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Supply Chain Woes

Date: April 5, 2021

Toward the end of 2020, MEMA began to hear from the industry about rising steel prices, slow down at the ports, and shortage of the silicon wafers needed to manufacture the semiconductors used in motor vehicles. The reasons for each were different with the COVID-19 pandemic creating a common complication. Since the beginning of the year, the issue has become even more complicated with the freezing weather in Texas causing a shortage of resins and foam and the fire in a Japanese semiconductor factor making the shortage of motor vehicle chips even more severe.

KEY TAKEAWAYS

  • The industry is seeing historic challenges in the supply chain for everything from semiconductors, steel, resins and logistics slowdowns at the ports.

  • The Biden administration has opened a supply chain review focusing on components needed for motor vehicle innovation – semiconductors, batteries, and raw materials – as well as the transportation sector.

  • We have an opportunity to drive policy for the future!

WHAT I AM LISTENING OUT FOR

  • We will be paying close attention to the recommendations on the semiconductor shortage. It will give us a good idea of what levers the administration is willing to use to address supply chains.  Will we see carrots or sticks?  Tax incentives or penalties.

  • Transportation reauthorization is one way to address updating the outdated port regulations. We will be watching for signs that the transportation committees of the House and the Senate are willing to roll up their sleeves and address these issues.

  • And finally, trade policy. The White House has already made noises about addressing some of the previous administration’s policies on China while working on a multi-lateral approach. Let’s see if the noises ring true and spread to steel tariffs.

Biden's Executive Order

On February 24, the President signed an executive order (EO) directing his administration to review different global supply chain issues impacting the U.S. The EO requires specified agencies to review and recommend policy changes that are necessary to strengthen U.S. supply chains. Included in this EO is a 100-day review of semiconductors, batteries, and rare earth minerals. These policy recommendations are due back to the President on June 4th. In addition, the EO requires the administration to conduct a year-long review of supply chain issues in specific industries including transportation.

Silicon Wafer and Semiconductors

The global shortage of silicon wafer and semiconductors has been widely reported. Most of the news outlets focus on the impact – which has been significant – to specific vehicle manufacturers and the shortage has been felt through MEMA’s original equipment automotive and commercial vehicle divisions. But as the shortage continues through the spring and into the 2nd and 3rd quarter of 2021, we are beginning to hear of concerns of shortages raised in our aftermarket too.

As Peter Harrell, White House National Security Council Senior Director for International Economics and Competitiveness, said during the MEMA legislative summit, there is no reason to re-litigate the causes of the shortage. However, it is important to focus on the solutions.

Short term, MEMA has been working closely with a range of vehicle manufacturers urging the administration to reach out to countries that include manufacturers of silicon wafers. We are urging those countries to work with their wafer manufacturers and prioritize the manufacture and shipment of motor vehicle grade wafers. Similar conversations are taking place regarding the manufacture of semiconductors.

Yet, longer term solutions are necessary. Today, MEMA will file comments with the administration laying out both the immediate and future actions needed to address this crisis. Specifically, MEMA is supporting efforts to set aside portions of any domestic funding for to build wafer and chip manufacturing in the U.S. for the creation of motor vehicle grade wafers.

Batteries and Rare Earths

Within his Executive Order, President Biden directed a review identifying risks in the supply chain for high-capacity batteries, including electric-vehicle batteries, and critical minerals, including rare earths. The Secretary of Energy will lead the battery investigation while the Secretary of Defense will report on rare earths.  MEMA has begun the process of reviewing potential comments on batteries.

Ports

While the COVID-19 pandemic caused traffic volumes in our nation’s port to dramatically decrease during the first half of 2020, since that time our industry has witnessed a significant slowdown in port traffic. This slowdown is particularly marked at the ports of LA and Long Beach but is also significant in Seattle, Oakland, and Houston. The causes for these slowdowns are complicated by port workers unable or unwilling to return to work during the pandemic and a strong flow of imports. New York and Newark, the largest ports on the east coast, are not currently reporting traffic concerns and container ships are rescheduling to east coast ports as an alternative to the ports on the west coast of the U.S.

MEMA has urged Governor Newsom of California to quickly vaccinate port workers and late in March some improvement in traffic flow has been reported. However, the slowdown remains marked with no immediate improvement in sight. MEMA is working with other industry groups to explore updates to the rules that govern port operations as one of many areas of focus.

Steel

And finally, we must consider the increase in prices of steel. MEMA has long fought against any trade restrictions on imported steel. This includes opposing Section 232 tariffs placed on imported steel during the Trump administration.

While we do not expect any near-term elimination of those tariffs, we have urged President Biden to eliminate tariffs on imported steel from any of our allies. We believe this will help repair our relationships around the globe and improve availability of this important material.

So, What’s Next?

Reading this might sound very much like a lament. However, it is a lament with a purpose!  For years, the members of MEMA have repeatedly urged the association to earn a “place at the table” for policy debates. There is no doubt in my mind that the industry has that place well established. The challenges in the supply chain of raw materials and slowdown of logistics could hinder the economic recovery of this country. When you add the worker shortage into the mix, this industry is truly in a crisis.

We must use the opportunities available to urge immediate action to address our challenges. MEMA will lead the charge and I hope you will join us.  Invite your elected representatives to your facilities and educate them on the impact these issues are having on your company. Work with us to provide data and information. Let’s use our place at the table to cement our industry’s future.

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