The last quarter of 2020 and the first quarter of 2021 marked a sharp increase in the costs of many raw materials, including those used in the production of printed circuit boards. These increases were compounded by critical issues in logistics, with delays in the delivery of materials from Asia and increases in air and sea freight rates.
Unprecedented cost increases
For as long as I can remember, as the peak season approaches, the purchase costs of raw materials have shown increases and then stabilized again after the Chinese New Year. Since 2020, the trend is different in both the intensity of the increase and the duration of the increase.
In fact, since last September, major suppliers of raw materials for manufacturing, including Kingboard, Nan Ya, HC, and ITEQ, have communicated price increases to PCB manufacturers that are continuing even after the Lunar New Year. Numbers in hand, we are talking about 5%/10% increases per month in the costs of resins, fiberglass, metals and PrePreg bringing them to peaks of +90%. Among metals, copper set record quotes, with quotations almost doubling (+95%) between March 2020 and March 2021.
These increases have affected the cost of printed circuit boards, fortunately not in a directly proportional way since the raw material is only a fraction of the cost structure of the product at the end of its production process.
As of the end of March 2021, our supplier network reports further increases planned for the second quarter of 2021: in light of this, we do not expect, at least in the short term, any improvement in purchasing conditions.
The causes of the price increases
These cost variations are caused by the scarcity of materials in international markets, originating from:
- Increased Chinese domestic demand where the economy has accelerated as early as mid-2020 (projected 2020 GDP growth at +2%, 2021 GDP at +8%);
- Increase in global production of electric vehicles that use far more electronics than thermally powered vehicles (3M vehicles in 2020, up 40 percent from 2019, according to IEA);
- Concentration of laminate suppliers in the People’s Republic of China, which also controls most of the world’s rare earth mining;
Critical issues in international shipping as well
The recent case of stranding in the Suez Canal has focused global attention on international shipping, showing how much a single event can compromise supply chains around the world.
This occurrence, now almost completely resolved although resulting in weeks-long delays in port receiving and sorting activities, comes at the end of a year marked by shipping delays and increases in air and sea tariffs on a global scale. To give a numerical representation of this problem, the cost of moving a 40′ container from China to Europe increased from US$2,500 to US$9,000 in a single year. Sea-Intelligence, a Danish analytics company, estimated that by November 2020, one out of every two sea shipments would not arrive on time. And all this was before what happened to Ever Given!
In addition to the pandemic, the reason for these problems.
Since 2019, the deployment of COVID-19 has challenged the global logistics industry due to restrictions in mobility and increased activities required for shipping and customs clearance such as health checks etc.)
The sharp decline in air travel (airport management bodies estimate it at -75 percent in 2020) has reduced the space available to shipping companies, which have always used commercial air trades to make up for the lack of space in their fleets. The reduction in space available for air freights has increased demands on ocean carriers, resulting in higher rates.
Another issue that has generated increases in ocean shipping costs is the current shortage of available containers, the causes of which are many. First, the change in “flow” imposed by the pandemic has not allowed containers to be in the right places at the time of recovery. Reduced manpower at ports, COVID positivity among ship crews, and delays in shipping schedules have further aggravated the situation.
And to make matters worse, if on average between 2018 and 2019, 1,382 containers per year were lost at sea (World Shipping Council data), between November 30, 2020 and mid-February 2021, marine insurers estimate that about 3,000 containers were lost at sea (mainly in the Asia-US Pacific route).
Finally, there are also increases in the costs of wooden pallets and plastic packaging material.
Tekube’s advice
What might have been optimization advice in the past, in 2021 becomes critical to remain competitive: plan ahead for production, booking raw materials when possible to avoid delays and further increases in costs. As for shipping, prefer maritime to area shipping, bundling as much material as possible to negotiate a better price.
