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UPDATED 3.15.2023 – 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

We continue to see improvement in several aspects of the global supply chain, but the overall system remains fragile. Freight capacity with ocean and trucking carriers continues to stabilize, and freight rates have normalized to near or, in some cases, below pre-pandemic levels. Diesel fuel prices remain at historic highs but have continued to soften over the past four months. The major risk in the transportation sector remains the risk of labor stoppages due to ongoing contract negotiations. Lead times continue to improve across most market segments, and we are seeing continued improvement in order fill rates. Commodity prices remain volatile, but most prices remain well below pandemic highs over the past three years. We continue to see considerable slowing of announced price increases in all market segments as inflation slows, commodities and transportation costs soften and with continued economic headwinds.

While we continue to see notable improvement, several challenges continue. Unemployment and workforce participation remain at or near record lows, and job growth continues even in the face of economic uncertainty. Right now, there are not enough people to fill jobs, including in the manufacturing and distribution sectors. Strong demand growth in some segments, like electric and natural gas utilities, continues to strain the supply chain and product availability in many categories. Some raw material and subcomponent shortages remain major global risks, including semiconductors chips, semiconductor-grade neon, electric grade steel used in transformers and EV products, and black carbon used in cable shielding/jacketing.

We continue to monitor the supply chain impacts from last month’s devasting earthquake in Turkey. While the damage to railways, ports, roadways and manufacturing facilities was significant, we believe the overall impact to our industry will be minimal. Turkey is located between the Black Sea and the Mediterranean Sea and is a critical waterway for ocean container traffic in Eastern Europe. Turkey’s largest exports include iron and steel (sixth largest exporting country by volume), motor vehicles and machined vehicle parts, electrical equipment and refined petroleum. We know some cable manufacturers have capacity in Turkey, but, to our knowledge, the disruption is minimal on these facilities as they were not in the impacted zone.

On March 10, the Silicon Valley Bank, which is a Santa Clara, California-based lender that catered to the tech industry, collapsed after suffering an old-fashioned bank run. While the most direct impact of the collapse is on the technology and start-up community that relied on the bank, there is the potential for further downstream impact with speculation that the collapse could cause the Federal Reserve (the Fed) to ease further interest rate hikes

The Consumer Price Index (CPI) Report was released this week, which showed inflation slowing for the eighth consecutive month, but it remains 6% higher year over year. The Fed meets on Wednesday, March 22, and is expected to raise interest rates again, with an expected increase ranging from 0.25 percentage points to 0.5 percentage points. These actions and anticipation of additional rate hikes in May and June will continue to create economic uncertainty, the potential for slowing demand and further risk of global recession. We anticipate that ongoing rate increases will occur until inflation normalizes in the 2%–3% range, with predictions of the Fed Fund rates reaching 5.25%–5.50% in 2023. These rate decisions will continue to impact demand in many markets we serve, but we continue to hear from several customers, such as utilities and large contractors, that they are not slowing their workplans and have large backlogs that have built up over the past three years.

Material Lead Times

Lead times continue to improve in several market segments. Average lead times across all market segments we serve remain elevated over 70% higher than levels in April 2020. While lead times over the past month have ticked up from January, the overall trend in most segments suggests improvement compared to the peak at the end of last year. The segment of greatest concern remains the electrical utility segment with average lead times currently 175% higher than pre-pandemic levels. This is driven by continued supply chain challenges, strong infrastructure spending based on government funding, grid hardening and resiliency efforts, and supporting the transition to green energy and electrification.

The good news for the supply chain is that while lead times remain extended, they continue to be less volatile. Lower volatility with lead times allows us to plan our inventory and serve our customers more effectively.

Below are the top categories where we are seeing extended lead times and material availability challenges. We continue to work with suppliers on these issues and on alternate sourcing to mitigate risks where possible. We say this each month, but early planning together as partners is critical. The better visibility to your forecasts and needs, the more we can help you plan your business in 2023 and beyond.

Impacted Construction/Industrial Categories

  • Distribution equipment: circuit breakers, load centers, panels, switches
  • Wiring devices and wall plates
  • 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
  • Pad-mount switchgear
  • Fiber optic cable and category cable
  • Anchors and pole line hardware
  • Fiberglass box pads, enclosures, pedestals, splice cases and hand holes
  • Transmission insulators and related hardware
  • Guystrand
  • Underground cable accessories
  • Gas pipe
  • 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 are seeing improvements in capacity and transportation costs for both ocean and over-the-road logistics; however, labor disputes remain the biggest potential risk in the transportation industry. Baring labor stoppages, we believe transportation is a low risk for further supply chain impacts in 2023.

  • Ocean freight – Ocean container capacity continues to increase due to slowing demand and as supply chain bottlenecks unwind. Shipping container costs fell an additional 10% in January across all freight lanes and are down over 90% from pandemic highs. For some lanes, container prices are now below pre-pandemic levels. Year-over-year container imports into the United States were down 18% in January, and it is expected that import volumes will continue to decline over the next two quarters. The labor contract between the International Longshore & Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), which officially expired on July 1, has still not reached an agreement even while negotiations continue in earnest. A reminder that the ILWU is the labor union representing over 22,000 dock workers in 29 West Coast ports. The biggest negotiation points stalling the contract renewal are the push for additional port automation (such as automated guided vehicles, robotics and remote-controlled cranes) and increased employee benefits in targeted areas. While the ports remain fully operational, the longer these negotiations persist, the higher the risk of work slowdown or stoppage if settlements are not reached. We continue to see a rebalancing of freight traffic from West Coast to East Coast ports like New York/New Jersey; Savannah, Georgia; and Charleston, North Carolina, due to the risks on the West Coast.
  • Over-the-road (OTR) freight – Trucking availability continues to improve, and as diesel prices have declined over the past quarter, freight rates for all modes of trucking transportation continue to decline. Diesel prices remain at historic highs but are well below the 2022 average of $5 per gallon and down 16% since November. Declining fuel prices are a result of continued slowing of trucking demand and warmer winter weather creating excess supply. One area of ongoing risk is fleet replacement and maintenance. Lead times on class 6, 7 and 8 trucks remain extended as manufacturers work through backlogs and ongoing supply chain issues (e.g., semiconductors). Many trucking companies and logistics companies will see aging fleets over the next two years due to replacement lead times, which may cause ongoing reliability and availability challenges. According to DAT Freight & Analytics, for flatbed trailers, it is estimated that there are now 14 loads for every trailer on the road — down from 97 at the peak in May 2021, but up 17% from last month. For enclosed vans there are an estimated 2.5 loads per truck on the road, down from 7.5 at the height of 2021 and down 17% from January. The national average cost per mile for a spot rate flatbed in December was $2.72 per mile, flat over prior month but down 20% over the prior year. The national average cost per mile for a spot-rate dry van last month was $2.21 per mile, down 2% over the prior month and down 27% from the prior year.
  • Fleet Electrification — Border States continues to develop our strategy around the utilization of electric vehicles in our fleet in support of our objective to reduce carbon emissions by 50% by 2030. While today’s battery technology does not support utilization of electric vehicles in all use cases within our fleet, there are some specific applications where electrification makes 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.

Raw Material (Commodity) Updates

Economic slowing and uncertainty, global energy shortages, the Chinese economy, the Russia-Ukraine war and most recently the collapse of the Silicon Valley Bank have been driving factors in continued volatility across commodities. Although continued volatility is expected, most commodities have softened considerably from pandemic highs.

  • Copper – While we saw copper pricing hold steady, averaging $4.09 in February, continued volatility is expected. Historically low inventories, concerns of lower supply and softening of the dollar continue to be contributing factors as they relate to the volatility and uncertainty in copper’s price. In addition, the ongoing protests in Peru, which is the second highest copper-producing country behind Chile and accounting for 10% of global supply, is causing supply disruption and the potential of triggering a further surge in prices. Peru’s current disruption rate, or the amount of supply lost versus forecast, was almost 12 per cent versus the 2022 global copper supply rate of 6.3 per cent. The Chinese economic recovery and the electric (EV) transition in the automotive industry continue to drive the increased outlook of global copper supply requirements. It is estimated that global copper requirements will increase from 25 million metric tons (mmt) today to 50 mmt by 2035, which will require significant capital investments in new opening operations and older mines to increase output.
  • Aluminum – Aluminum prices are up 1% at $1.41 per pound since the beginning of 2023, but down 40% from this time last year. While prices are down from record highs last year, many factors continue to contribute to the ongoing potential for volatility. Higher energy costs continue to limit output, with energy accounting for 25%–50% of the cost of manufacturing. In addition, speculation that rising Chinese demand will tip the balance against tight supply levels and the administration’s latest push for sanctions on Russian metals, raising the import tariff on Russian-made aluminum to 200% to put pressure on the country to end the ongoing war, are the many contributing factors to a potential rise in aluminum costs.
  • Steel – Steel pricing remains up significantly from August 2020 lows, with month-over-month increases on both hot rolled (16%) and cold rolled (6%). Steel vendors have had to deal with some self-inflicted increases to support additional maintenance and taking blast furnaces offline, further exacerbating the concern of steel shortage and offsetting some capacity gains in the southern United States. The potential for economic slowdown and concerns around the global supply of electric grade steel remain a concern. With only one viable U.S. supplier of electrical (or silicon) steel today, our country will continue to rely on imports to fulfill the manufacturing needs to support the electric industry and electrification of the automotive industry.
  • Crude Oil – The Brent Crude — the global oil index — fell 4.6% to $78.96 per barrel, reaching its lowest level since January. The West Texas Intermediate (WTI) — the benchmark for U.S. oil — fell to under $74 per barrel this week, down 6% over the prior month and down from over $100 per barrel this time last year. Concerns that the financial system may become unstable following the collapse of the Silicon Valley Bank have compounded previous volatility driven by slowing demand, economic uncertainty and ongoing geopolitical concerns and the European Union’s (EU) ban on Russian oil product exports that began in February.
  • Resins — The trend in resin pricing for the first quarter of 2023 saw slight increases but has overall remained fairly flat. Contributing factors include slowed domestic demand (resin producers reduced operating rates to 70% capacity in January) and volatile prices of key feedstocks, like Ethylene. Production remains strong with good inventories available and stabilized lead times. While catastrophic for the residents of East Palestine, Ohio, the vinyl chlorine monomer (VCM) spill, which was the result of the train derailment in early February, is not anticipated to have a measurable impact on the supply or price of PVC, as VCM is a key ingredient.
  • Lumber — Lumber prices have declined, countering the January price jump driven by better-than-expected housing starts to kick off 2023. Prices are expected to remain volatile as demand ticks up into the spring and lumber inventory remains lean. Lumber prices will be heavily impacted by the Fed’s decision on continued interest rate hikes, which could continue to slow housing starts in 2023.

Labor Challenges and Inflation

Labor shortages and rising wages have continued to be one of, if not the most significant contributors to supply chain shortages and inflationary pressure in our industry. The unemployment rate ticked up to 3.6% from 3.4% in February with the U.S. economy adding 311,000 jobs last month, according to the Bureau of Labor Statistics report. While this is a pullback from January’s job report, where 504,000 positions were added, the net jobs added were still significantly higher than predicted, which is likely an indicator that the Fed will continue to raise rates in the March session. Labor participation, which is the number of eligible people participating in the workforce, remained fairly flat at 62.5%. While the leisure and hospitality sector accounts for one-third of the jobs created last month, the construction industry also continued to add jobs, marking 12 months of employment growth as they work through existing backlogs that have grown over the past two years. Manufacturing, transportation and warehousing employment all recorded job losses. Average hourly earnings rose 0.2% last month after gaining 0.3% in January. While most sectors experienced a slowdown last month, wage growth remains above average.

What We’re Doing to Help Our Customers

While we continue to see improvement in our supply chain, we will see ongoing challenges and pressures across all core markets we serve. We believe that it will be years before the supply chain fully stabilizes, and we may never fully return to the “just-in-time” world seen prior to the pandemic.
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.