The US and Israel launched strikes against Iran three weeks ago, and there seems to be no end in sight so far. The conflict, which appears to be escalating and plunging the Middle East into a deeper military confrontation, has rattled several sectors, including global energy markets, aviation, and tourism.
Another industry experiencing the Middle East’s impact is the semiconductor industry. According to a CNBC report, European companies that import semiconductors from Asia are now paying more for deliveries and tapping into backup stores as the Middle East conflict has disrupted air freight routes across the region.
Air freight capacity slides
Citing data from DSV, the report said that the Iran war has caused disruptions to cargo routes as both ships and airports have been targeted since the war began in late February, with global air freight capacity coming down to roughly 9%, though the company does not disclose absolute baseline capacity figures. The air freight capacity transports cargo such as semiconductors and other high-value electronics.
DSV’s head of air freight, Stefan Krikken, told CNBC that what will happen in the next few weeks is that the inventory levels are declining, with the hope that the logistics costs will normalise again. He made these remarks in connection with European automakers, which use chips for a range of electronic systems on board vehicles.
This has led to increasing costs and delivery delays for European companies that import semiconductors from Asia. Additionally, some manufacturers are now importing fewer chips from the region due to capacity constraints.
Semiconductors or chips are a significant component of all electronic items, and companies, from industrial giants and data centres to carmakers, import certain chips from locations like China and Taiwan.
How are European companies coping?
Krikken said that some European companies were bearing the higher air freight costs of importing chips. He added that his logistics firm had not yet seen a significant drop in overall chip imports due to the ongoing conflict, despite many buyers paying premium rates to ensure continued deliveries.
Air freight shipments of semiconductors for German automotive supplier ZF have continued, but the company is incurring higher costs to keep its supply chains running, the report added, citing a spokesperson.
Krikken said companies that are importing higher-value goods, such as cutting-edge chips and other technology products, are continuing to bear these added costs. In contrast, companies dealing in lower-value commodities are more likely to rely on existing inventories, hoping that air freight rates will ease in the near term.
The Middle East conflict impacts air freight capacity
Iran is continuing with its attacks on infrastructure across the region. This includes airports in the Middle East, and as a result, global air freight capacity has taken a hit. In the pre-conflict days, several cargo planes flying from Asia to Europe used to travel through the airspace in the region or would stop to refuel at their hubs in the region.
However, that is not the case anymore. This means that several carriers are now flying direct and are being forced to slash the amount of cargo they hold, just to make room for extra fuel, a move which effectively lowers payload capacity, the DVS official said.
As a result, buyers in Europe who are now looking to import goods from Asia to Europe are compelled to pay premium costs for delivery.
