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 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 theFed’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 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.
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
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.
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.
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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.
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.