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UPDATED 2.13.2024 – 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 varying degrees of supply chain improvement across the core markets we serve (construction, industrial and utility). Ocean freight rates have increased more than 160% over the past 60 days, and transit times per sailing are up more than two weeks driven by ongoing environmental and geopolitical issues in the Panama and Suez Canals. While trucking capacity remains strong, diesel fuel prices are on the rise driven by improving economic sentiment, declining global reserves and continued political unrest in the Middle East. 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.

Officials from the Federal Reserve (Fed) had their first policy meeting of 2024 earlier this month, and held interest rates, marking the fourth consecutive pause since July. The stronger-than-expected labor market adds some complexity to the
Fed’s potential plans to lower interest rates this year. Fed Chair Jerome Powell said they want more confidence that inflation is surely defeated before considering a rate cut saying, “Inflation is still high … and the path forward is uncertain.” A strong labor market adds to inflationary concerns, indicating inflation may be slower to come down. Between Powell’s comments and other expert insight, it appears that a rate cut in March is now off the table. The next rate meeting is set for Tuesday–Wednesday, March 19-20.

The consumer price index (CPI), which measures the average price changes for commonly purchased goods and services, saw U.S. consumer prices increasing more than expected in January (0.3%) due to rising shelter and healthcare costs. This greater-than-expected increase further reinforces the likelihood that a rate cut will not happen in March, and possibly May. There are two additional CPI reports that will be published before the May committee meeting and, between those results and labor market trends, they will have an impact on a potential rate cut in May (which some economists are currently predicting). The producer price index (PPI), which tracks the wholesale selling prices that domestic manufacturers receive for their products and services, will be published on Friday, February 16.

 

Material Lead Times

Material lead times in January continued their overall trend of contraction, decreasing by 14% since January 2023. All core markets saw this decline in lead time reduction. While the utility market is still up since January 2023, over the last six months there has been a 12% decrease in lead time. Consistent lead time changes can provide more stability for inventory management and aid in the process of forecasting proper stocking levels.

Impacted Construction/Industrial Categories

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

Impacted Electrical, Natural Gas and Communications Categories

  • Wire and cable – 600V aluminum, bare overhead distribution and transmission, primary underground
  • Transformers, capacitors, voltage regulators
  • Pad-mount switchgear
  • Fiberglass box pads, enclosures, pedestals, splice cases and hand holes
  • Transmission insulators and related hardware
  • 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. While the over-the-road trucking market remains stable with competitive rates and strong capacity, ongoing environmental and geopolitical impacts continue to increase risk in the ocean freight market

  • Ocean freight – As mentioned above, ocean container rates are up more than 160% over the past 60 days with sailing transit times taking an average of two weeks longer. These impacts are driven by two global events:
    • Historic droughts continue in Panama, reducing the throughput of container ships through the Panama Canal by nearly 40%. This is causing considerable delays at the canal or forcing ships to take longer routes and the situation is not expected to improve for several months. Nearly 40% of all U.S. container traffic and $270 billion in cargo moves through the canal annually.
    • Growing attacks on cargo ships by Yemen’s Houthi rebels in the Bab al- Mandab Strait, which is a key waterway connecting the Red Sea and the Gulf of Aden through the critical Suez Canal. More than 30% of all global container trade passes through the Suez annually.

The number of ships avoiding both the Suez and the Panama Canals entirely has increased considerably since December, resulting in ships sailing around the Cape of Good Hope, adding an average of 4,000 miles per sailing. We continue to monitor both situations accordingly.

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 recent ILWU and PMA labor negotiations across 29 West Coast ports that reached resolution this past summer. We continue to monitor this situation closely and how this may elevate supply chain risk.

  • Over-the-road (OTR) freight – As demand remains soft, trucking capacity continues to be readily available for flatbeds and enclosed vans. Diesel fuel prices are on the rise as economic sentiment increases, global fuel and heating oil reserves are falling well below the 10-year average, and as OPEC+ continues to promise production cuts into 2024 representing 5% of global demand. The less-than-truckload (LTL) market remains stable following the August bankruptcy filing of YRC, formerly the third largest LTL carrier in the market. As shared in prior months, YRC — the formerly third largest LTL carrier who filed for bankruptcy in 2023 — continues to auction off terminal assets to several other top LTL carriers and will continue to liquidate all assets (facilities and fleet) in the coming months. January data shows Class 8 truck orders in the United States are up 35% year-over-year and +2% over December, suggesting the outlook for the trucking freight market looking forward is positive aligning with an improving economic outlook in 2024 and beyond. According to DAT Freight & Analytics, for flatbed trailers, it is estimated that there are now eight loads for every trailer on the road — down 34% from this time last year but up 60% over prior month. For enclosed vans, there are an estimated 2.7 loads per truck on the road, up 40% from prior month but down 10% year over year.
  • Fleet sustainability — Border States continues to develop our fleet sustainability strategy, including measurement of our greenhouse gas (GHG) emissions and utilization of alternative fuel vehicles (AFVs) in our fleet, in support of our objective to reduce our 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 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 with updates as this strategy evolves. More than 50% of our fleet will also have updated route optimization software installed by the end of our fiscal year. This investment will allow Border States to drive fewer overall miles in support of our emission reduction targets, in addition to providing our customers with better visibility to their deliveries in route.

Raw Material (Commodity) Updates

Ongoing geopolitical events, China’s economic outlook, interest rate decisions and fluctuating demand are factors that have impacted raw material price and availability to kick off 2024. While most raw materials have continued to see signs of softening, the impact of these factors will play a role in pricing, availability and potential volatility of commodities going forward.

  • Copper – Copper prices have declined in response to consumer prices in China, dropping 0.8% year over year in January, marking the country’s steepest decline in CPI since September 2009. This downward trend is a pivot from the end of January, when news that China was adjusting interest rates lifted copper prices. Looking forward, some analysts predict that copper prices could increase to reach record highs due to supply continued disruptions (like the closure of Panama’s Cobre Panama mine) and demand increases due to green energy transition projects.
  • Aluminum – Aluminum prices are down 14% when comparing January 2023 to January 2024, with demand continuing to soften as raw materials and finished goods have become more readily available. Despite this softening, the independently owned Magnitude 7 Metals LLC aluminum smelter in Marston, Missouri (the second-largest aluminum smelter in the United States), has announced that it would be curtailing its operations on January 28, as high energy costs have made operations financially unfeasible. The impacts of this closure have not translated to supply or price impacts at this point, but we will continue to monitor and communicate any changes.
  • Steel – Steel prices remain elevated, when comparing 2023 to 2024, with many steel suppliers continuing to have furnaces remain in maintenance mode, keeping additional supply out of the market to increase demand. In early February, the U.S.-based non-profit, Human Rights Watch, released a report claiming that some of the world’s largest car manufacturers are linked to aluminum allegedly produced with forced labor in China’s western Xinjiang region. Ensuring aluminum is ethically provided, the sale of U.S. Steel Corp, and the expected increase in global demand for aluminum are all factors to be watched, regarding potential disruption to the steel market.
  • Crude Oil – Ongoing geopolitical tensions, including air strikes in Gaza and Yemen’s Houthis attacks in the Red Sea, continue to contribute to uncertain demand outlook for crude oil. Despite a slight decrease month over month, these heightened geopolitical risks and potential supply concerns are poised to put pressure on prices.
  • Resins — Resin prices continue to show slight softening to little change with healthier inventory levels and softer demand. PVC resin prices were down slightly month over month and down 28% when compared to last year. Oil serves as an indicator for PVC, so there is the potential for price impacts based on significant changes to crude oil prices and demand.
  • Lumber — Anticipation that the Fed will not implement a rate decrease in March coupled with U.S. housing statistics (which serve as a measure for demand) declining month over month contributed to lumber prices dropping to around $550 per thousand feet benchmark — their lowest in two weeks. Supply has continued to gradually increase, with lumber production from top producer Canada rising 2.4% on an annual basis and demand remaining subdued.

Get our latest commodity updates directly to your inbox by subscribing to our Commodity Update Newsletter.

Labor Challenges and Inflation

The labor market added 353,000 jobs in January, far exceeding the expected gains of 187,000 jobs. December’s job growth was also revised up from 216,000 to 333,000. While 2023 job growth was primarily concentrated in healthcare, education and government, this first 2024 report saw more diversity in the industries adding jobs. The unemployment rate held steady at 3.7%, which marks 24 months below 4% (the longest time period since the early 1960s). Average hourly earnings rose 0.6% last month and are up 4.5% over the last 12 months. The labor force participation rate, which measures how many people are working or seeking work, remained at 62.5%.

While January’s labor market continued to show strength, it is expected that job growth will slow in the second half of the year. If unemployment remains under the historically low 4% range, then a tight labor supply would mean a strong market for job seekers and challenges for employers in recruiting. In response to the labor shortage, many employers are focused on retaining and retraining their existing talent.

 

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 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.