Alun Morgan: Price Increases Are Here to Stay

Estimated reading time: 5 minutes

Barry Matties and Nolan Johnson recently spoke with Alun Morgan, technology ambassador at Ventec International Group and president of EIPC, about global supply chain challenges, as well as efforts by government and industry to mitigate some of these issues. Alun discusses the need to have more than one source, pricing strategies for fabricators who are facing increases in costs across the supply chain, and why we all need to work together to help the industry in times like this.

Nolan Johnson: Alun, we’re seeing legislative efforts from governments around the world to help get this industry back on its feet and build a more resilient supply chain. Do you think this will have any sort of impact in Q4 2022?

Alun Morgan: It has taken decades to get to where we are. There is no chance of a quick and permanent fix by government action. A major issue is that governments act nationally; they don’t act globally, and we have a global issue. The effects are disproportionally affecting North America and Europe. Having said that, it’s a valid initiative that may, in time, yield some benefit or at least raise awareness of the importance of supply chain resilience. I went through this in the UK many years ago, with a similar discussion. The problem, in the end, is how many votes depend on it? Our industry does not have that many votes anymore.

If your industry employs five million people, you’re going to get a lot of help and attention. If you only employ 5,000 people, then forget it. They’re probably not even going to talk to you. That’s brutal, but that’s the way they think. But now it has been recognized that strategically there has to be access to PCB and silicon technology. Silicon stands out as one that you can really understand; it can actually cause huge damage to economies. So, if the U.S. couldn’t get chip sets and we couldn’t get them in Europe, because they’re all being consumed in Asia, that would have a massive impact on our economies.

Governments can provide things like financing, tax holidays, or help with training. They are quite good at that and I hope it will lead to providing some very practical help. We’re not short on innovation or ambition; we’re absolutely not. The issue, in the end, will be capital structures, how we can invest, who we can persuade to invest, and take the investment risks. Let’s see where it goes. I think it’s come to an extreme case where you require government to support your industry, so if government can help, then let’s go for it. But it’s not going to be within 90 days, that’s for sure.

Johnson: Let’s focus on Q4 2022. There is still a demand to be filled under some challenging economic situations over the next 180 days. You’ve pointed out that first you must figure out your supply chain, and then share your forecast with that supply chain. But once you get your supply chain in order, there needs to be some sort of investment or planning to respond to this. What does that look like in your mind, Alun?

Morgan: The real issue is that even with the best forecast and the best planning, you still can’t get goods. Look at the situation in China. Coming out of a lockdown, Shanghai has basically stopped all goods being shipped from those ports. They’re going to hit the ports on the West Coast of the U.S. and places like Rotterdam. We’re going to see a meltdown in those places because there will be container ships anchored as far as the eye can see because they can’t get offloaded quick enough. 

We’re being very practical about this now. We see the lockdowns easing now in China to some degree. But thinking about that, suddenly all those ships can dock, get loaded up, and then start coming here. This is within three to six months, by the way. When they all hit, that will cause absolute mayhem. There is no way those ships can all be offloaded in a week or two. It will take months to get those ships unloaded and sent back again.

You need to make sure you have more than one supply opportunity for critical things. This is good advice, but generally we haven’t been doing this. Of course, it’s going to cost more money to have a second source. Now, that second source possibly might be local. That’s also a potential. I mean, why not? Why couldn’t you have a local source for some materials? It will cost you more money, probably a lot more. You will need to qualify a second source, which is not easy and takes time. But it’s much better to do that than to end up in the position we are now, with many producers not having any raw materials to process, which is the worst possible situation you could be in.

If you don’t have any raw materials, nothing else matters. Even if someone said, “I’ll give it to you for 10 times the price,” you’d probably take it; but when you’ve got nothing, it doesn’t matter. One clear consequence of all of this: It will cost more for everybody—the consumers as well. We’ve already seen that in Europe.

To read this entire conversation, which appeared in the August issue of PCB007 Magazine, click here.