Passage of $280 billion chips bill seen as aiding truckers seeking replacement vehicles

For the first time in quite a while, Washington is in the chips. Computer semiconductor chips, that is.

Congress late last week passed a bipartisan $280 billion package of subsidies and research funding to increase America’s international competitiveness in the high-tech sector. It is designed to make the U.S. less dependent on Taiwan for production of the ubiquitous wee chips that are critical to U.S. competitiveness.

The bill, entitled the Creating helpful incentives to produce semiconductors (CHIPS) for America fund, which is expected to be signed into law by President Joe Biden, includes about $52 billion in direct subsidies to boost domestic semiconductor production. Already, Intel Corp. is planning a $100 billion chip production plant in New Albany, Ohio, creating 3,000 jobs.

The measure was praised by trucking interests who viewed it as a way to produce the vital chips that power so much of today’s economy, including motor transport.

“Semiconductors and computer chips make our economy and industry run—right down to the trucks we drive—and we have seen the consequences of decades of neglecting domestic manufacturing of these critical components,” said American Trucking Associations Executive Vice President for Advocacy Bill Sullivan.

The rest of the $280 billion in the “chips plus” subsidy bill would go to research and development domestically. Washington fears that Taiwan, which is under increasing threat from mainland China, would crimp semiconductor production should a Chinese invasion occur.

Senate Majority Leader Charles E. Schumer, D-N.Y., called it “one of the most significant, long-term thinking bills we’ve passed in a very long time.” The Senate passed it in bipartisan fashion in a 64-33 vote.

U.S. Commerce Secretary Gina Raimondo has said the current semiconductor supply chain is “far too dependent on conditions and countries halfway around the world.”

The total semiconductor market, which was invented in the United States, was estimated at $639 billion this year, according to Gartner, a global supply chain research firm. Taiwan-based companies produce about 60% of total global chip foundry revenue last year, according to data by Taipei-based research firm TrendForce.

Biden, an enthusiastic backer of the bill, wants to change that. But the president nevertheless warned the $280 billion “would not be a blank check” to large, multinational semiconductor companies. Most of the remaining $280 billion is meant for domestic research and development.

“There’s a lot in that chips bill,” said veteran transportation consultant Randy Mullett. “But there’s a lot in there for transportation.”

Lack of computer chips has been cited by trucking executives for lack of available new Class 8 trucks.

Although few trucking companies are actually expanding their fleets due to a lack of qualified drivers, most large trucking companies like to roll over their fleets every three years or so. Newer trucks are safer, get better fuel mileage and are more comfortable for drivers, trucking executives say.

KC Quah, senior director analyst with the global research firm Gartner, said the current semiconductor shortage impacts nearly every industry in every region across the globe. But that market is rapidly changing from its peak of 2021 and is heading toward a downturn, he predicted.

“I am amazed at the amount of change quarter to quarter,” Quah said on a Gartner webinar on the chip situation and its effect on worldwide supply chains. “But it’s clear things are slowing down.”

Quah is predicting the computer chip shortage will be in an “oversupply” situation by the middle of 2023, forcing chip manufacturers to cut prices. That is earlier than many experts are predicting.

“It’s still tricky,” Quah said.

The current inflationary cycle will last another six months before the Consumer Price Index falls to a more rational 2% year-over-year increases, Quah said. Demand for smart phones, the largest segment of chip use, is down from 15% growth last year to about 3.2% this year.

He said the chip industry is moving into down cycle. From 2021 to 2022, the industry had an annual growth rate falling from 13.6% to 7.4%. From 2022 to 2023, the annual growth rate will fall from 3.6% to -2.5%.

“Diminishing demand will mean more than increasing supply,” Quah said. “Automotive will be moving soon into the normal zone.”

But the supply of chips will be more expensive, he predicted. Taiwan Semiconductor Manufacturing Co. has warned clients for the second time in less than a year that it plans to raise prices, citing looming inflation concerns, rising costs and expansion plans to help alleviate a global supply crunch.

The range of price increase is expected to be between 5% to 8% for different process technologies. Samsung Electronics Co. is talking with foundry clients about charging as much as 10-to-20% more for making semiconductors this year. That joins an industry-wide push to hike prices to cover rising costs of materials and logistics.

For instance, STMicroelectronics announced a 15% price increase affecting all product lines. United Microelectronics, another major manufacturer, reportedly is mulling raising its 2023 quotes by around 6%.

 “I’ve been in this industry for 35 years and it’s cyclical,” Quah said. “It always has been.”

The good news is that chips used in the automotive and heavy truck industries will be in ample supply by next year. But the bad news is they may be more expensive, leading to costlier heavy trucks for fleets and autos.