The lighting supply chain, like many industries, is largely globalized and vulnerable to macroeconomic shocks, such as tariffs and the COVID-19 pandemic. These disruptions highlighted vulnerabilities for manufacturers.

In the lighting industry, shipping delays and component shortages, such as semiconductors used for electronics, and notably LED drivers, have extended lead times and affected product availability. By the end of 2020, 11% of building contractors surveyed by the U.S. Chamber of Commerce for its Q4 2020 Commercial Construction Index reported electrical product shortages (except copper wire), and 10% reported lighting product shortages. Electrical and lighting products dropped out of the top three in the Q1 2021 report, but troubling signs remain.

During this period, a number of major U.S. LED product manufacturers announced price increases ranging from 2%–8% on LED luminaires and up to 9% on LED drivers. They justified these increases by citing higher shipping costs, unstable logistics, raw material shortages, unfavorable exchange rates and supplier price increases.

Respondents to the National Electrical Manufacturers Association’s July Electroindustry Business Conditions Index all touched on lingering supply chain woes in one form or another.

It is worth understanding how the lighting supply chain has changed over the past decade. In March 2021, the U.S. Department of Energy (DOE) published “2020 LED Manufacturing Supply Chain,” which characterized the global manufacturing supply chain for LEDs and LED products. The report looks at its economic impact in the United States, the impact of macroeconomic shocks such as tariffs and the pandemic and opportunities for more domestic manufacturing.

How the process works

The LED product manufacturing process starts with the LED die or chip, which is typically mounted in packages that include phosphor material for conversion of the LED emission into white light. The packages are then mounted on a printed circuit board for integration into a lamp or luminaire along with optics, heat sink, driver, housing and any control devices such as sensors. These processes consume a variety of materials. LED product manufacturing has become fairly diversified with specialist companies.

DOE found that LED die and package manufacturing is dominated by Asia as a low-cost manufacturing hub, with LED lamp production concentrated in China. LED luminaire manufacturing is geographically diversified; the United States is home to a large number of these manufacturers. In 2019, the U.S. LED luminaire market was estimated at about $10.2 billion.

DOE evaluated a typical LED 2x4 troffer as a representative commercial luminaire and broke down its cost. As LED package costs have fallen considerably, DOE estimated it to be around 5% of the troffer’s total product cost in 2020, compared to 33% in 2014, with an extra 10% for the printed circuit board. The remaining value is in the optics, driver, housing, etc.

Overall, DOE estimated that 75% of the value in an LED troffer goes to the U.S. economy and 25% to foreign. Value added by engineering, design and shareholder profit, adding an average 25% markup, increased the contribution to the U.S. economy to 89%. Analyzing each segment of the lighting supply chain and inherent demand in the U.S. market, DOE assessed that the LED luminaire market represents the biggest opportunity for domestic lighting manufacturing.

Disrupters

Two big macroeconomic events disrupted the supply chain recently. In 2018 and 2019, the Trump administration imposed tariffs on certain goods originating in China, including LED packages and LED luminaires. The 5%–25% cost increase was passed on to U.S. customers. To avoid the tariffs, some manufacturers of intermediate components (e.g., light engines) moved manufacturing from the United States to Mexico.

The second big event, of course, was COVID-19. During the first 6–9 months, manufacturers reported supply chain disruptions, including shortages and delays, declines in sales and demand, and a mix of inventory shortages and surpluses. A shortage in LED packages, materials and driver components resulting from manufacturing shutdowns in China resulted in swift, major impacts to the supply chain. As the pandemic progressed, a significant drop in demand and attendant drop in sales steadily rose in importance.

DOE cited high-end LED luminaires as major opportunities for domestic manufacturing. These products require quick lead times but can be maintained in low inventories. They include niche products such as UV and human-centric lighting, and additive manufacturing (3D printing) or other innovations. The latter offers dramatic potential to streamline the supply chain, though it is currently used primarily for prototyping due to cost and materials efficiency.