EDITORIAL: You want chips with that?
This semiconductor shortage is weird, but not mysterious.
By Patrick Flannery
We finally got our new refrigerator. It only took a year. That’s right, almost one full year from the date we ordered it in October of 2020. While we waited, we passed the time by calling other appliance distributors in our area to see if they could get us something the same, or similar, faster. The answer was “No.”
Like everything these days, a refrigerator is full of semiconductor chips electronically controlling everything it does. Even without Bluetooth and WiFi, designs for just about anything that uses electricity now also include electronics. Benefits include reduced power usage and many, many more features and capabilities. Drawbacks include the impossibility of fixing the device if something goes wrong with the electronics (interestingly, always the first thing to fail and happening about one month past the warranty expiration). Another drawback, as we are seeing right now, is the impossibility of manufacturing most of today’s powered products without the semiconductor chips that are involved in just about every aspect of the machine. That goes for just about everything in your store’s fleet, and I don’t need to repeat for you the lines you are hearing from your suppliers about how long it will take to get a given item. If they can give you a date at all.
My in-depth research for this page (15 minutes on Google) revealed that the chip shortage is down to nothing more mysterious than a surge in demand at the start of the pandemic and the inelasticity of capacity in semiconductor factories. As people got shut in and started setting up home offices, home computer sales surged. Demand for online services and cloud storage also surged, leading tech companies to add servers. Semiconductor factories were already going flat out, in part due to new gaming console releases by Microsoft and Nintendo. And no one could have predicted COVID. Adding semiconductor production capacity is no trivial thing – the factories cost tens of billions of dollars. Semiconductor production itself wasn’t slowed by COVID to any significant degree. Apparently chip supply has always experienced a cycle of shortages and oversupply, and the pandemic created a demand surge beyond anything the manufacturers could have anticipated or reacted to.
So here we are, lusting to spend money on the fleet to grow our businesses on the back of the ravenous demand we see coming from homeowners and contractors, but often not able to get what we need for love nor money. Apparently, the big chip makers are spending billions on new factories as we speak and pundits are predicting some easing of the shortage in 2022. Used equipment prices are shooting up. Sell! Sell! Sell!
What lessons should we take from all this? That’s what we’re going to discuss at the Rental Mart (coming March 8 and 9 to the International Centre in Mississauga, Ont.). Many of you will remember Tony Clement, former federal minister of health, minister of industry and president of the Treasury Board. Clement is now leading an organization called Reshoring Canada that is dedicated to strengthening and restoring our supply chains and ensuring our access to things like semiconductor chips and much else. He’s kindly agreed to join us on March 9 and share his insights from years guiding Canada’s industrial and manufacturing policy. Should be a fascinating presentation and a great question-and-answer session afterwards. Registration for the Rental Mart is now open at canadianrentalmart.com – register today!