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UPDATED 6.9.2022 – Impacts on Global Supply Chain Logistics

As we continue to navigate the unprecedented global supply chain challenges, Border States is committed to keeping you updated regarding material lead time impacts, inflationary price 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

Supply chain challenges continue to be driven by the Russia-Ukraine conflict and pandemic-driven impacts, including the recent lockdowns in China, labor shortages and the highest inflation in 40+ years, which is driving unprecedented price increases. These challenges are coupled with continued strong demand further exacerbating lead times and material availability.

China’s worst COVID-19 outbreak is easing with new cases in the country trending downward. Most major cities, including Shanghai, which was hardest hit by the recent outbreak, are easing restrictions and returning to near normal conditions. Chinese port congestion is improving and trending toward normal. U.S. port congestion is also easing with the major question around whether it is driven by Chinese port bottlenecks or if we are starting to unwind the ocean freight challenges that have existed over the past 18 months.

We have seen lead times in the construction and industrial markets stabilize, while lead times in the electrical and gas utility segments continue to worsen.

The Federal Reserve (Fed) continues to increase interest rates, with one-half point increases anticipated in both June and July, and to reduce assets on their balance sheets. The forecast beyond that is less certain as the Fed continues to take actions to curb current inflationary pressures.

Material Lead Times

Lead times remain extended and, on average, are 70% higher than pre-pandemic levels across all products and markets we serve. While we are seeing some stabilization on lead times in the construction and industrial segments, lead times in the electrical and gas utility segments continue to trend upward and are more than 120% higher than pre-pandemic levels across all products. Continued drivers of extended material lead times are:

  • Labor – Shortages of skilled and unskilled labor in manufacturing and distribution continue to impact output and capacity.
  • Raw material and component shortages – Raw materials like copper, aluminum, steel and many rare earth metals continue to be heavily impacted by the Russia-Ukraine conflict and China’s economy. Semiconductors (chips) remain in short supply, and many experts don’t believe this will ease until 2024 as new capital investments come online.
  • Transportation – While there are positive signs that port backlogs and driver shortages are improving, we are still nowhere near pre-pandemic levels, and lead times for container shipments remain extended.
  • Demand – Consumer demand remains strong in all segments we serve. Hoarding and panic buying has driven many suppliers to implement and retain inventory allocation methods.

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 2022 and beyond.

Impacted Construction/Industrial Categories

  • Distribution equipment: circuit breakers, load centers, panels, switches
  • EMT fittings – 1/2”–4” compression and set screw connectors
  • Wiring devices and wall plates
  • PVC and weatherproof boxes
  • Fuses
  • Meter sockets and hubs
  • Ground rods
  • Automation products controls

Impacted Electric and Natural Gas Utility Categories

  • Wire and cable – 600V aluminum, bare overhead distribution and transmission, primary underground
  • Transformers, capacitors and voltage regulators
  • Fiber optic cable
  • HDPE conduit
  • Anchors and pole line hardware
  • Fiberglass box pads and enclosures
  • Fiberglass crossarms
  • Transmission insulators and related hardware
  • Gas pipe
  • Gas regulators
  • Excess flow valves
  • Meter risers and meter set assemblies
  • Anodes

Logistics and Freight Updates

Both ocean and over-the-road trucking transportation remains constrained but has been showing some signs of improvement in early June. We continue to collaborate with our national carrier partners to understand trends and impacts in the freight markets.

  • Ocean freight – Port congestion shifted to Chinese ports during the lockdown with the number of vessels waiting to be unloaded into the country increasing 30%–40%. This is now normalizing as the lockdowns in the country — particularly in Shanghai — have eased over the past few weeks.
    • The congestion we have seen in the ports of Los Angeles and Long Beach, California, which account for over 40% of all inbound ocean freight volumes in the United States, are also improving.
      • Some of this was driven by the lockdowns in China and redistribution of container shipments to other U.S. ports like Savannah, Georgia, and Charleston, South Carolina; but the biggest driver appears to be a 30% decline in containers inbound for the United States over the past 30 days.
    • We also continue to monitor the renegotiation of the International Longshore and Warehouse Union (ILWU) labor contract, which is set to expire on Friday, July 1.
      • The ILWU is the labor union that represents over 200,000 dock workers in 29 west coast ports.
      • With continued supply chain challenges, labor shortages and a push for further port automation, this labor negotiation is critical to the continued global supply chain recovery.
      • Negotiations started on May 10, and there is optimism that a deal will be reached before the deadline with the White House being highly engaged in the process.
    • According to the Drewry World Container Index, global container freight rates are down 26% from the highest point in September but remain nearly 20% higher than this time last year and over 125% higher than the five-year average.
      • While global container rates are in decline, we are still hearing from our national carrier partners that container costs for new freight bookings from Southeast Asia to the United States are holding in the $18,000 range as they work through backlogs from the COVID-19 lockdowns in China.
  • Over-the-road (OTR) trucking – Availability of OTR trucking is improving as demand for goods softens in the face of inflation, rising inventories and a reduced number of containers inbound to the United States.
    • Spot rates for dry van transportation have declined 30% since the beginning of the year net of fuel cost increases.
    • According to DAT Freight & Analytics, availability of both van and flatbed trucks have improved over the past quarter and year over year.
      • For flatbed trailers, it is estimated that there are now 63 loads for every flatbed trailer on the road — down from 97 at the peak in May 2021 and down from 87 in January.
      • For enclosed dry vans, there are an estimated 4.3 loads per truck, down from eight at the height of 2021.
    • The national average cost per mile for a spot rate flatbed in May was $3.45 per mile, up 10% since January.
    • The national average cost per mile for a spot rate dry van is $2.71 per mile, down 13% since January. Diesel fuel prices have increased over 50% since the beginning of the year.

Raw Material Updates

Commodities remain highly volatile due to supply/demand imbalance, the Russia-Ukraine conflict, and the recent COVID-19 lockdowns in China.

  • Copper – Copper prices declined by 13% at the height of the China lockdowns with the country accounting for more than 50% of global demand for the red metal. Over the past few weeks, pricing has gone back up 8% as lockdowns ease and China reopens. The long-range outlook for copper remains concerning with little ongoing capital expenditure to increase production and demand growth projected in electrical grid infrastructure and electrification of the automotive industry. Electric batteries and charging stations currently make up about 5% of all global copper demand. This number is expected to increase to 20% over the next few years.
  • Aluminum – Prices of the metal have fallen 25% since March but remain 15% higher than last year. Prices rose this past year based on strong demand, rising energy and production costs, and the impact of the Russia-Ukraine conflict with Russia being the second largest aluminum producing country. The COVID-19 lockdowns in China have softened prices over the past couple of months, but we expect pricing may rise as the lockdowns ease. We continue to hear from suppliers that availability of raw aluminum is a concern in several product categories, which is contributing to extended lead times.
  • Steel – The price increases seen in March/April driven by the Russia-Ukraine conflict have essentially eroded as most steel lead times are inching closer to pre-pandemic levels. Hot rolled coil (HRC) steel — a good benchmark for the steel industry — is down 17% over the past 30 days, down 40% from August highs, but it remains nearly double pre-pandemic prices. Electric grade steel used in transformers and EV products continues to be an area of concern with limited domestic supply and increased demand for utility and EV infrastructure. Global demand for electrical grade steel is expected to increase 30%–40% by 2026. Steel rod raw is another grade of steel that is seeing continued constraints and impacting most notably the wire and cable market.
  • Crude Oil – Prices remain elevated with continued sanctions and restrictions on Russia — the third largest oil producing and second largest natural gas producing country — and a continued imbalance between supply and demand as U.S. production has not fully returned to pre-pandemic levels. Both the Brent Crude (the global oil index) and West Texas Intermediate (the index for U.S. oil) are over $120 per barrel this week, up over 20% the past 30 days and up 70% over prior year. The active oil and gas rig count in the United States is increasing but it remains 25% below 2019 levels. Oil and gas companies remain somewhat reluctant to make long-term capital investments to increase oil production with the ongoing clean energy transition.
  • Resins — The resin market has stabilized over the past few months, and most suppliers have removed allocations. We are seeing normalization of lead times in several resin-based categories. However, prices remain highly elevated compared to pre-pandemic levels with several resin categories ranging 200%–400% higher over the past two years. Remember, there are weather-related risks with resin producers operating in the Gulf region. Atlantic hurricane season has started and will run through November with most experts forecasting an “above average” season in 2022 compared to normal years.

Labor Challenges and Inflation

Labor shortages and rising wages continue to be a major concern driving supply chain challenges and inflationary pressures.

The unemployment rate remains flat at 3.6%, which is considered at or near “full-employment” in the United States. There remain an estimated 11 million open positions compared to six million unemployment claims, highlighting the significant labor concern.

The United States also added 390,000 more jobs in May even as some fear an economic slowdown is pending. The workforce participation rate — a measure of the number of people in the labor force as a percentage of the working population — remains relatively flat at just over 62%, which is still the lowest point in 40 years outside of the pandemic.

The Consumer Price Index — a measure of price changes across a group of goods and services and a key metric in measuring inflation — showed year-over-year inflation at over 8% through April with the May report coming out later this week expecting to show much of the same. The Department of Labor’s wage report shows average wages remain up 5.2% year over year.

With continued cost pressures across the supply chain, we are seeing vendors continue to announce price increases through July with increases ranging between 5%–20%. We are also seeing some vendors modify terms and conditions to price on demand, pricing at time of shipment and/or non-cancellable purchasing terms.

What We’re Doing to Help Our Customers

As shared in prior communications, we believe that 2022 will continue to be challenging from a material availability and inflationary standpoint. While there are some signs of recovery happening and some fears of a demand slowdown, it will likely be years before the supply chain fully stabilizes.

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

We continue to invest in working inventories, maintaining emergency and storm response inventories in core markets and are working diligently to justify 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 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 unprecedented times together. If you have additional questions, please reach out to your Border States Account Manager for more information.