Chip deliveries to Europe were delayed as the Iran war affected air freight

European companies importing semiconductors from Asia are tapping into backup stores and paying more for deliveries as the Iran war disrupts air freight routes through the Middle East, industry insiders told CNBC.

Iran’s war, targeting shipping and airports, has disrupted cargo routes since the war began on February 28. According to data from logistics firm DSV, global air freight capacity carrying goods such as semiconductors and other high-value electronics is down nearly 9%.

This led to rising costs and delivery delays for European companies importing semiconductors from Asia, as well as some manufacturers importing fewer chips from the region due to those capacity constraints.

Chips are a critical component of all electronics. Companies ranging from industrial giants and data centers to carmakers import some chips from places like China and Taiwan.

“What you will see in the coming weeks is inventory levels coming down with the hope that (logistics costs) will normalize,” said Stephen Kriken, DSV’s head of air freight., The board told CNBC, pointing to European automakers that use semiconductors for a range of electronic systems in vehicles.

Kriken said other European companies are absorbing the increased air freight costs of chip imports. He said DSV overall had not seen a “significant” drop in chip imports as a result of the conflict, but many buyers were paying premium costs to ensure continued supply.

A European chip company Some semiconductor shipments have experienced delays of several days, a person with direct knowledge of the matter told CNBC, who asked to remain anonymous regarding matters of private business. Air freight costs have soared, sources said, adding that the company has no visibility on whether prices will come down again in the coming months.

Iranian attacks on infrastructure, including airports, in the Middle East have seen global air cargo capacity take a hit. Many cargo planes flying from Asia to Europe used to travel through airspace in the Middle East or stop to refuel at hubs in the region.

That means more carriers are flying direct and will have to cut the amount of cargo they hold to make room for extra fuel, which could mean a reduction in payload, Kriken said. Jet fuel accounts for 50% of airline operating costs, Kryken said, and this is compounded by oil price spikes.

As a result, buyers looking to import goods from Asia to Europe have to pay a premium cost for delivery.

Although air freight for semiconductors continues for German auto supplier ZF, it is paying more to manage supply chains, a spokeswoman told CNBC.

While importers of high-value products, including sophisticated chips and other tech products, are absorbing those costs, companies buying low-value goods are likely to dip into inventory stores in hopes that air freight costs will drop in the near future, Kriken said.

“Within technology, there’s a very broad spectrum from the chips themselves, which are pennies’ worth compared to high-end chips and data racks worth millions of dollars,” he told CNBC. “So the lower the value, the higher the impact.”

Rajat Gaurav, CEO of supply chain software platform Kinaxis, told CNBC that some European chip foundry companies, automotive original manufacturers and contract manufacturers have experienced delays in semiconductor deliveries.

Many customers who buy these chips have inventory anywhere from a week to months, depending on the business, he said.

Supply chains and inventory inventories have been stretched by Covid-induced chip shortages.

“A lot of shippers have adjusted their supply chains so they maintain higher inventory levels,” Kriken said, adding that many companies have moved to diversify their suppliers of these chips.

“We currently do not see any impact on our production,” a Volkswagen spokesperson told CNBC, adding that the company is “closely monitoring” its supply chain and currently sees no indication of any disruptions.

Gaurav said companies are “actively stress-testing fluctuating semiconductor flows through global supply chains as they disrupt critical routes like the Strait of Hormuz and Dubai’s airport.”

“What this shows is that rate disruptions in flows from Asia to the Middle East and Europe will reduce buffer inventory levels and increase logistics costs as firms evaluate supplier exposure, reroute shipments and rebalance inventory in real time.”