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.
We continue to see varying degrees of supply chain improvement across the core markets we serve (construction, industrial and utility). Ocean freight rates and transit times have stabilized as carriers have adjusted to ongoing environmental and geopolitical issues in the Panama and Suez Canals. Fuel prices remain elevated based on declining global reserves, continued OPEC+ production cuts and ongoing geopolitical risks in the Middle East and Russia. Lead times remain elevated but are improving at a varying rate by market. Most commodities continue to show signs of softening, although ongoing volatility and unpredictability is expected. We are seeing fewer price changes announced from suppliers based on continued economic uncertainty and slowing demand, softer raw material costs and lower freight costs.
The Federal Reserve (the Fed) has worked to drive down inflation for two years by raising interest rates 11 times between March 2022 and July 2023. Despite these efforts, inflation rose unexpectedly in February to 3.2%, which is below inflation’s peak of 9% in June 2022 but still above the Fed’s targeted 2% level. The Fed is set to meet again on Tuesday, March 19 and Wednesday, March 20, and, while no adjustments to interest rates are expected, many will be carefully analyzing the revised economic forecasts from this meeting and potential impacts to a previously predicted decrease in June. The longer inflation keeps rising, the less likely the Fed will lower interest rates. The Labor Department cited gasoline and housing for the increase in February, saying those two indexes accounted for 60% of the month’s increase. The CPI core index, which includes volatile food and energy prices, saw a 3.1% increase over the past year, which is a 1.9% decrease from this time last year.
Material lead times in February continued their downward trend. Overall lead times since January 2023 have decreased 20%; however, they remain above more than 40% above pre-pandemic levels. All core markets have seen decreases, including the utility market, which has seen the most significant impact.
We continue to collaborate with our national carrier partners to understand trends and impacts in the freight markets. Overall freight capacity remains strong with increasing stability both in ocean and over-the-road transportation.
We continue to monitor both situations accordingly, but the market is now accounting for these situations in their capacity, making transit times more stable and predictable. We also continue to monitor the potential labor situation with the International Longshoremen’s Association (ILA) — the union representing more than 70,000 dockworkers in Gulf and East coast ports — after their announcement that if a renewed labor deal was not reached prior to expiration in September 2024, they would strike. This risk follows the 2022/2023 ILWU and PMA labor negotiations across 29 West Coast ports, which reached resolution this past summer. We continue to monitor this situation closely and how this may elevate supply chain risk.
While most raw material prices have held steady or seen some softening, there are many factors (interest rate decisions, geopolitical events, fluctuating supply/demand, tariffs) that impact and play a role in pricing, availability and potential volatility of commodities. While each commodity is impacted differently, we anticipate the potential for continued ups and downs based on these factors.
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The U.S. labor market added 275,000 jobs in February, which exceeded expectations and outpaced January’s gains of 229,000. The labor market remained strong despite interest rates, inflation and slowing economic indicators. Although more jobs were added than expected, other factors suggest some cooling. Payroll gains for December and January were revised down, the unemployment rate increased to 3.9% and wage growth was less than expected. With the unemployment rate rising to a two-year high and a much weaker rise in wages, there is less concern from economists that the apparent strength of the labor market will drive inflation higher again
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 2024.
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.