As we continue to navigate the pandemic and other unprecedented supply chain challenges, Border States is committed to keeping you updated regarding material lead time impacts, pricing volatility 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.
Material constraints continue in key product categories across all core markets we serve (construction, industrial, utility). We continue to see some lead time recovery in key categories and persistent and new challenges in others. Labor shortages, large backlogs, strong demand, raw material and subcomponents constraints (e.g., semiconductors) and freight capacity remain the largest factors. The delta variant of the coronavirus continues to create uncertainty in the recovery effort, and we are hearing from some suppliers that the growing number of cases is having an adverse impact on labor availability and production capacity.
We have been closely monitoring the impact of Hurricane Ida, a category 4 storm that made landfall in Louisiana on August 29 and progressed through many Eastern states, causing severe flooding and damage to utility infrastructure. Our thoughts continue to go out those directly impacted by the storm. With significant damage to both transmission and distribution utility infrastructure, we are working closely with suppliers to understand potential impacts. We are also closely monitoring impacts to resin manufacturing facilities along the Gulf Coast. The good news is that it appears these major production facilities were spared direct damage but have been offline for several days without power or natural gas. This disruption will likely cause some additional constraints on categories like PVC conduit and fittings, gas pipe, underground cable, duct, etc. We are already seeing some PVC suppliers announce increases and move back into allocation due to the storm’s impact. In response to these anticipated impacts, Border States has executed strategic forward buys to mitigate impacts to our customers, where possible.
Labor shortages continue to be one of the biggest concerns we are seeing and hearing from suppliers. New and total unemployment claims fell to 5.4% in July, but that is still much higher than 3.7% in July 2019. The belief is that the extended federal unemployment benefits, concerns over the delta variant of the coronavirus and health risks, and the continued dependent care challenges are the primary drivers. The current administration announced that they would not extend the additional federal unemployment benefits from the CARES act beyond Monday, September 6. There is continued optimism that this will incentivize many employees back into the workplace, but we will likely not know the impact until the fourth quarter.
Below are categories where we continue to see extended lead times. We continue to work with our suppliers on these issues and on alternate sourcing to mitigate risks where possible. We have shared this in prior updates, but the earlier visibility to projects and requirements, the better we can help mitigate potential material risks to your business.
Impacted Construction/Industrial Categories
- Nonmetallic building wire
- Circuit breakers
- Load centers and panels
- PVC conduit
- EMT fittings – 1/2”–4” compression and set screw connectors
- Steel strut and fittings
- Wiring devices and wall plates
- PVC and weatherproof boxes
- Meter sockets and hubs
- Ground rods
- Automation products controls
- Cable ties
- Electrical tape
- Power tools
Impacted Utility Categories
- Wire and cable – 600V aluminum, bare overhead distribution, and transmission, primary underground
- Fiber optic cable
- HDPE conduit
- Anchors and pole line hardware
- Fiberglass box pads and enclosures
- Transmission insulators and related hardware
- Transformers, capacitors and voltage regulators
- Gas pipe
- Gas regulators
- Excess flow valves
- Meter risers and meter set assemblies
We continue to stay in close contact with major third-party freight carriers. Freight challenges continue internationally and domestically — we expect things could worsen as we approach the holiday season.
- Ocean freight – Ocean freight rates for shipping containers are 370% higher than last year, according to Drewry’s Composite World Container Index. The average cost of a 40-foot shipping container is nearly $10,000 compared to the five-year average of around $2,300 per container. Some freight lanes out of Asia to the United States have seen container costs exceed $20,000 per container based on surcharges to expedite and ensure shipments ahead of the holiday season. We have reported this in previous updates, but the primary drivers continue to be:
- Carriers lack capacity to meet strong consumer demand in North America and Europe.
- Ports can’t keep up with strong demand due to labor shortages and pandemic-related impacts.
- Container shortages and empty containers are not being repositioned quickly enough to where they are needed.
- Weather-related impacts – Continued recovery from Typhoon In-Fa, which heavily impacted Southeast Asia in July, and record rainfall in China that caused flooding and disruption in August.
- Trucking and small parcel freight – Small parcel, Less-than-truckload (LTL) and the full truckload (FTL) markets continue to have challenges with Driver shortages, strong demand for consumer goods and vehicle availability (due to extended lead times on new commercial vehicles due to chip shortages).
- According to DAT Freight & Analytics, in August, the load-to-truckload ratio remained flat month over month at 44 loads for every flatbed truck on the road. This is down from 97 loads per truck average in May but up from 12 loads per truck average in August 2019.
- According to the Cass Freight Index, freight expenditures in July for companies were down 6% over June but 23% higher than the two-year stacked average. It is estimated that, currently, there is a shortage of between 50,000–60,000 Drivers, but there is some optimism that we will see some Drivers re-enter the workforce in the fourth quarter.
Unprecedented price increases continue from our vendors with freight, raw material and labor costs being the primary drivers cited. We expect continued pricing pressures through the third quarter, with many vendors having already announced increases through September and October. There is much uncertainty for the fourth quarter and beyond based on the delta variant of the coronavirus. We do expect some market corrections to occur in 2022 as supply and demand correct from the challenges of the economic restart, but they will likely not be at pre-pandemic levels.
- Copper closed last week at $4.33 per pound. We saw some volatility throughout August, but it remains relatively flat month over month. Copper pricing remains over 40% higher than September of last year and 64% higher than September 2019. The main drivers of pricing volatility with copper remain China, as they have seen slowing demand due to weather-events, impact of the delta variant of the coronavirus and the continued unresolved labor disputes in the Chilean mines, which represents nearly one-third of the world’s copper production.
- Steel pricing remains at record highs, and we continue to see price increases on steel conduit, fittings and other products with high steel content. Hot rolled coil (HRC) steel — a good benchmark for the steel industry — is relatively flat month over month but remains at the highest point on record. HRC is currently 216% higher than September 2020 levels and nearly 300% higher than September 2019. Overall supply and demand imbalance, with domestic capacity never returning to pre-pandemic levels, and the impact of section 232 import tariffs (25% for steel imports) remain the primary drivers. The $1 trillion infrastructure bill continues to make its way through Congress. The bill calls for $550 billion in new infrastructure spending, which would significantly increase demand for steel in our country. We anticipate continued steel price increases throughout 2021.
- PVC and HDPE resin pricing remain volatile, and they have been significantly impacted by Hurricane Ida last week. We have seen some resin suppliers reclaim force majeure, and most PVC suppliers are announcing increases this week. We have also seen some suppliers move back to allocation for distributors knowing the threat of panic buying due to Hurricane Ida. A stick of PVC pipe remains over 225% higher in cost this year than 2020 and nearly 400% higher than 2019 pricing.
- Aluminum pricing is at the highest point since 2011, up nearly 6% month over month, and up over 60% from 2020 and 2019 levels. Strong demand for the metal and continued shifting of copper projects to aluminum remain the drivers. We are seeing continued price increases pushed to the market from suppliers on aluminum wire.
- Lumber prices continue to fall from their record highs in early May, down 20% over the past 30 days, and down 63% during the past quarter. Prices still remain 35% higher than 2019 levels. Higher prices earlier this year curbed many projects in the residential housing market, which has created some stabilization of supply and demand.
- Crude oil pricing remains volatile, with demand uncertainty due to the delta variant, but disruption in ongoing production outages in the U.S. Gulf Coast due to Hurricane Ida have offset some of the impacts. The Brent Crude Oil index — the index most used globally — is trading at $72 per barrel this week, relatively flat over the past month, with the West Texas Intermediate (WTI) index — the primary benchmark for the United States — is trading at near $68 per barrel, which remains relatively flat over the prior month.
What We’re Doing to Help Our Customers
As we all navigate the continued supply chain challenges, Border States is committed to investing and maintaining high inventory levels to support our customers, and we continue to maintain strong positions on emergency and storm response inventories in core markets. We continue to work to justify and verify all pricing increases align with current market pressures and mitigate pricing impacts to our customers where possible.
Although we cannot solve these global supply chain issues, we are committed to being transparent and straightforward with you about these challenges and working closely with our best customers and suppliers to navigate these unprecedented times together. If you have any additional supply chain questions, please reach out to your Border States Account Manager for additional information.
The number one priority for Border States during the pandemic remains the health and safety of our customers, vendors and employee-owners. Additional information is available on our website regarding the safety measures and plans focused on health and safety in our operations.
We have also published an online resource page with more information about our current safety measures and featured products and solutions.
If you have any questions, please reach out to your Border States Account Manager for additional information or contact us online.