As we continue to navigate unprecedented global supply chain challenges, BorderStates is committed to keeping you updated regarding supply chain impacts,inflationary pressures and other market trends. We are working diligently toprovide you with the most current information possible, knowing this informationcould change at any point.
Supply chain challenges continue even as we see improvement in available freightcapacity, declining freight costs and softening commodity prices. Port operationsare stabilizing, and container costs are nearing pre-pandemic levels. Even asdiesel fuel prices remain elevated, trucking transportation costs continue todecline, and available capacity is at the best point in over two years. Mostcommodity prices continue to stabilize or have softened over the past 30 days.
While these actions are highlighting some positive news as signs of combattingthe highest inflation in 40 years, many challenges continue. Labor shortagesremain a significant challenge to material availability and manufacturing capacity.Unemployment and workforce participation remains at or near record lows, andjob creation continues even in the face of economic uncertainty. COVID-19 casesare rising again in China, and many large manufacturing hubs will be shut downtemporarily due to the Zero COVID policy. The country also announced it wasdoubling down on the restrictive policy this past week, suggesting that it would notend anytime soon. We are seeing more announced pricing increases going intothe new calendar year from suppliers than we anticipated after some price stabilitythe past quarter. The primary justifications and drivers are continued rising laborcosts, energy costs and capital investment costs due to adding capacity oronshoring production to mitigate future supply chain risks.
The October Consumer Price Index (CPI) report published this morning showing12-month inflation at 7.7%, a slight decline from the prior month, but remainingmuch higher than the targeted 2%–3% range. The Federal Reserve (the Fed)continues to raise interest rates, announcing an additional 75 basis point rate hikeat their meeting earlier this month. So far in 2022, they have announced six rateincreases with a funds rate between 3.7%–4.0%. It is likely these rate hikes willcontinue until inflation returns to a more normalized state. These actions willcontinue to slow demand in some markets we serve, like residential construction,but many customers in the commercial construction, industrial and utility segmentsare suggesting they will continue to push forward with their projects and workplansin the near term.
Average material lead times from our suppliers remain 85% higher than prepandemic levels across all products and markets we serve. We continue to see stabilization in several categories in the construction and industrial segments, while lead times in the electrical and gas utility segments continue to trend higher, up more than 150% from pre-pandemic levels. Utility demand remains strong asthey focus on grid hardening and resiliency, storm and wildfire mitigation, the transition to clean energy and infrastructure spending to support the electric vehicle (EV) transition.
Below are the top categories where we are seeing extended lead times andmaterial availability challenges. We continue to work with suppliers on theseissues and on alternate sourcing to mitigate risks, where possible. We say thiseach month, but early planning together as partners is critical. The better visibilityto your forecasts and needs, the more we can help you plan your business in 2022and beyond.
We continue to collaborate with our national carrier partners to understand trendsand impacts in the freight markets. We are seeing improvements in capacity andtransportation costs for both ocean and over-the-road logistics; however, labordisputes remain a significant concern in the transportation industry.
Commodities remain highly volatile due to economic slowing and uncertainty, the Russia-Ukraine conflict, global energy shortages and a slowing Chinese economy. Most core commodities have softened considerably over the past quarter with several at or nearing pre-pandemic levels.
Labor shortages and rising wages continue to be major concerns for driving supply chain challenges and inflationary pressures. The unemployment rate ticked up slightly to 3.7% in October, up from 3.5% in August. Labor participation — the number of eligible people participating in the workforce — was flat at 62.2% in October and remains near 40-year lows. This rate means there are nearly three million fewer workers participating in the work force in the United States today than before the pandemic.
The Bureau of Labor Statistics released the October CPI report showing 7.7% inflation over the past 12 months, down from 8.2% in September. The number of U.S. job openings increased to 10.7 million in September from 10.3 million in July, but 1.7 jobs remain available for every unemployed worker. While unemployment is rising and some market segments are experiencing layoffs, finding labor for manufacturing and warehouse jobs remains extremely challenging and will continue to create inflationary pressures on wages.
While we continue to see some areas of the supply chain normalizing in the face of economic uncertainty and slowing demand in some segments, we continue to face significant 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.
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