The global component shortage: what caused it and its effects on the telematics sector
The world is plagued by a global chip shortage, as demand for these small, high-tech components greatly outnumbers supply capacity. It’s a scarcity wreaking havoc on global manufacturing, with ramifications as far-flung as the automobile, smartphone and telematics industries.
This chip crunch has affected organisations operating a fleet of vehicles while decimating the ever-bustling automotive sector. As a result, automotive manufacturers are navigating uncertain waters, compounded by increased demand, as they shut down their production lines while dealer inventories are stretched.
So, how did this component shortage occur? What measures are in place to alleviate this crisis, and what is its impact on the telematics sector? All these questions we will answer in this blog post.
What is the cause of the global component shortage?
The advent of the Covid-19 pandemic initially prompted the global chip shortage. It was then further compounded by a surge in demand for electronics as businesses and consumers’ need for laptops and servers substantially rose to cater to remote working and home-schooling mandates.
According to the Semiconductor Industry Association, sales of chips (also known as semiconductors) were 26% higher in May 2021 than during the same period in 2020. The industry shipped more units during May 2021 than during any previous month in the market’s history, showing just how rapidly production has had to ramp up to meet the rising demand.
The Covid-19 pandemic also exposed a weak link in the global supply chain. Only Taiwan’s TSMC and South Korea’s Samsung are responsible for most global chip manufacturing. TSMC and Samsung are dominant players in producing leading-edge chips used in mobile devices or for military applications.
Another factor contributing to the global component shortage is Taiwan suffering the worst drought the country has seen in 50 years. It has left TSMC and other manufacturers struggling to attain adequate quantities of water, a crucial element in chip manufacturing.
Events such as factory fires, power outages, and the now-infamous 2021 Suez Canal blockade have also contributed to the global chip crunch. The blockade at the world’s busiest and crucial shipping waterways occurred when a container ship got wedged in the canal.
The automotive industry is a large consumer of semiconductors, but its consumption is a tiny drop in the ocean compared to the consumer electronics industry. For example, approximately 100 million vehicles are manufactured each year, while one billion smartphones are produced annually. However, smartphones are just a tiny segment of the much larger consumer electronics industry.
Stiff competition to acquire limited electronics and chips is likely to continue until production has increased to match the demand.
What is being done to combat the component shortage?
As more industries undergo digital transformation, the high demand for semiconductors will surely continue to grow. As a result, manufacturers and governments are working on building more capacity within supply chains.
TSMC, over the next three years, will invest an estimated US $100 million towards attaining additional capacity. In comparison, Samsung, SK Hynix and the South Korean government have pledged a massive US $451 billion investment to help with an increase in capacity and to provide incentives for chip manufacturers.
However, despite these massive investments, there has been a recognition for the need to diversify the component supply chain to circumvent the reliance on Taiwan and South Korea.
As part of his “Build Back Better” plan, US President Joe Biden has pledged support for the American semiconductor sector. This support included a massive bipartisan tech funding bill introduced in June and saw US $52 billion earmarked for American chip production.
Intel plans to extend its capacity and will spend US $20 billion on two new factories in Arizona.
The European Union (EU) also plans to step up its efforts to grow its component building capacity across the bloc. However, the United Kingdom government has yet to announce its plans to assist its semiconductor sector.
How is the global component shortage affecting the telematics industry?
The component shortage affecting the automotive sector has also halted the development of telematics technologies. It has made it increasingly challenging for fleet customers using telematics solutions to acquire telematics hardware, tablets, new vehicles, and more.
Data from some of the world’s largest component makers, according to Bloomberg, indicate an increase in lead times from 10 weeks to 17 weeks.
Despite these crippling shortages, the good news is new connected vehicle technologies and platforms are rapidly becoming available. That is, fleets have various options to access and manage fleet data in light of the current short supply of aftermarket telematics devices.
Thus, it is important to leverage your current onboard computers to minimise any disruptions to your fleet. Changing your approach to managing fleet data and using what you already have will assist you in surviving the component shortage.
Below are five reasons why its time you need to change your approach in managing your fleet data:
1. Use a single, simple source for all data
When connected vehicles roll off the assembly line, they can be turned on instantly, meaning you have immediate visibility without the need for installation downtime.
New connected vehicle platforms can collate data across Original Equipment Manufacturers (OEMs) and telematics devices in vehicles that are not enabled for connection, offering a unified view. Therefore, when exploring connected vehicle platforms, it is important to ensure they have simple to use features such as:
- A map and list view of all vehicles registered on the system.
- Trip history reports with customisable date ranges for each or all vehicles.
- Comprehensive information on the health of individual vehicles.
- Standard reports include driver behaviour, distance, and workday reports, including open health event reports.
- Data visualisation on drivers’ behaviour and vehicle utilisation.
2. Make informed vehicle and route decisions
Connected technology, such as telematics, makes it simple to track and show the locations of connected vehicles. In addition, it provides deeper, real-time insights into fleet-related data offered, making it simple to track driver location, trip history, vehicle status and movements.
When looking for connected vehicles platforms, ensure that it offers a map-based interface that displays a vehicle’s current status. That is, which vehicles in your fleet are on the road and which ones are parked.
3. Protect your fleet against risky behaviour that causes accidents or excessive vehicle wear and tear.
A top concern for any business managing a fleet of vehicles is safety. And a critical aspect in keeping drivers and assets safe is visibility into the behaviours of drivers.
Reports and dashboard visualisations on driver safety scores, speeding incidents, and harsh braking and acceleration are often pre-configured on connected vehicle platforms. It offers you a clearer picture of your drivers’ behaviour on the road so you can provide relevant training to drivers who need it and, in doing so, decrease fleet safety risk.
Additionally, connected vehicle technology can also distinguish between different speed zones, differentiating the severity of speeding incidents better.
4. Be assured your vehicles remain within their service area
A powerful tool that provides you with more visibility into your fleet’s movements is geofencing.
When implementing geofencing, you can define a specific vehicle’s zone and then receive alerts when that vehicle exits the predefined zone. This feature allows you to see where your assets are at all times and prevent drivers from using vehicles for personal errands, saving you from spending money on fuel that’s not for the purpose of work and minimising asset abuse.
What does the global component shortage mean for fleet managers?
The outbreak of the Covid-19 pandemic and the subsequent global chip shortage has negatively impacted the fleet sector’s operations. So, what does this chip crunch mean for fleet managers?
- Increased costs
One of the effects of the component shortage for fleet managers is the increase in vehicle costs. As a result, fleet managers will have to pay approximately 18% to 20% more than they are accustomed to.
- Low, or no, inventory
Fleet managers ought to expect dealerships not to have excess inventory, as it is anticipated they will run out of merchandise towards the end of the year.
- Changes to incentives and product availability
When manufacturers sell all the merchandise they have produced, they will probably not offer fleet incentives. Additionally, there could be significant adjustments to both rebate programmes and fleet availability in 2022.
- More expensive
The effects of the global supply chain crisis stretches far beyond the shortage of chips. There is a high demand for upfitting materials such as steel and plywood, which are in short supply, thus pushing prices up.
- An increased need for vehicle maintenance
It is vital for fleet managers to stay up-to-date on preventative maintenance and repairs as they must keep their fleet operating for longer periods.
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MiX Telematics continues to see the huge benefits that telematics hardware can provide fleets, and we aim to continue working hard to provide that hardware. However, we’ve also seen a need in the market for app-based tracking.
That’s why we’ve developed a companion solution called MyMiX Tracking that’s entirely app-based.
Our innovative app-based solution leverages cellphone technology, enabling real-time driver tracking while recording, measuring and allowing for real-time self-correction of risky driving behaviour events. These risky events include speeding, harsh braking and acceleration and mobile phone usage while driving.
MyMiX Tracking is ideal for dynamic fleets that want tracking without installation downtime. Check out MyMiX Tracking: https://www.mixtelematics.com/mymix
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