Chip buyers in Europe are tapping backup stores as Iran war impacts air freight

As the conflict in Iran escalates, European companies reliant on semiconductor imports from Asia are increasingly turning to backup stocks and incurring higher shipping costs. Industry experts have reported that the war has severely impacted air freight routes through the Middle East, leading to significant delays and increased expenses for transporting vital electronic components. Since the onset of the conflict on February 28, air freight capacity has plummeted by approximately 9% compared to pre-war levels, according to logistics firm DSV. This decrease has forced many European manufacturers, from automotive giants to data centers, to either pay a premium for timely deliveries or reduce their chip orders from the region due to logistical constraints. Semiconductors are essential for a wide range of electronics, making these disruptions particularly concerning for various sectors. Stefan Krikken, head of air freight at DSV, noted that inventory levels are decreasing as companies brace for logistics costs to stabilize. He specifically highlighted the automotive sector's dependency on semiconductors for their vehicle electronic systems. While some European firms have managed to absorb the heightened shipping costs, many are still paying extra to ensure the continuity of their supplies. One chip manufacturer reported experiencing delays of several days for some semiconductor shipments, with sources indicating that air freight costs have surged. The ongoing Iranian attacks on infrastructure, including airports, have further exacerbated these challenges, forcing more cargo flights to take direct routes and thereby reducing their payload capacities to accommodate additional fuel. As jet fuel prices soar—constituting 50% of airline operating expenses—the financial strain on importers is palpable. While air freight for semiconductors remains stable for some companies, like the German automotive supplier ZF, they too are facing increased costs to uphold their supply chains. In contrast, purchasers of lower-value commodities are more likely to dip into their reserves, hoping for a reduction in air freight costs in the near future. Krikken emphasized the wide disparity in value among tech products, noting that the lower the price of the chips, the more significant the impact of rising logistics costs. Razat Gaurav, CEO of supply chain software platform Kinaxis, indicated that several European chip foundries and automotive manufacturers are experiencing delivery delays. He pointed out that many businesses have varying inventory levels, ranging from a week to several months, thanks to adjustments made post-Covid. Volkswagen has stated that, for now, they do not see any production disruptions but are diligently monitoring their supply chain for potential bottlenecks. As the situation unfolds, companies are actively evaluating their semiconductor supply strategies, adjusting routes, and managing inventory levels in response to the ongoing turmoil in the region.