Semiconductor Shortage Creates Need For Freight Brokerage

Nearly everybody remembers walking into their grocery store in 2020 after the start of the COVID-19 pandemic only to see shelf after shelf of essential products stripped bare. What we were witnessing was the end result of panic buying which created a demand that far outweighed the available supply of goods.

Manufacturers had no choice but to ramp up production and our supply chains simply couldn't handle it. We’re still feeling the effects to this day.

For example, if you look at your favorite box of cereal, you might notice that the packaging is smaller than what it used to be. That’s because although material prices have shot up, available material is still lagging.

Pandemic caused a supply and demand ripple effect

This same phenomenon is also affecting the transportation industry. One of the most important components for building trucks and their electronic components is semiconductors. With such critical materials being in short supply as well, we’re seeing fewer available trucks and less capacity.

Consider auto manufacturing as well. Before the pandemic, auto manufacturers operated with a just-in-time (JIT) management mentality. They would access various components only when they needed them “just in time” to convert them into a finished automobile assembly. The goal for auto manufacturers was to maintain a lean inventory in an effort to keep overhead and excess costs low.

As for semiconductors, they’re in demand not only for manufacturing autos and trucks but also for any consumer electronics. With various industries competing for one key product, a shortage of semiconductors was inevitable. Unfortunately, the supply of semiconductors has not recovered from the initial shortage caused by the start of the pandemic. The shortage has resulted in a massive limitation in truck production and the capability to fix trucks that are breaking down.

The pandemic also caused a huge increase in demand for trucking capacity due to increased consumer product demand. Shippers were placing orders at an unprecedented rate as they saw an opportunity to increase demand for their products.

Auto manufacturers weren't prepared for it as well with forecasted demand not being in line with the new reality the pandemic created. Manufacturers got into a situation where they couldn't replenish stock as fast as people were ordering it, resulting in the backlog we're still experiencing today.

On top of that, a labor shortage with insufficient workers to manufacture and move products is exacerbating product backlogs. There is now a large amount of freight that needs to get to customers who placed orders (some months in advance), but not enough capacity to get it to them.

Semiconductor supply relief is coming

In recent history, nearly all semiconductor manufacturing plants have been outside the U.S. Companies are increasingly recognizing the opportunity to nearshore manufacturing to streamline and strengthen the component production supply chain.

As a result, Samsung is opening a $17 billion semiconductor plant in Austin, Texas that will begin chip production in 2024. Their presence will create a surge of domestic freight that is typically imported. Intel is also building a massive semiconductor facility near Columbus, Ohio, with a $20 billion investment to counter current issues, which should be operational by 2025.

These developments will eventually provide relief for component shortages and create thousands of domestic jobs. However, there is still a more pressing and immediate need for relief, which freight brokers are providing.

How does a freight broker help?

A freight broker has an established carrier network that acts as a middleman between a shipper and provides the capacity to get the product to its destination. They often connect to the exact mode of transportation your freight needs, whether flatbed, refrigerated or LTL.

The trucking market is fragmented, causing a lot of time wasted on the shippers’ side when looking for new carriers to haul their goods. Therefore, brokers are saving people time in an era when they don't feel like they have enough. Brokers remove the headache of wondering if shippers' freight will pick up on time or if they will be able to find capacity.

Brokers saw an opportunity to step in and fill the gaps where asset-based companies could not. Shippers saw a chance to build their shipping routing guides through brokerage utilization. Shippers also realized a need to always have backup plans in place if anything falls through (which is becoming more common due to the previously mentioned compounding issues).

The price of materials, assets, repairs, and time have all increased significantly. Inflation rippling through the supply chain finds its way to the end consumer, especially when utilizing asset-based companies that require purchasing and repairing trucks. These costs are also now built into long-term contracts. Brokers provide immediate capacity and a potentially more cost-effective solution rather than signing a long-term contract with sky-high rates.

How can GEODIS Capacity Solutions help?

GEODIS Capacity Solutions (GCS) is an experienced freight broker with a carrier network of 25,000+ which has capacity on demand to cover any load or lane.

What sets us apart is our customer service. We have an individual expert dedicated to each account and continuously look to improve your brokerage experience. Our goal is to help customers gain insight into their supply chain and help predict and make internal changes to ensure current issues do not happen again.

We utilize data to provide insight into their money, down to the line level. It allows our customers to make adjustments and improve operations on issues such as dwell time and detention based on our data and expertise. We find importance in understanding how to optimize your own business and staying abreast in current market trends.

Connect with a GCS expert today to secure freight capacity and learn how to help optimize your business despite current uncertainty in the transportation industry.