The technologies most exposed to the supply chain effects of the fuel shortage include laptops and smartphones. A display of laptop computers at a Costco warehouse in March, 2022, in Lone Tree, Colo.David Zalubowski/The Associated Press
Consumer electronics could be the first sector to feel the ripple effects as Asian manufacturers grapple with factory closings and a dwindling fuel supply, leading to higher prices and a more limited selection for Canadian shoppers.
Manufacturing in Asia has been especially vulnerable to fuel shortages since the United States and Israel attacked Iran in February. With more than 70 per cent of oil supply coming from the Middle East in some cases, many countries in the region face shortages of oil derivatives used in factories to make the plastics and other petrochemicals that go into almost every manufactured product, along with helium, a natural gas byproduct.
In March, countries from Thailand to the Philippines began incorporating new measures in response to the scarcity of fuel-derived products. These included work-from-home policies, directing civil servants to take the stairs instead of elevators, raising air conditioning temperatures or introducing four-day workweeks.
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While some consumer goods such as apparel are shielded from immediate supply chain shocks in the region by larger inventories and business models that rely on placing orders well in advance, the tech sector is more fragile, experts say.
“Crude oil derivatives feed manufacturing plants that produce plastics used in everything from televisions to circuit boards,” said Chris Mar, partner and national artificial intelligence, tech and data markets leader at PwC Canada.
The most exposed technologies are those with high semiconductor intensity and materials sourced across different regions, including smartphones and laptops, as well as data centre and telecom hardware, which underpin AI processing and storage.
But the effects also extend to the automotive sector. “Semiconductors and specialized plastics are essential components in modern vehicles,” Mr. Mar said.
Tech companies are more vulnerable to supply chain shocks partly because they depend on complex, integrated supply chains where one item relies on specialized components moving across the region. Another key factor is their reliance on “just in time” inventory management, meaning companies have less product on hand.
“Those are products that are really being almost made to order – they are so close to the actual purchase date,” said Tim Webb, a supply chain management consulting executive at KPMG. In some cases, “when you place your order online, that product often didn’t exist, it was still in parts.”
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Vietnam, a regional industrial hub that hosts manufacturing operations for companies supplying the likes of Apple and Samsung, along with garment multinationals, is bracing for oil shortages after gasoline prices rose about 30 per cent and diesel by about 40 per cent in the first weeks since the start of the war.
East Asia – Taiwan in particular – produces the vast majority of the globe’s semiconductors, used in everything from rice cookers to smartphones, and which rely heavily on helium in their manufacturing.
“Semiconductors are the heartbeat of all electronics,” said Saibal Ray, an operations management professor at the University of Waterloo, “whether it’s a laptop, whether it’s a computer, anything.”
Taiwan Semiconductor Manufacturing Co., which supplies companies such as Apple and Nvidia, relied heavily on helium from war-torn Qatar in addition to the United States. Its chief financial officer, Wendell Huang, said on an earnings call last week that the company faced rising costs from the Iran war but was prepared for now with inventory on hand.
Similar weaknesses are present in the automotive industry, with Canada importing more than $14-billion in vehicles from Japan and South Korea alone in 2025. “They order the product as late as possible, so that they can keep that off their balance sheet,” Mr. Webb said.
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While consumers in Canada are poised to feel the blowback of fuel shortages through higher prices for everything from electronics to vacations, pandemic-era shortages are unlikely. That’s in part due to disruptions taking longer to work their way through the supply chain for many consumer-goods sectors, but also the lessons gleaned from COVID-19 disruptions.
“If this isn’t resolved in the next six to eight months, that’s where we’d start to see it,” said Vinayak Madappa, retail advisory leader at Capgemini.
Canada’s supply chain has become more diversified since the COVID-19 pandemic brought global production to a virtual standstill. “Retailers are now carrying months of safety stock instead of weeks,” he said.
The challenges are also heavily on the supply side, rather than both supply and surging demand as seen early in the pandemic. “This is a fuel-driven disruption, not the kind of wholesale shock to demand, operational capacity and logistics that COVID was,” Mr. Madappa said. “The more likely short-term consumer impact is sustained price increases rather than empty shelves.”
North America can also stand to benefit by expanding domestic production, said Lance Mortlock, managing partner in industrials and energy at EY Canada. “There’s a great opportunity for us to grow manufacturing and the supply of chemical products on the North American continent and, maybe to some extent, that’s what the U.S. administration wants,” he said. “Maybe we want that in Canada as well.”