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News Article

A Global Reshuffle for Logistics and Key Component Manufacturing

By Cinthya Alaniz Salazar | Tue, 03/08/2022 - 19:03

Solar energy generation technology companies where blindsided by the overnight supply chain stress produced by the COVID-19 pandemic, which led to price hikes on input materials, variant outbreaks and shipping container bottlenecks. Like adjacent market sectors, solar companies, too, saw themselves obligated to adapt and learn to mitigate the risks in front of them. As industry leaders anticipate a return to pre-pandemic economic activity and fluidity, companies look forward to refining their processes and new market opportunities.

Mexico’s energy market came under considerable strain during the pandemic from both heightened end-user and industrial demand from a booming e-commerce sector. This stands to be further complicated by rising logistical costs, which are effectively undermining Mexico’s nascent solar energy sector. “The intersection of international and domestic logistical challenges has effectively put Mexico’s photovoltaics panels sub-sector on pause,” said Roberto Moreno, Director General, Solar Power Group.

Global interconnectedness has many recognized benefits, but it has also made companies more interdependent, which proved to be a challenge during the global pandemic. The COVID-19 pandemic, and now the Ukrainian crisis, have driven a dramatic rise in logistics costs, rising container costs from US$1500-US$1800 to US$14,000 just two weeks ago. This is on top of domestic logistical challenges such as tax disputes between national institutions and foreign market players, thereby straining and undermining a still-developing market sector.

As an international equipment manufacturer, Huawei relies heavily on the fluidity of supply chain mobility across the globe. The company prepared for potential disruptions and contemplated reactionary countermeasures but this proved to be ineffective given that the company could not anticipate where these disruptions would manifest along its supply chain. The most impactful challenge where COVID-19 outbreaks, which in one case slowed production down to a trickle and forced the company to push back on delivery times. Identifying that it needed better vertical visibility, the company organized its known inputs, assets and referenced market forecasts to calculate timeline estimates so that it could relay this information to clients. “Planning strategies allowed us to combat the lack of containers and increased logistics costs. We had to adapt to advanced demand models and adjust delivery times,” said Kevin Gutiérrez, Vice President of Inverter Business, Huawei Mexico.

Uncertainty was another factor hindering the market. Nevertheless, the pandemic fostered digitization, which will assuredly create a better return on investment in the long-term, according to Sergio Rodriguez, Manager Mexico & Latam, Solis. The energy plant project Solis had planned, meant to grow its productive capacity from 5GW to 20GW, was slightly delayed. Prioritizing local relationships with its global partners was key, especially as an internal exporter. To gain better control of costs, the company opted to discuss monthly, weekly and even daily demand of semiconductors, prompting the most demand and data-driven project  the company has led and a necessary one given how constricted the market had become. Moreover, the company also expanded its provider network to be able to complete its project said Rodríguez.

The logistical challenges that arose helped to drive innovation in the sector, forcing companies to think of creative solutions. However, it was the freshly approved solar projects that suffered, which were on the receiving end of price hikes as a result of higher input costs and logistical taxes. Still, some of the mitigating strategies that were developed culminated in a more efficient and productive operational process. This was the case for LONGi, a company that even managed to include volatility in prices within contracts, a previously unthinkable tool in the sector. “The process in still incomplete, but the pandemic has exposed fault lines that will become tomorrow’s business and operational standards. Demand has not fallen and as prices stabilize or destabilize, market players will be able to react based on wisdom,” said Ivan Reyes, Utility Director, LONGi Solar.

Cinthya Alaniz Salazar Cinthya Alaniz Salazar Journalist & Industry Analyst