The semiconductor shortage is a growing problem impacting industries from automobiles to construction equipment. Over the past few decades, our machines have become “smarter”, which means they require a great amount of electronics and sensors to operate. The increased dependence upon technology exposes the construction equipment supply chains to hiccups in technology supply chains.

Semiconductor demand is very sensitive to economic growth. It historically has grown by much more than 3 per cent. The strong economic recovery over the past year has resulted in higher demand for semiconductors.

However, global manufacturers who are unable to procure semiconductor chips are forced to stop production. Used prices for construction equipment have increased over the past year as a result of higher commodity prices and strong economic demand. We could see an incremental step higher over the next twelve months as a result of semiconductor shortages impacting new machinery production, as well as higher input costs (steel, copper, etc).

Caterpillar Inc. is warning of potential impacts ahead due to a global chip shortage, putting a damper on better-than-expected earnings for the world’s biggest maker of mining and construction equipment.

Caterpillar joins some of the world’s biggest automakers and tech giants in highlighting the impacts of a chip shortage that’s already caused Honda Motor Co. to halt output at Japanese plants and Apple Inc. and Samsung Electronics Co. in flagging production cuts and lost revenue.

Deloitte Global predicts that many types of chips will still be in short supply throughout 2022, and with some component lead times pushing into 2023, meaning that the shortage will have lasted 24 months before it recedes, similar to the duration of the 2008–2009 chip shortage.

While the shortage will endure through 2022, it will be less severe than in fall 2020 or most of 2021, and it will not affect all chips. In mid-2021, customers were waiting between 20 to 52 weeks for multiple kinds of semiconductors, causing manufacturing delays or shutdowns which led to revenue losses in the tens or even hundreds of billions of dollars. By the end of 2022, Deloitte Global predicts those lead times will be closer to 10 to 20 weeks and that the industry will be in balance by early 2023.

All farm and construction equipment manufacturers could face similar downtime challenges if supply chain problems persist. This could result in longer delays for new equipment shipments, as well as higher used equipment prices.

There is no easy solution to the semiconductor shortage. Many industries are competing for the same chips — automotive, aerospace and defense, off-highway equipment, consumer electronics (computers, TVs, etc), industrial robotics, and more. The panic is resulting in hoarding, which further tights the market.

We hope the situation will ease in the near future, but for now, it looks like the tight environment will persist for at least another year.