Chip buyers in Europe are paying more and tapping backup stores as Iran war hits air freight

The conflict in the Middle East affecting Iran is transforming into one of the biggest logistical challenges for the electronics industry since the COVID-19 pandemic. European companies buying chips and electronic components are forced to pay higher prices for shipments, while simultaneously tapping into inventory reserves they previously avoided. All of this stems from a simple but devastating reality: air routes through the Middle East, which served as the artery for electronics transport worldwide, have become too dangerous. Airports and ports in the region are falling victim to attacks, and cargo carriers are abandoning traditional routes. This causes not only delays but also a fundamental change in how the global supply chain functions in 2024.

The situation is particularly critical for European importers, who traditionally relied on fast air connections with Asia to maintain low inventory levels and efficient working capital management. Now this just-in-time strategy, which has dominated for the last two decades, proves unrealistic. Buyers are forced to predict demand months in advance, book more expensive transport, or wait weeks for sea routes that circumnavigate all of Africa. For the chips and electronic devices industry, where margins are already tight, this means a real business problem — and for consumers, it could ultimately translate into higher prices.

Air routes closed, prices rising

Traditional cargo transport routes through the Middle East, particularly through Bahrain, Dubai, and Abu Dhabi, represented the fastest and most economical option for European chip importers. A flight from Taiwan or South Korea to Europe took just a few days, and costs were competitive. Now these routes are practically inaccessible. Cargo airlines, such as Lufthansa Cargo or Air France-KLM Cargo, are limiting or completely suspending flights through the region, considering the safety of their aircraft and crews.

As a result, European companies buying chips must resort to alternative routes. Some of these are logistical havens — long, more expensive routes through Eastern Europe, the Caucasus, or northern Arctic routes. Each of these options comes with significantly higher transport costs, delivery times extended by 5-10 days, and above all — uncertainty. When the traditional route takes 4 days and the alternative 14 days, the difference in inventory management is enormous. European companies are forced to reserve larger quantities of goods in advance, which increases the risk of market changes and price reductions.

Air cargo transport prices have risen dramatically. While before the conflict, the price per kilogram of goods from Asia to Europe hovered around 3-5 dollars, it now reaches 8-12 dollars, and at peak moments even more. For a shipment of dozens of tons of chips, the difference amounts to tens of thousands of dollars. Importers must absorb this burden, and since the margin in the chip industry is small, pressure to raise prices for customers is growing. Particularly small and medium-sized companies, which lack the ability to negotiate with manufacturers, feel this shock the most.

Inventory warehouses as plan B, becoming plan A

Over the last decade, European electronics companies have aimed to minimize inventory. The lean manufacturing strategy and just-in-time supply chain allowed for reduction of storage costs and faster product rotation. However, this philosophy was based on the assumption that the supply chain is stable and predictable. The Middle East conflict changes this calculation.

Now companies are returning to an older approach: building buffer warehouses, particularly in Europe and Asia. European distribution centers, which previously stored inventory at levels of just a few days, now maintain reserves for 2-3 weeks. This means higher storage costs, a larger amount of frozen capital, and additional risk associated with product obsolescence — particularly in an industry where technology changes rapidly. However, the alternative, which is lack of access to chips at a critical moment, is worse.

Interestingly, warehouses in Asia, particularly in Singapore, Hong Kong, and Bangkok, are experiencing a boom. European importers, instead of ordering chips directly from factories in Taiwan or Korea, order them to warehouses in Asia, and from there transport them to Europe more slowly but more reliably. This is an additional step in the supply chain that was previously considered unnecessary, but now proves to be a strategic buffer.

Sea transport becomes a real solution again

Sea transport has always been an option for European chip importers, but in recent years was seen as too slow. A ship from Asia to Europe takes 4-6 weeks, while a plane takes 4-5 days. For an industry where time is money, this difference was decisive. However, now the dynamics are changing. When air transport is unavailable or 200-300 percent more expensive, sea transport starts to look reasonable.

European ports, particularly Rotterdam and Hamburg, are experiencing an increase in electronics shipments. Companies are ordering chips on ships instead of planes, which means they must predict demand with greater advance notice. This brings us back to the inventory problem — if you know that goods will be in Europe in 40 days rather than 4 days, you must plan purchases much earlier. For a dynamic chip market, where prices can change within a week, this presents a serious challenge.

Interestingly, some logistics companies are beginning to offer hybrid solutions: sea transport to Suez, followed by air transport to Europe. This is a compromise between time and cost, but even this solution is now more expensive and more complicated than before. All of this shows how the Middle East conflict not only directly affects transport but also changes the way we think about the entire supply chain.

Poland and Central Europe face an additional challenge

For Polish importers and electronics companies, the situation is particularly difficult. Poland, as an important hub for electronics production and distribution in Central and Eastern Europe, traditionally benefited from cheap supplies from Asia. Now that transport has become more expensive and more complicated, the Polish electronics industry must adapt. Companies such as component manufacturers, distributors, or systems integrators are experiencing increased logistics costs.

However, Poland has a certain advantage: geographically it is closer to traditional alternative transport routes. Some shipments can arrive through Russia (though this is of course complicated by the current political situation), or through the Caucasus, which makes them relatively faster than for Western European countries. However, this is a minimal advantage. The reality is that Polish companies also must build inventory and pay more for transport.

It is also worth noting that the Polish IT and electronics industry is strongly linked to the global supply chain. Companies such as equipment manufacturers, systems integrators, or even technology startups rely on imports of chips and components from Asia. The increase in logistics costs directly translates into higher prices for products for Polish consumers and businesses.

Big companies have an advantage, small ones will suffer

One of the most interesting aspects of the logistics crisis is how differently it affects different industry segments. Large corporations, such as manufacturers of computers, smartphones, or IoT devices, have the resources to manage. They can negotiate better transport rates, have access to alternative routes, can build larger inventory without hindering cash flow. Apple, Samsung, or Dell have diversified supply chains and can absorb the increase in costs.

Meanwhile, small and medium-sized companies — distributors, manufacturers of niche electronic devices, technology startups — are in a much worse situation. They lack bargaining power to negotiate better rates. They cannot build large inventory because it would require significant capital. For them, a 200 percent increase in transport costs may be unabsorbable. The result? Some of these companies may be forced to raise prices, reduce margins, or withdraw from competition.

This has great significance for the innovation ecosystem in Europe. Technology startups, which are the driving force of innovation, traditionally had access to cheap chips and electronic components from Asia. Now this access is more expensive and more complicated. This could slow the pace of innovation and entrepreneurship, particularly in countries such as Poland, where the startup ecosystem is still relatively young.

Long-term perspective: is this temporary or structural?

The key question that all players in the industry are asking themselves: is this a short-term crisis or a structural change in how the supply chain functions? The answer is probably somewhere in between, but with a tendency toward the latter scenario.

If the Middle East conflict ends quickly, transport through traditional routes will resume, and prices will fall. However, even in this scenario, the industry learns an important lesson: excessive dependence on a single logistics route is a risk. Companies will build diversified supply chains, maintain larger inventory, and be better prepared for future disruptions. This means higher structural costs that will not disappear even when the conflict ends.

On the other hand, if the conflict continues, more fundamental changes may occur. Companies may begin to localize electronics production closer to Europe to reduce dependence on transport from Asia. Europe is already investing in chip production (European Chips Act), but this is a long-term process. A more realistic scenario is increased electronics production in Turkey, North Africa, or other locations closer to Europe.

Regardless of how the conflict is resolved, one thing is certain: the European electronics industry emerges from this experience changed. The days of cheap, fast, and reliable transport from Asia may be over. Instead, we face an era that is more complex, more expensive, and more diversified. For Polish companies, which are part of this ecosystem, this means the need to adapt, invest in logistics, and prepare for higher operating costs. Competitiveness will depend not only on the ability to innovate but also on the ability to manage a global supply chain in times of uncertainty.