the outset of the pandemic, there has been a growing gap between the supply of and demand for these semiconductors. This has been driven by demand both within and outside of the automotive industry, since they are vital components to any electronic device. As such, automotive manufacturers have been forced to compete not only with each other but with multiple other sectors for the few chips that have been available.

How does Malaysia Fit in?

Malaysia is a small, Southeast Asian country that typically does not have much sway over the global economy. That being said, they are a key player in the manufacturing and export of electrical devices and, more specifically, semiconductor chips. They are responsible for 13% of global semiconductor chip assembly and testing. Since the beginning of June, Malaysia has seen a steady increase in COVID cases throughout the country, prompting a nationwide lockdown in June. The lockdown temporarily closed all factories before the government eased some restrictions and allowed factories to return at reduced capacities. Factories were allowed to operate at 60% capacity and when 80% of their workforce is vaccinated they will be allowed to return to 100% capacity. A recovery to full manufacturing capacity should provide a slight boost to the current shortage, but it will by no means alleviate all of the pressure on the global demand for semiconductors.

The Current Outlook in the United States

There has been a shortage in semiconductor supply since the outset of the pandemic. Initially the shortage was caused by the complete shutdown of manufacturing across the globe. The shortage of available semiconductors, along with other supply chain disruptions, means truck manufacturers have simply been unable to produce enough trucks to keep up with the current demand for new vehicles.
The semiconductor shortage, along with shipping backups and bottlenecks, has coincided with an increasing demand for new vehicles. The 12-month moving average for new truck orders has more than doubled since late 2019, but production volumes have not risen in line with the increasing demand. By late July, PACCAR, the manufacturer of Peterbilt, Kenworth, and DAF trucks announced they were sold out for the rest of the year. In an attempt to get around the backlog of orders, they have begun producing what they call “red-tagged” vehicles. These are vehicles that have been almost entirely produced but are waiting on one or two key components before they can be shipped to the customer. Through the end of July, PACCAR was sitting on around 6,500 trucks that only needed semiconductors before they could be completed.
More recently, automakers such as GM have been forced to idle or temporarily close some of their manufacturing plants due to their inability to source the necessary components for their vehicles. Additionally, the same manufacturers are reporting that the chip shortage is lasting longer than automakers had predicted, indicating that they may not be fully prepared for an extended shortage of these vital components.
Another result of the chip and new vehicle shortage is the skyrocketing cost of used trucks. Some used, Class 8 trucks, have seen their value rise almost 50% since the beginning of the year. This is not so much a result of the quality of the trucks themselves, but more so a result of the sheer lack of available supply in the market. As used truck prices keep climbing to record highs, it will remain incredibly difficult for carriers to source additional vehicles for their fleets.

The Long Term Outlook

The long term outlook for the chip shortage is not promising. Experts are predicting a continued squeeze on the semiconductor market potentially all the way into early 2023. Some of the factors are the continued shipping delays and bottlenecks at ports across the globe and the continued growth in demand for these particular components.
In the trucking industry specifically, we expect to continue to see elevated prices for both new and used vehicles. As mentioned earlier, the used truck market is currently experiencing record high prices and an extreme lack of supply. It is recommended that those in the trucking industry begin planning for 2022 now because any rebound from the short supply is expected to take at least a year.
The elevated costs to purchase trucks will also affect OTR freight capacity for the foreseeable future. Since 2020 there has been a marked discrepancy between American freight capacity and demand. This has led to an increase in the cost of freight across the board, from ocean to OTR freight. While there has been movement at a federal level to address a shortage of drivers, as long as the truck availability remains sparse, the freight market will most likely remain volatile and expensive for shippers. 

How MVMNT Can Help

MVMNT is an online freight procurement platform, providing all of our users access to our entire network of carriers. We help you source lower rates for both your annual RFPs and any spot shipments with our more than 56,000 carriers. With the expected long-term freight supply shortages, your existing carrier network may no longer be able to cover your freight needs at all, let alone at cost-effective rates. Using our freight procurement platform will give you access to our entire network of carriers while also looping in your existing carrier network, providing you with more competitive rates on every single shipment you have.