The Future of Semiconductor Freight
The Future of Semiconductor Freight
Transporting Tools Isn’t Easy
Every time I visit a fab, especially one on the leading edge, the one constant is having all these super expensive tools jammed in together. Etch, lithography, ALD, metrology, and hundreds upon hundreds of automated FOUPs shuttling around batches of wafers on that automated superhighway bolted to the ceiling. It’s been easy to gloss over the simple fact of how those tools got there. Many of the tools cost millions, or in the case of High-NA EUV, hundreds of millions, requiring it to travel in bits across many different cargo options.
Ordering one of these isn’t akin to ordering on Amazon. Semiconductor capital equipment, by virtue of the tool needing to print lines dozens of nanometers across, is sensitive. It’s not easily going to be thrown from the back of a delivery van, but similarly it’s not something that a simple freight company can handle. To be honest, it’s not really something I’d considered in terms of complexity – there are inherent risks with fab equipment shipping, from delays, to damage, to potential bad actors.
As part of a sponsored collaboration, I’ve spent some time with Kuehne+Nagel learning how they do things to cater explicitly for the semiconductor market. Kuehne+Nagel is a global freight company, and they transport almost anything, but fab equipment gets a more delicate touch. That means dedicated centers with training every two years, verified partners in every step to ensure risk mitigation, and dedicated aircraft with the right capabilities to deal with a growth in demand for fab equipment. They’ll even overnight parts through their network, in case one is needed during a critical delay.
I spent some time with their team in Taiwan and London – and during the Taiwan trip I saw their aircraft that was flying in from the Netherlands (your guess on what the plane was carrying and to whom is probably a fun one). It was only on the ground for a hour or two, but as part of the collaboration we created a video explaining some of the details that go into SemiconChain – a dedicated fab equipment freight product.
As part of this, I did an extensive interview with one of the people behind the creation of a dedicated semiconductor freight platform. Barry O’Dowd is the SVP and Global Head of Semicon Business Development at Kuehne+Nagel, and aside from the clips in the video above, here is the transcript of our interview.
IC: Kuehne+Nagel is a seemingly massive company, but almost nobody I know has heard of you. Who, or what, is Kuehne+Nagel?
BD: Kuehne+Nagel is a long-established company with a 130-year history. We’re one of the world’s largest global freight companies and we manage the execution of transport on behalf of our customers across all types - air freight, sea freight and road.
Q: You say freight. I looked on the website and saw things like perishables and medical supplies. Do you ship anything, anywhere?
A: Yes, we ship everything everywhere. For particular markets, we have developed specialist solutions across certain industries that require extra care and attention.
Q: So, this is why I’m talking to you today because we now have an overlap. I’m in semiconductors, and now you guys are in semiconductors. What’s that about?
A: We identified the semiconductor industry as an industry that needed quality-based solutions. Semiconductors have a complicated supply chain, and the manufacturing of semiconductors is something that’s very capital-intensive. As a result, it’s absolutely essential that everything ticks the right box. Everything must work the first time around, and our objective is to provide specialist solutions to the entire semiconductor industry to ensure that that happens.
Q: So that’s a lot of words to say we ship semiconductor stuff around the world, but is it more than just shipping?
A: It’s about arranging the movement of goods with specialist providers. This equipment needs to be shipped in a careful way - sensitive manufacturing tools needs to be handled in a particular way. It needs to be handled in a way that can deal with the sensitivity and ensure that the vibrations or other risk elements that might damage goods are minimized. This means while it's being trucked on the road, while it's being handled at the transfer points at airports, and while it's being loaded onto an aircraft. We’ve put the controls in place with the appropriate training to make sure that those goods flow in a very smooth and efficient way.
Q: It's the companies that buy the semiconductor equipment that use your services. What benefit do they get that they wouldn't with, say, a standard three-letter shipping company?
A: For our customers, they know that when they're dealing with Kuehne+Nagel, they are dealing with a company that has gone to the trouble of making sure that everybody involved in the handling of the equipment has been trained appropriately. Our people have the skill set, and they have access to the suppliers that enable us to deliver as our customers expect us to. It's the specialist handling of the equipment that gives our customers the comfort that the goods will arrive intact to where they need to be. The equipment itself takes so long to develop that they can't afford for it to get damaged in transit. The impact can be very severe if something happens in transit.
Q: Right now it feels like we're going through a super cycle with semiconductor demand, particularly in AI chips. We've got every main foundry expanding new fabs in the US, Asia, and Europe. Where do you fit into all that?
A: We help these companies expand. We're working with many companies that have announced plans to open new fabs in many locations – including where there haven't been fabs of that scale (or those number of fabs) for many, many years. Our customers really want to focus on developing the fabs, ramping them up, and staffing them out with the appropriate staff. We want to make sure that their logistics is not going to be something that would hold them back. We want to ensure that they can ramp up the fab, get the equipment in, and ensure that all of the material they need is where they need it so that they can focus on the production.
Q: For this dedicated semiconductor capital equipment business that you now have - was that a result of inbound requests from customers, or was it a “we see a need, so we're going to develop it and hope the customers come”?
A: It was a combination of both. We talked to our customers and clients, The requirements they had to handle this equipment were very specialized. At Kuehne+Nagel, we like the situation where customers have such a specialized requirement, because it enables us to go and put our A-team in place to make sure that we can deliver as customers expect. We recognized the need, but only after hearing from our customers that they wanted such a service.
Q: How has that changed over time? As I said, we're in a super-cycle right now. This isn't something that spawned overnight.
A: At the moment, we have a super-cycle for the manufacturing of advanced semiconductors. That’s to meet the high demand for chips out there. A lot of that demand is satisfied from one location today – Taiwan, We're handling a lot of equipment for our customers to Taiwan to ensure that the demand can be met. We can see the demand for tomorrow is going to be much broader, and we need to ensure that we can support the deployment of fabs across many different geographies. Supply chains might become more complicated, and as supply chains become more complicated, they need companies that have a global network that can deploy the right kind of services to enable them.
Q: So when you say global network, a part of me thinks you're going to have a dedicated team in Amsterdam, in Schiphol. You're perhaps also going to have a dedicated team in Taipei. Where else?
A: Today, we are in 34 locations that we identified as key locations for the semiconductor industry. They're split fairly evenly geographically - 10 locations in North America, 10 in Europe (and Israel), and 14 in Asia. Those locations are not only where the semiconductor fabs are, but also where the semiconductor industry suppliers are. Us being close to the suppliers help our customers throughout the manufacturing process.
Q: You mean there are suppliers outside of Amsterdam?!
A: There are indeed!
Q: In this space, almost everyone is focused on the high-cost machines. These reportedly cost $100m to $350m, all coming out of ASML. How different is shipping one of those? Compared to shipping, say, just a standard etch machine from a different supplier?
A: They might be different in scale, and in packaging. The manufacturer may have its own packaging for shipping from the factory, and we provide extra support around that in freight. But if you're dealing with equipment that's in a second life, then it may not be packed with original packing - the requirements then are even more sensitive to make sure that the handling is absolutely spot on. The goods need to be handled without enduring any of the issues that might interfere with its quality - be that through vibrations, temperature or humidity.We need to work with everybody involved to make sure that transport is ideal.
Q: How much of your business is new equipment, compared to second-hand?
A: Today, the bulk of our business is in new equipment. But it’s not just new equipment – we also support the equipment throughout its life, such as in spares. There is a significant business out there in the second-hand equipment, and we've identified that as an opportunity. We are working with certain customers to support that.
Q: Does that make the creation of such a business a bit more complex with the second-hand equipment? This could be equipment which is 20 or 30 years old.
A: From a logistics perspective it's not that more complex, but we need to make sure that the appropriate licensing and documentation is there. Equipment has to get through customs, and also be packaged correctly so that we can handle it in the appropriate way. When you're dealing with OEMs selling new equipment, they tend to have an experienced team of support to make sure that everything is in place and expedite the process. When you're dealing with the secondary market, they tend to be companies that are a little bit leaner. We often have to work with them to try and make sure that the appropriate paperwork and packaging and everything else is done in the right way that the goods can be handled safely.
Q: Where are you seeing the biggest growth in demand for semiconductor freight right now?
A: The biggest demand is still in Asia. The biggest movement of goods continues to be the movement of equipment into Asia. I expect that there will be an increased demand for equipment to come into more Western locations, but the surge in demand for that has still not materialized. However, that is something that will happen - it's just a matter of time.
Q: When it comes to demand today, is it for finished product, or supplies?
A: I think we have demand across all areas. Equipment is an area that has the highest profile because it tends to be the larger of the two, and requires the most handling focus to ensure that it's delivered appropriately. Materials are obviously necessary to ensure that everything operates. The material supply chain is something that often is more of a sea-freight based supply chain, and that's something that tends to work at the moment without major issues. The finished goods supply chain is one that can be challenging because of unpredictable demands. This is an area that also requires specialized solutions to be able to ensure that we deliver for our customers.
Q: Your new product is SemiconChain – focused on semiconductor capital equipment shipping. How is that coalescing into a product, and what does that mean for an end customer?
A: We use the ‘-Chain’ terminology to identify where we, Kuehne+Nagel, have deployed something special. It signifies that we have done something above and beyond to ensure that we are providing a specialist solution.
In terms of the semiconductor industry, it meant that we had to undertake a significant training program with all of our people to make sure that they were trained in the semiconductor industry and all of the requirements of our customers. We had to come up with specialist documentation and processes to make sure that our operating procedures were the same across our network. We audited all of our contractors and all of our partners that we work with, to make sure that they understand what our customers are looking for and that we can deliver something that's solid and of high quality for our customers. After doing all of that, we have then gone out and audited all of the sites to make sure that everything has been done as we designed. This is what gives our customers the comfort in the knowledge that the quality that they're looking for can be delivered by us.
Q: Training is all well and good, but one of the factors here is risk mitigation. You and I have spoken about why things like the security of end products is important. Can you help clarify what Risk Mitigation in this context means? Is it just making sure stuff doesn't break?
A: Risk mitigation can be thought of in a number of different ways. One way that we do risk mitigation is to ensure that everybody involved in the supply chain collaborates together. We created a digital tool to help identify where the weaknesses are when products are being handled. If weaknesses are identified, then we enable alternatives to ensure that the goods can be handled correctly and our customer service will not be impacted. By developing a tool that brings everybody together in the chain, it enables our customers to be able to identify how resilient their supply chain is. Our customers can see how stable it is from point A to point B with all of the different actors that are involved in the complex movement of fab equipment. That knowledge is a key element of resilience that enables us to support our customers with what they need. At the other end, some finished goods can be very attractive to criminal elements. When goods are attractive to criminal elements, then we need to make sure that we take the appropriate measures to reduce the risk. We ensure that it is not widely known what goods are being shipped, where it’s being shipped, and who it’s being shipped to. Goods are handled by people who know how to handle the high-risk goods that are sensitive. This means not doing do silly things like stopping the truck in a risky area to take a break - rather ensure it’s parked in a secure area, etc.
Q: As part of the SemiconChain, you actually have your own aircraft. Can you tell me a bit about that?
Q: At Kuehne+Nagel, we are the world's largest air freight forwarder - but normally we don't ship everything on our own aircraft. We partner with all the airlines that are out there, such regular commercial airlines that you might use yourself, or freighter airlines.
However, the company took the opportunity to secure the last two 747 freighters that were delivered by Boeing. We knew there were certain customers out there that required a 747 freighter to ship their goods. We set out to develop a service for certain customers that require that aircraft. They fly on specific routes, and we operate that today. Part of the cycle that we operate with the 747s is a ’round-the-world’ service focused on the semiconductor supply chain to ensure that we have a reliable stable delivery for our customers.
Q: Does reliable mean next-day delivery?
A: It can absolutely mean next-day delivery. If we're talking about point A to point B direct, the flying time itself is less than a day. So, absolutely.
Q: Have you had any interesting challenges scaling up your operations so far? Have there been a unique customers with unique requirements?
A: Many customers have specialist requirements! There are some that have very demanding requirements, and for those we look at how we can provide a long-term solution. Customers need to have a secure supply chain that they know will operate for many years to come. They need to know that the supply chain will be able to support them for that long period of time, and for one customer, we ramped up a complex solution that we deployed. There were the usual challenges in deploying any large scale solution - but when you're operating two 747s with several flights per week, you can meet most of those challenges.
Q: Do you find that customers these days are looking for longer-term commitments with their freight needs, or are they needing individual one-offs?
A: It's a combination. Some customers are looking for longer-term solutions to ensure that they have security of their supply where the security of their sales are paramount. Other customers are looking to take advantage of freight rates as they become volatile, and are looking for individual solutions for individual movements. We work with both types of customers. We've also developed digital tools so that we can find the right type of flight that meets their individual requirements, with available capacity wherever that may be in the world. So we search for freighter flights, within a certain radius of where our customer wishes to ship, and by identifying the available solution, we can ship it closest to where it needs to be, enabling delivery and reducing the amount of handling in transit.
Q: Do you feel as if it's a very competitive space for Kuehne+Nagel to be in? Or is it the fact that this industry is growing at such a rate that everybody can grow?
A: We think it's definitely a space where Kuehne+Nagel brings something that's unique to the market. We had identified the semiconductor industry as a growth area, and clearly, that was one of the reasons why we wanted to increase our focus in the semiconductor industry. However, it was really the specialist logistics requirements of the semiconductor industry and the need for quality and reliability which is what attracted us to it. We have many strong competitors within the industry, but we also have a lot of confidence in the quality of our solutions. We believe that the quality of our solutions will grow over time as this supply chain grows.
Q: So why now and not 10 years ago?
A: We were in the business 10 years ago! But we didn't have the same focus on the industry. 10 years ago, there was a still a big transition in the semiconductor supply chain going east. At that time, a lot of the focus was on shipping high-tech goods from Asia. It was a little bit clouded in all of that huge tonnage being shipped out of Asia. Now, there's a very clear focus on the specific requirements of the semiconductor industry. We felt that the time was right when we looked at this a few years ago. We put it as part of our focus area - so much so that it's a key element of our Roadmap 2026, which is a core strategic initiative within the company.
Q: Is there anything special you have to do for North America?
A: We have deployed some experienced resources into North America - we have hired in expertise from within the industry as well as training our own people within the semiconductor industry. The US has been at the center of a lot of the semiconductor equipment anyway, so it is a very experienced semiconductor market. The fact is that there's going to be the return of a lot more semiconductor manufacturing fabs back to the US, and I'm sure that there will be challenges to scale that. However there is good knowledge within North America of how to operate semiconductor supply chains.
Q: Is there anything in the CHIPS Act, either in the US or the EU, that pertains necessarily to semiconductor freight, or do you get involved in any of those discussions?
A: No, there isn't anything that I'm aware of specifically from a freight perspective. But there are elements of the CHIPS act that want to ensure that the equipment and material come from friendly sources. That's slightly different from a logistics perspective - that's more from a governance and trade control perspective, but we have to ensure we’re compliant with our customer’s requirements.
Q: There have been repeated mentions over the last decade of tensions in Asia around semiconductors and semiconductor supply. Do any of those factors contribute to the development of a supply chain freight business for the area?
A: It doesn't impact it significantly. Logistics operates where the logistics needs are, and capacity is deployed to meet that. But as those needs change, the capacity will be adjusted to deal with that. As a service provider, we go where our customers require us to provide those services - we keep an eye on what those developments are to ensure that we have the capacity and resources in the right place, to be able to meet our customers’ requirements as they change.
Q: In our conversations, you mentioned that you're predicting to ship twice as much weight of semiconductor equipment as last year. Where does the roadmap look from where you're sitting? How's the growth vector?
A: It looks very strong. We expect to handle over 500 million Swiss francs of business annually by the end of our Roadmap 2026 period, so that will require significant growth again for the following years. There is a significant amount of growth expected in the semiconductor industry - but what is more significant is that as supply chains change, it presents new opportunities. We believe that we're well positioned to support our customers for those new opportunities in those new locations.
Q: Intel is expanding in many states in the US, Samsung in Austin, TSMC in Arizona, and growth in Ohio and everywhere else. How has the US part of the business expanded of late, and where is that going?
A: We developed 10 SemiconChain locations in the US due to that growth. You have your key airport locations where equipment comes in and goes out; we have to be there, obviously. However we also have to be where the customers are. You mentioned some of those locations that are key, but in addition, there are investments in upstate New York. So there is going to be quite a significant amount of development across North America.
As far as I understand it, the full CHIPS act budget has not been spent yet. There is another $20bn USD or so to be allocated to build out the semiconductor industry in North America. With the growth from the announcements that have been made already, if that’s going to go up by nearly a factor of 2 again, there will be a lot more development is to be expected. We want to make sure we have the network across the US to support that.