text.skipToContent text.skipToNavigation

UPDATED 9.12.2023 – Impacts on Global Supply Chain Logistics

As we continue to navigate unprecedented global supply chain challenges, Border States is committed to keeping you updated regarding supply chain impacts, inflationary pressures, and other market trends. We are working diligently to provide you with the most current information possible, knowing this information could change at any point.

Supply Chain Brief

While many supply chain challenges persist, we continue to see ongoing improvement. Ocean container and truck capacity remains readily available driven by slowing demand and elevated inventory levels in many U.S. companies. Ocean container rates have normalized and remain at or below pre-pandemic levels. Even with YRC — the fourth largest LTL carrier in the United States — filing for Chapter 11 bankruptcy in August, LTL freight capacity and pricing remain relatively stable. While lead times remain elevated compared to pre-pandemic levels, and we continue to see variation by market, overall volatility continues to improve. Most commodities have shown signs of softening, although continued volatility and unpredictability is expected. Announced price increases from our suppliers also continue to decline due to slowing commodity prices and economic uncertainty.

While the Federal Reserve (Fed) has made significant progress through 11 interest rate hikes, inflation remains above their long-term target of 2% (the Consumer Price Index was at 3.2% at the end of July). Analysts are predicting that the Fed will pause another rate increase in the next meeting on Tuesday, September 19–Wednesday, September 20, with a higher probability of another hike later in the year. The U.S. job market has shown signs of softening in recent months, which is a factor in the Fed’s decision making. In August, employers added 187,000 jobs and unemployment rose to 3.8%, which is the highest since February 2022 as more workers return to the labor force. While these rate decisions will continue to impact demand in many markets we serve, we continue to hear from several customers, including utilities and large contractors, that they are not slowing their workplans, despite the impacts of interest rates.

Hurricane Idalia made landfall near the Big Bend region of Florida as a Category 3 storm on August 30. While the state did sustain damage from flooding and high winds, the toll was less than seen with other similarly sized hurricanes. This was due to several factors, including the eye making landfall in a more rural area, having a relatively narrow hurricane force wind field, it being a fast-moving storm, and a rapid decrease in intensity once landfall was made. While many of our key utility infrastructure material manufacturers assisted with storm response efforts, overall demand was not tremendous and impact to the supply chain is expected to be very low. Some impacts to orders and lead times for common storm response materials, such as poles, crossarms, overhead pole line hardware, conductor, etc., may occur, but these impacts are expected to be small and short-lived.

In addition to Idalia’s impacts, we are monitoring the status of Hurricane Lee, which intensified to a Category 5 storm early on September 8 as it moved through the eastern Caribbean. At the time of this publishing, it is not forecasted to make a direct hit on any of the Caribbean Islands. While it is still too early to definitively know if it will have direct impacts on the U.S. mainland, most forecasts predict the storm will turn north, weaken and avoid making landfall.


Material Lead Times

Lead times are beginning to show a trend of contracting by a few days throughout 2023 in all market segments but remain elevated compared to the April 2020 baseline by almost 70%. July to August saw average lead times in the electric utility segment and the construction segment increased by less than one day. Industrial and PVF/natural gas lead times remained flat when comparing month over month. While challenges still exist in some product categories, recent months have seen more consistency, which allows for more accurate forecasting and inventory management

Impacted Construction/Industrial Categories

  • Distribution equipment: circuit breakers, load centers, panels, switches
  • Fuses
  • Meter sockets and hubs
  • Automation products controls

Impacted Electric and Natural Gas Utility Categories

  • Wire and cable – 600V aluminum, bare overhead distribution and transmission, primary underground
  • Transformers, capacitors, voltage regulators
  • Padmount switchgear
  • Pole line hardware
  • Fiberglass box pads, enclosures, pedestals, splice cases and hand holes
  • Transmission insulators and related hardware
  • Guystrand
  • Underground cable accessories
  • Gas regulators
  • Excess flow valves
  • Meter risers and meter set assemblies
  • Bypass meter valves and bars
  • PE tap tees and line stoppers

Logistics and Freight Updates

We continue to collaborate with our national carrier partners to understand trends and impacts in the freight markets. We continue to see month-over-month improvements in transportation capacity and costs across the entire supply network. While some risks remain, we anticipate transportation networks and systems being relatively stable in 2023.

  • Ocean freight – Ocean container lead times and capacity remain stable month over month. Container rates declined by 5% in August after seeing the first increase in two years in July. Carriers continue to blank (cancel) sailings to
    stabilize pricing, but this has had minimal impact due to continuing soft demand. West Coast ports have ratified a new six-year labor agreement between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), but freight has continued to divert away from these ports. The ports of Los Angeles and Long Beach — the two largest ports in the United States — saw import volumes decline by 25% year over year, much of which is attributed to freight diverting to Gulf and East Coast ports and softening import demand from China. It is expected that the West Coast ports will get more aggressive and competitive in the coming months to win back business. According to the Drewry Container Index, global container costs across all global freight lanes are down 5% over the past 30 days. Prices remain 80%–90% lower than pandemic highs seen in 2021.
  • Over-the-road (OTR) freight – We continue to see good availability of trucking capacity and declining fright rates driven by slowing demand, inflated inventories in the United States and growing economic uncertainty. In August, we shared the announcement of YRC — the fourth largest LTL carrier, filing for Chapter 11 bankruptcy. Even with YRC representing 10% of U.S. LTL demand, the market has seen minimal capacity and pricing impact due to overall softness in the freight market. Multiple top LTL carriers are in the process of bidding to acquire YRC’s assets including 169 terminals and more than 50,000 tractors and trailers. Diesel fuel prices continue to rise, up more than 40% since May. The driver of these increases continues to be OPEC+ production cuts that have now been extended to the end of 2023. Prices are down from highs seen in June of last year but are now 24% higher than the five-year average. Even with rising fuel costs, trucking rates remain stable due to soft demand. According to DAT Freight & Analytics, for flatbed trailers, it is estimated that there are now six loads for every trailer on the road — down from 97 at the peak in May 2021 and down nearly 60% from last year. For enclosed vans, there are an estimated 2.8 loads per truck on the road, up 8%
    over prior month but down more than 20% year over year. The national average cost per mile for a spot-rate flatbed in March was $2.49 per mile, down 1% from prior month and down 14% over prior year. The national average cost per mile for a spot-rate dry van last month was $2.08 per mile, up 1% over prior month but down 15% over prior year.
  • Fleet sustainability — Border States continues to develop our fleet sustainability strategy, including utilization of alternative fuel vehicles (AFVs) in our fleet, in support of our objective to reduce carbon emissions by 50% by 2030. While today’s battery technology performance does not support utilization of electric vehicles in all use cases within our fleet, there are some specific applications where electrification make sense to support our customers and environmental objectives. We have our first electric vehicle in use and are gathering important data on use case and performance. We will continue to provide our customers updates as this strategy evolves. We are also in the process of implementing enhanced route optimization software that will significantly reduce the number of miles driven by our more than 440 fleet vehicles.

Raw Material (Commodity) Updates

In many areas, the production of commodities is continuing to outpace demand. As pandemic-high demand continues to stabilize, and with a slower than expected Chinese recovery, we have seen most commodity prices soften so far this year. Many factors play a role in commodity pricing (demand in China, fluctuating domestic demand, interest rate decisions, natural disasters/events, geopolitical events, etc.) and, while some of these factors are conflicting with the potential to drive prices up or down, continued softening is expected in most areas.

  • Copper – It is expected that more finished product will hit the market after Zambia has agreed to return control of the Konkola Copper Mines (KCM) to Vedanta Resources, which is a diversified mining company headquartered in London. The government, which owns a 20% stake in KCM, will allow Vedanta to resume control and operate the KCM mines and smelters after they agreed to invest more than $1.2 billion to increase output and repay debts. The ramp-up in production will likely not be immediate but has the potential to contribute to softening copper prices. Continued weak demand in China, the world’s top metal consumer, has offset any demand spikes in North America. China’s response has the potential to drive erratic prices (both up and down) on copper going forward. Copper levels continue to hover just below $4, with the year to date average now at $3.92
  • Aluminum – Aluminum costs have softened as demand slows and finished goods have become readily available. As mentioned in prior updates, magnesium, a key additive in aluminum production, continues to be the primary driver keeping costs above pre-pandemic levels. Aluminum prices are down 7% year over year and up slightly from July. Looking forward, China’s aluminum sector recently reached its domestic capacity limit prompting discussions around spreading additional production across Southeast Asia, with most centered in Indonesia. Some experts believe this expansion into Indonesia would lower prices as more production capacity comes online. These impacts would not be realized for some time depending on the speed of change, as regulations and oversight to environmental concerns around expansions are considered.
  • Steel – While China has started to take steps to boost their economy by lowering existing mortgage rates and implementing tax cuts for families with children and elderly relatives, they are still projected to miss their growth targets for this year by roughly 5%. Pending a more aggressive stimulus approach from China, continued softening and flattening of steel is expected. The microchip shortage and potential for additional interest rate hikes from the Fed are impacting the automotive industry, which has also contributed to declining demand and prices. Hot-rolled and cold-rolled steel saw price decreases of 8% from July to August.
  • Crude Oil – Saudi Arabia and Russia have extended their voluntary supply cuts by three months — to the end of this year, causing crude oil prices to hit a 20-month high. Brent crude futures rose to $91.08 a barrel and WTI (U.S) futures rose to $87.97 a barrel. In addition to the longer-than-expected extension of production cuts, Goldman Sachs’ probability of a U.S. recession starting in the next 12 months is now at 15%, down from an earlier forecast of 20%, which has increased oil demand in recent months.
  • Resins — Record-setting exports to Latin America, Asia and Europe have driven down excess resin and supported pricing levels maintained in recent months. Most of these exports have been directly to producers, prompting speculation around whether the material is being consumed or being stored for future sales. This increase in exports, combined with the potential impact of hurricane season on inventory buys and production, led to month-over-month PVC resin prices increasing by 3%, but down 37% when compared to the prior year.
  • Lumber — After reaching $597 per 1,000-foot board on July 10, physical lumber prices have dropped to $490 per 1,000-foot board on August 9. Interest rate hikes and their impact on the housing market and demand for new construction have been the primary driver of lumber softening. The loss of Canadian lumber sources due to the wildfires will impact the softwood lumber supply the construction industry uses for framing and plywood, but the true impact has not yet been realized and has been offset by slowing demand. There is the potential for continued risk and damage as wildfire season continues (typically ending in October).

Labor Challenges and Inflation

August’s labor market reflected the impact of higher interest rates and the Fed’s efforts to cool the economy with hiring remaining steady (187,000 jobs were added) and the unemployment rate rising (3.8%). Job growth figures from June and July were revised down by a combined 110,000 jobs, making the outlook weaker than it previously appeared. While gradual cooling in the job market is now visible, the August gain was still above the number of jobs required to absorb the flow of people into the labor force. Average hourly earnings rose $0.08, with a yearly increase of 4.3%, with wage growth topping at 5% last year amid sever labor shortages. The labor force participation rate, which measures the number of people seeking work or working, rose to 62.8% after seeing a steady 62.6% over the past five months, showing a slight shift of workers back into the labor force. Health care, leisure and hospitality, and construction industries all added jobs while transportation and warehousing lost jobs, which is largely reflecting the shutdown of Yellow Trucking.

What We’re Doing to Help Our Customers

While we continue to see improvement in our supply chain, we anticipate seeing ongoing challenges and pressures across all core markets we serve through the balance of 2023.

Even in the face of these ongoing supply chain resiliency challenges, we understand our customers’ work cannot stop — you are unstoppable businesses, and we understand the importance of maintaining your operations while managing your costs.

At Border States, we continue to invest in working inventories, maintaining emergency and storm response inventories in core markets and working diligently to justify that all price increases align with current market conditions. We are focused on more tightly integrating supply chains, improved forecasting and planning with customers and vendors and delivering better insights through technology to ensure your long-term success. Communication and partnership remain key in continuing to navigate the challenges.

Although we cannot control the global supply chain issues, we will continue to be transparent and straightforward with you about the challenges and work closely with our best customers and vendors to navigate these challenges together. If you have additional questions, please reach out to your Border States Account Manager for more information.