"Not Just Shortage of Car Semiconductor Parts: Express Fees + Payment Collection Delays Cause 'Ecosystem Collapse'"

Procurement of Car Semiconductors at 10 Times Premium... Express Fees Paid to Existing Clients
Liquidity Issues Worsen Due to 1-3 Month Gap in Payment Collection After Delivery
To Make Matters Worse, Logistics Costs Rise by at Least 5 Times

[Asia Economy Reporters Kim Hyewon, Yoo Jehun] "The imbalance in the supply and demand of automotive semiconductors is not simply a matter of parts shortage. The core issue is that the ecosystem has collapsed due to cash flow problems caused by paying expedited fees for semiconductors that have risen about 10%, delays in collecting payment for delivered goods, and skyrocketing logistics costs."

This is a complaint from the CEO of a secondary supplier that delivers electronic modules to a leading domestic automotive parts conglomerate. As the shortage of automotive semiconductors prolongs, automotive parts companies are facing severe liquidity crises, but public attention is focused only on disruptions in finished car production or delays in delivering vehicles to customers. The voices from the field say that to overcome the hardship in May and June, government financial and tax support must be provided appropriately.

◆ Triple hardships of expedited fees, payment delays, and reduced deliveries = In an urgent survey conducted on the 10th by the Korea Automobile Industry Association (KAIA), among 78 automotive parts companies from first to third-tier suppliers, 38.1% of the 21 companies handling automotive semiconductors reported liquidity difficulties due to existing payment practices. This is because there is a gap of about 1 to 3 months between the time of paying for semiconductor purchases and the time of collecting payment after delivering parts to upper-tier companies.

They purchase automotive semiconductors from major suppliers such as NXP, Renesas, and Infineon, combine them with other parts or materials to produce electronic components, and supply them to finished car manufacturers or first-tier suppliers. Recently, due to supply-demand imbalances causing raw material prices to surge, they have been paying expedited fees that have increased by about 10%. However, even the upper-tier suppliers who receive these parts are experiencing irregular payment receipts due to worsening management difficulties caused by chain production disruptions.

Jung Manki, chairman of KAIA, explained, "Mainly second- and third-tier suppliers purchase automotive semiconductors, but due to parts shortages, they procure them from open markets at prices up to 10 times higher or pay expedited fees to existing suppliers. The payment system, where parts are bought with cash and delivered on credit, which normally poses no problem, has turned into a liquidity issue in this unexpected crisis."

As the volatility in finished car production caused by automotive semiconductors increases, it is also difficult for second- and third-tier suppliers to establish factory operation plans. When finished car production is cut or halted, the burden of inventory management and labor costs falls entirely on lower-tier suppliers. These industries are responding by encouraging employees to use annual leave and reducing working hours, but the semiconductor shortage crisis is expected to peak in May and June and continue into the second half of the year. They are requesting the government to provide wage support for employment stability, extend the expiration of foreign workers’ permits, and postpone the application of the 52-hour workweek system (for companies with fewer than 50 employees).

◆ Crying out over soaring logistics costs = To make matters worse, the sharp rise in logistics costs is tightening the noose on parts companies. Since the COVID-19 pandemic, global economic recovery has caused a surge in cargo volume, leading to prolonged congestion and delays in cargo handling, and it takes a long time to retrieve shipped containers, causing logistics costs to skyrocket.

The Shanghai Containerized Freight Index (SCFI), an indicator of international container shipping rates, recorded 3095.16 on the 7th, surpassing the 3000 mark for two consecutive weeks. This rate trend is the highest since related statistics began in 2009.

As a result, the total logistics costs borne by parts companies have increased at least fivefold in one year. According to KAIA, in April, the export shipping cost for parts to Mexico under CIF terms reached $8,200 (about 9.13 million KRW) per container box, a roughly 380% increase compared to $1,700 in the same month last year.

Urgently needed parts are being procured by air, further increasing logistics costs. Considering that air freight rates are generally higher than sea freight rates, transporting cargo by air freight raises the taxable amount (sum of product price and freight), resulting in excessive logistics costs compared to using existing ships.

Due to the global logistics crisis, air cargo freight rates are also soaring. The TAC Air Freight Index showed that the average cargo rate for the Hong Kong?North America route in April was $8.48 per kilogram, the highest level since the index began in 2015. Chairman Jung emphasized, "Tax payment deferrals should be further extended until the end of this year, and restrictions on repayment demands should be eased. For customs duties and additional customs taxes, it is necessary to allow extensions without collateral and without discrimination based on company size when payment deadlines are extended."

This content was produced with the assistance of AI translation services.