European companies grappling with semiconductor imports are facing significant disruptions and escalating costs due to the ongoing conflict in the Middle East. The war, which began on February 28th, has severely impacted air freight routes traversing the region, a critical artery for transporting high-value electronics, including vital semiconductor components, from Asia to Europe.
Industry insiders report that companies are tapping into existing backup inventory and are now shouldering higher delivery fees to maintain supply chains. According to data from logistics firm DSV, global air freight capacity has seen a notable decline, approximately 9% below pre-war levels. This reduction is a direct consequence of targeted attacks on shipping and airport infrastructure, forcing carriers to alter flight paths and, in many cases, carry less cargo to accommodate additional fuel needs for longer, rerouted journeys.
Stefan Krikken, DSV’s Head of Air Freight, explained that the increased cost of jet fuel, a significant component of airline operating expenses, is further exacerbating the situation. “What you’ll see in the next weeks is that inventory levels are trending down with the hope that [logistics costs] will normalize,” Krikken told CNBC. He highlighted that European automakers, heavily reliant on semiconductors for their sophisticated in-vehicle electronic systems, are among those feeling the pinch.
While some companies, particularly those importing more advanced and higher-value chips, are absorbing these increased freight charges, those dealing with lower-value commodities are more inclined to deplete existing stock, anticipating a future stabilization of air freight prices. “Within tech, there’s a very broad spectrum, right from chips that are worth pennies compared to high-end chips and data racks that are worth millions of dollars,” Krikken noted. “So the lower the value, the higher the impact.”
Beyond escalating costs, delivery delays have also become a reality. A source with direct knowledge of the matter, speaking anonymously, confirmed experiencing several-day delays on certain semiconductor shipments and expressed uncertainty about future price reductions.
Razat Gaurav, CEO of supply chain software platform Kinaxis, echoed these concerns, stating that European chip foundries, automotive original equipment manufacturers (OEMs), and contract manufacturers have reported delays. He pointed out that inventory levels for these critical components can vary widely, from a week to several months, depending on the specific business.
The current disruptions add another layer of complexity to supply chains that have already been significantly reshaped by the COVID-19 pandemic and the subsequent global chip shortage. Following that crisis, many companies proactively bolstered their inventory levels and diversified their supplier base. “A lot of the shippers adjusted their supply chains so they keep higher inventory levels” post-Covid, Krikken observed.
Despite the heightened risks, some major players are currently navigating the situation without production impacts. A spokesperson for Volkswagen confirmed that while the company is “closely monitoring” its supply chain, there are currently no indications of bottlenecks affecting their operations.
Nonetheless, the broader industry is actively engaged in stress-testing semiconductor flows. Gaurav noted that disruptions to vital transit points like the Strait of Hormuz and airports in the Middle East are having a cascading effect across global supply chains. Organizations are “actively stress-testing semiconductor flows as disruptions to critical routes like the Strait of Hormuz and the airport in Dubai ripple through global supply chains,” he said. “What shows up [are] fare disruptions in flows from Asia to the Middle East and Europe, depleting levels of buffer inventory and increased logistics costs as organizations evaluate supplier exposure, reroute shipments and rebalance inventory in real time.” This dynamic environment underscores the fragility of interconnected global supply chains and the need for enhanced resilience and strategic inventory management in the face of geopolitical instability.
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