The Role of Custom Chemical Manufacturing in Today's Highly Challenged Automotive Value Chain

Fine and specialty chemical manufacturers are facing a series of challenges in maintaining regular production schedules.

This article looks in turn at three of those challenges: the shortage of integrated circuits (ICs), epoxy resin disruption and chronic logistical issues.

Shortage of Integrated Circuits

A variety of factors have led to the present worldwide disruption in the supply of integrated circuits, including:

  • Pre-pandemic changes in the demand for integrated circuits
  • Continuing pandemic effects e.g. manufacturing delays and logistical disruptions triggered by factory shutdowns
  • The recent fire at Renesas’ Tokyo chip manufacturing plant - Renesas supplies approximately 30% of the market share for microcontroller unit chips utilized in a range of vehicles

Hands in gloves hold chip testing microelectronics. Setting operating modes electronic controllers. Use chip tuning to increase power. Repair microprocessor  electronics electrical equipment.

Image Credit: CABB Group GmbH

Significance to Industry

Integrated circuits are the foundation of a wide range of electronic technologies used in sectors as varied as computing, communications, energy delivery, healthcare and transportation.

Approximately 50% of the worldwide demand for integrated circuits originates in the United States, accounting for almost $200 billion in annual revenue and generating in excess of one million jobs.

Impact on Automotive Technology

The automotive industry is undergoing a paradigm shift in terms of technology, as new governmental emissions regulations see manufacturers transitioning towards electric-powered vehicles.

This has led established vehicle manufacturers, newcomers such as Tesla and industry start-ups to focus on the electrification of vehicles. The sector is also looking at autonomous vehicles as an option for reshaping the mobility market of the future.

It should be noted that traditional combustion engine vehicles remain part of this process, complemented by a range of innovations in safety technology such as adaptive cruise control, collision avoidance systems and sophisticated display systems.

What all these innovations have in common is that the technology underpinning them relies heavily upon electronic systems controlled by integrated circuits. 

Decisions for Automotive Assembly

The rise in demand for both technology-driven vehicles and the transportation infrastructure needed to support them has created a distortion in the automotive value chain.

Due to the shortage of integrated circuits, Toyota, Honda, Volkswagen and other manufacturers have downscaled production lines, with around one million vehicles lost to delayed production in the first half of 2021 alone, according to IHS Markit.

While IHS Markit is optimistic that the industry will bounce back as the year progresses, the company states that the situation within the industry is “fluid.”

According to Fitch Solutions, the timeframe for this ongoing shortfall in integrated circuit chips could exceed initial predictions and continue up until the start of 2023.

How Fine Chemical Suppliers Can Help

While not in the spotlight, the fine chemical sector plays a vital role in relieving current disruptions to automotive assembly.

In addition to ramping up the production of critical raw materials for integrated circuits,  fine chemical manufacturers also support the output of other automotive electrical components including motors, relays, flexible and rigid printed circuitry, switches, sensors, wire and cable.

Fine chemical suppliers have experienced disruptions to their own supply chains, but continue to operate with an "all hands on deck" approach to maintain a steady flow of product to the many companies supporting automotive production.

Shortages of Epoxy Resins

The epoxy resin sector, providing another key ingredient for automotive components, has also been challenged. 

Concept of

 Image Credit: CABB Group GmbH

The recent rise in the price of epoxy resins is due to a variety of reasons beyond COVID-19 and the reopening of the world economy. These include:

  • Rising crude oil prices, leading to essential raw materials such as epichlorohydrin, solvents and phenols becoming more expensive
  • A series of explosions and fires at Asian resin manufacturing plants and the resulting re-examining of regulatory practices
  • The burgeoning logistical costs triggered by a shortage of containers and disruptions to shipping lanes
  • Cold weather events in Texas and the Gulf states in early 2021 leading to production shortages

Downstream Effects

According to Composites World, 64% of downstream manufacturers notified their customers of possible delays, while 41% chose to explore alternative supplier options and 38% explored alternative raw materials.

While the demand for composites, coatings and encapsulants for vehicle systems does not seem to be decreasing, neither are supply constraints. When asked, 27% of respondents were anticipating the supply chain would normalize in the next 16 weeks, but 41% were unsure when this would occur.

Container Shortages

Container shortages warrant an examination on their own right.

Early 2020 saw the COVID-19 pandemic impact global trade. It became apparent that factors such as reduced workforces and interruptions to supply caused by necessary travel restrictions could lead to container shortages, even though the effects were complex and hard to predict.

Ongoing issues around container shortages impeded freight shipping and led to increased rates. The fine and specialty chemical manufacturing sectors in particular have weathererd the effects of these shortages.

Multicolor shipping containers stacked high at a port.

Image Credit: CABB Group GmbH

Many shipping containers are presently being held at cargo ports or inland depots due to logistical logjams dating back to the beginning of the pandemic. This has led to the flow of goods being throttled by a number of factors:

  • A reduction in the number of vessels and inland connections
  • Unpredictable changes in buying behavior
  • A decrease in the number of available containers at the right locations
  • Port congestion
  • Carriers reducing fleet size and returning containers to leaseholders as COVID-19 leads to a decrease in demand

With containers either not in the right locations or inaccessible, the resulting container shortages have caused shipping rates to increase dramatically. 

CABB’s Response

CABB continues to operate in this ever-changing global landscape, focusing on providing premium services, shipping and fulfilling contracts in a dependable and time-sensitive way.

The company continues sharing information about the changes facing the custom chemical manufacturing sector in the short term and is on hand to help with customer concerns.

This information has been sourced, reviewed and adapted from materials provided by CABB Group GmbH.

For more information on this source, please visit CABB Group GmbH.


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