Million dollar pallets – APAC’s shifting role in the high-value world of semiconductor logistics

In a world where semiconductor technology is needed in everything from the phone in your pocket to the car you drive, a pallet of chips is an expensive commodity. “Far more expensive than a pallet of iPhones,” says Leslie Chan, Director of Technology, Commercial in China, to give a sense of scale.

Prior to the pandemic, these essential electronic components generally skirted under the public consciousness. But massive disruptions to the global supply chain and a huge increase in demand for electronic devices as employees worked from home put them firmly in people’s focus. Shortages had far-reaching impacts across multiple industries, and suddenly we all became aware quite how heavily reliant we are on chips.

Driven by the growing use of high-performance computing, data storage and AI, global revenue from semiconductors is expected to grow 10% annually, reaching market volumes of US$980.80 billion by 2029. And with most of this revenue being generated from China, the APAC region will have a vital role in maintaining the global semiconductor supply chain.

With such a high value and being so much in demand, logistics around chips are somewhat different to many goods. For a start, air freight is a key mode of transport – it’s simply not viable to have that amount of capital tied up on a ship for days. And end-to-end logistics is crucial, ensuring manufacturers of end products have the components they need in the volumes they need, readily accessible.

DP World’s presence in many key trade zones – particularly free trade zones – coupled with dedicated expertise in the sector creates a valuable proposition for clients. These premium locations enable greater efficiency and may also allow companies to benefit from tax breaks. But it is not just proximity to key locations for clients that makes the difference – it is our connected offering, joining up contract logistics and freight forwarding through airports, ports and terminals, and warehousing.

Meeting a growing demand

“During the COVID days, working from home, digitalisation and the demand for cloud drove a huge demand [for chips],” Chan says. “Now AI has driven a new wave of demand and companies are rapidly responding.”

Many corporations are responding to the increasing competition for chips by buying more of them – creating a buffer to protect themselves from shortages. Logistics companies need to be able to respond to this upsurge in demand, ensuring they can meet air freight capacity requirements, for example.

Added to this, there are also surges in demand related to geopolitical tensions – such as companies looking to stockpile components ahead of deadlines for certain semiconductor producers being blacklisted.

Demand for warehousing close to key end producers has also grown dramatically in recent years – in some cases doubling in size, Chan says. These warehouses need to act as hubs, accessible to many semiconductor clients and providing the shortest possible lead time to supply components.

Warehouse stock is rapidly turned over – it will be drawn upon by manufacturers several times a week and is replenished often twice a week. This requires careful logistics management to ensure that stock remains within the minimum and maximum boundaries. And warehouse security is also a premium given the high value of the goods.

DP World helps ensure the supply chain remains synchronised with sophisticated inventory management at strategically placed warehouses. And proprietary digital technologies connect these warehouses to our wider network of ports, terminals, trucks, rail, shipping and air services, boosting efficiency, resilience and control.

Balancing tensions

Geopolitical tensions are driving significant shifts in semiconductor value chains. Increasingly, countries are looking to nearshoring and friendshoring options, seeking technological independence and resilience.

Japan, for example, is actively encouraging foreign companies to its shores to boost production capacity, including Taiwan Semiconductor Manufacturing Company (TSMC) subsidiaries, as pressure intensifies to diversify away from Taiwan.

Meanwhile, the US’s friendshoring strategy could support the development of production capacity in Southeast Asian nations like Vietnam, Thailand and Malaysia. India, too, may also become an increasingly important location in future, Chan predicts.

For now, however, Taiwan remains a critical hub, driven in part by demand from key computer manufacturers and data storage centres. TSMC, which counts major tech firms such as Apple and Nvidia as its clients, is a dominant player, with Taiwan also home to other major producers including United Microelectronics Corporation. South Korea remains key because of Samsung’s influence.

And despite heavy sanctions imposed by the US, Shanghai-based Semiconductor Manufacturing International Corporation (SMIC) has grown its business on the back of domestic demand to become the third largest foundry by sales for the first time at the start of 2024.

But increasingly Singapore is becoming an important hub in the APAC region, Chan notes. “There’s a reason for Singapore and not Taiwan or Hong Kong – they’re afraid of geopolitical tensions. Even though Singapore is an expensive place to be, their cargo is expensive too… that cost is worthwhile to minimise the risk.”

Singapore also has a more extensive air cargo network than neighbouring countries like Malaysia and Indonesia, which means shipments can be quickly and securely moved.

The value of data

Away from sanctions and incentives, there is another key area where policymaking is influencing semiconductor supply chains: data.

Increasing numbers of data centres are being built globally, often in clusters, which capitalise on the benefits of more computing power in one location as well as stable, cheaper power.

But data sovereignty regulations brought in by legislation such as the General Data Protection Regulation (GDPR) in Europe, for example, restrict what information can leave a country. This is creating growing demand for data centres within a country’s own borders.

“There are certain things that can leave a country and then certain things that can’t,” says Chan. “This means data centres are like a utility – and you have to have subsets of the main thing.”

From a logistics perspective, a reliable logistics system with strong connections into key hubs as well as local expertise will become increasingly important to service the technology needs of individual countries.

The interplay of geopolitical tensions, technological advancements and shifting production hubs presents both challenges and opportunities to the semiconductor value chain.

Logistics companies that can offer comprehensive, end-to-end solutions – from air freight capacity to strategically located warehousing – will be best positioned to support the industry's growth.

The chips may be small, but their impact on global trade and technology is immeasurable, making the role of logistics in this sector more crucial than ever.