Is there turbulence ahead for the UK Electronic Components Supply Network?

28th March 2022
Paige West

At the end of last year, the Manufacturer Authorised Distributor members of the Electronic Components Supply Network (ecsn) were looking forward to strong growth in electronic components markets in the first half of 2022, with something of a ’levelling out’ occurring in H’2.

At that time nobody predicted that Russia would invade its neighbour Ukraine in the early part of the new year. The conflict is already having significant macro-economic impacts on global trade, which will inevitably negatively impact international GDP growth forecasts.

However, ecsn chairman Adam Fletcher foresees only limited impact on the global manufacture of electronic components but cautions that the conflict is likely to result in increased logistics delays that will inevitably trigger supply problems for UK manufacturers of electronic equipment, cars, trucks and chemicals.

ecsn/afdec member Billings

In January ’22 ecsn/afdec members reported ‘Billings’ (sales revenue) growth of five percent when compared to the previous month and an increase of 28% when compared to the same month 2021. This result was in-line with the forecast of 14% growth in Q1’22 that ecsn released at the end of 2021.Despite the current turbulence in the global economy, it’s my belief that the UK electronic components market will continue to grow at close to our forecast.

Ukraine electronic components market

Given the current situation in Ukraine this would be an opportune moment to review the country’s technology sector but sadly there is little meaningful information available on its electronic components TAM (Total Available Market). Data is hard to come by because many consignments destined for the manufacturing sites of the country’s larger CEMs and OEMs are purchased and invoiced in Germany, but anecdotal data suggests that the Ukrainian TAM doesn’t exceed circa US$ 450M. It’s fair to say that – in common with several of the larger eastern European countries – Ukraine has significantly benefited from reshoring from Chinese- to European-based CEM manufacturing.

Traditionally, Ukraine’s principal export markets have been the Soviet Republics (Russia, Kazakhstan, Belarus), representing 60% of all exported goods. China accounts for a further 13% and Germany 10% but ranking among the country’s top five exports are wiring harnesses used by European car and truck manufacturers. Produced in high volumes against very short lead-times for just-in-time (JIT) delivery to customer production lines it will take many months and a lot of logistical effort to transfer production of these custom, highly proprietary products to sites outside of Ukraine. In the mid-term the conflict in Ukraine is likely to result in shortages of key raw materials ranging from specialised metals to industrial gasses.

Russian electronic components market

Reported to be US$4.204M, the Total Available Market (TAM) for electronic components in Russia is a similar in size to the UKs, so on a global scale is surprisingly small given the size of the country. Whilst there are components manufacturers in Russia, they are generally small operations serving their domestic market rather than exporting, so the country is heavily reliant on the import of components from the rest of the world.

Like the UK, most customers for electronic components in Russia are served by local authorised distributors who represent a wide range of international components manufacturers but unlike the UK, few international distributors have operations in Russia. Local authorised distributors in Russia are generally supported and supplied from Europe. Many of the country’s authorised distributors are also CEMs (Contract Electronic Manufacturers), so are both suppliers and consumers of components. The few international components manufacturers with operations in Russia are mainly involved with supporting local language sales, marketing and applications functions, although some have limited new product development operations.

Transportation and logistics

Transportation and logistics have become an escalating a problem for Russia: except for pharmaceuticals, healthcare and humanitarian supplies most large international transport and logistics organisations have halted shipments out of the country. Flights in Russian airspace have been grounded and sea freight from Russian ports has been embargoed. Little information has been forthcoming but it’s a safe bet that rail freight shipments have been affected too.

Heavily promoted as part of the ‘Silk Road’ initiative rail freight movements into Russia from China have become an important method of moving mid-weight or bulky goods such as PCBs, power supplies, fans, metalwork etc. These shipments transit from China across Kazakhstan, Russia and into Poland, bypassing Ukraine before arriving in Germany – a journey time of around 28 days. This important route has been significantly boosted over the last two years by increased demand due to the ongoing disruption to sea freight caused by the COVID-19 pandemic but may yet be subjected to some level of embargo that could ‘knock-on’ to affect a wide range of organisations in Europe, including electronic components and electronic equipment manufacturers.

When you consider that these organisations have approximately four weeks of their material requirements in-transit at any point in time this could be a big problem for their JIT (just in time) manufacturing programmes.

COVID-19 update

ecsn/afdec member organisations continue to transition their operations to reflect the evolving COVID-19 epidemic situation. The UK is leading regulation reduction but full compliance with national and international guidelines are being maintained. Most ecsn members and their customers continue to operate a hybrid system where employees who need to be on site can function safely and effectively, whilst those who are able to work from home are continuing to do so. Face-to-face engagements with customers for meetings etc., is slowly returning, primarily based on customer needs and wishes but it’s likely that a hybrid working environment will remain for some time, with employees determining how best to operate and collaborate with their colleagues, suppliers and customers.

Concluding thoughts

Organisation in the UK and Europe must prepare for significant further impacts on logistics and reliability of supply in electronic components markets because of the tragedy that’s currently happening in Ukraine. Our association’s member companies and their customers hope to see a speedy resolution to the conflict, but in the meantime, we must all recognise that commercial issues pale into insignificance when compared to the wholly unacceptable levels of human suffering President Putin is currently imposing on the Ukrainian people.

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