The outbreak of the Wuhan Coronavirus COVID-19 has disrupted supply chains around the world. At ESO, we have been monitoring the situation closely since January, and have been communicating delivery delays to customers as applicable. That said, our supply chain has been stable since the Chinese government ended its week-long extension of Chinese New Year in mid-February. We have been receiving regular deliveries of PCBs from China for the past month with minimal or no delays.
The situation, however, remains unpredictable, and this uncertainty is causing markets around the world to fall. The Coronavirus is having a particularly direct impact on the electronics industry because an estimated 50% of the world's electronic components are produced in China. And now we are seeing another unintended consequence of this public health crisis: a new period of Allocation – a worldwide shortage of electronic components.
This new "Coronavirus Allocation" is affecting primarily surface-mount resistors, but also MLCCs (multilayer ceramic capacitors).
This Allocation is happening for several reasons that are directly linked to the Coronavirus outbreak:
- Labor shortages: Many factories in China still have not been able to resume producing at full capacity, and are running on "skeleton crews." This is because staff are still unable to travel due to mobility restrictions, or are under quarantine. As a result, output has been reduced and machines are standing idle. Labor shortages also drive up labor costs.
- Low inventory levels: During Chinese New Year and the week-long extension, Chinese factories did not produce for three full weeks. This, coupled with decreased output in February and March, has created a huge backlog of orders. Factories are not able to supply enough to meet current demand. Low supply drives up prices for customers.
- Panic buying: Some companies are buying up available stocks they don't actually need to hedge against potential availability issues in the coming months. This further reduces supply, which in turn drives up prices.
- Availability of raw materials: Production and processing supply chains for copper, laminate, plastics, heavy metals, and chemicals are also affected by Coronavirus, which are driving up prices and lead times.
- Logistics delays: Shipment delays of up to six weeks have been reported at Chinese ports for goods sent by sea cargo. Parcel services like DHL, UPS, and Fedex are, however, up and running with minimal delays.
New price lists have been issued for standard resistors and capacitors, and we are seeing price increases of 10-50%. Lead times are also on the rise, especially for resistors and MLCCs, but also for other components.
To manage this uncertainty, we urge all customers to place their orders for 2020 as soon as possible. We will be happy to quote any projects you may have, and we will work with you to minimize any interruptions or risks to your supply chain.