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.
While many supply chain challenges persist, we continue to see ongoing improvement. Ocean container and truck capacity remains readily available driven by slowing demand and elevated inventory levels in many U.S. companies. Ocean container rates have normalized and remain at or below pre-pandemic levels. Even with YRC — the fourth largest LTL carrier in the United States — filing for Chapter 11 bankruptcy in August, LTL freight capacity and pricing remain relatively stable. While lead times remain elevated compared to pre-pandemic levels, and we continue to see variation by market, overall volatility continues to improve. Most commodities have shown signs of softening, although continued volatility and unpredictability is expected. Announced price increases from our suppliers also continue to decline due to slowing commodity prices and economic uncertainty.
While the Federal Reserve (Fed) has made significant progress through 11 interest rate hikes, inflation remains above their long-term target of 2% (the Consumer Price Index was at 3.2% at the end of July). Analysts are predicting that the Fed will pause another rate increase in the next meeting on Tuesday, September 19–Wednesday, September 20, with a higher probability of another hike later in the year. The U.S. job market has shown signs of softening in recent months, which is a factor in the Fed’s decision making. In August, employers added 187,000 jobs and unemployment rose to 3.8%, which is the highest since February 2022 as more workers return to the labor force. While these rate decisions will continue to impact demand in many markets we serve, we continue to hear from several customers, including utilities and large contractors, that they are not slowing their workplans, despite the impacts of interest rates.
Hurricane Idalia made landfall near the Big Bend region of Florida as a Category 3 storm on August 30. While the state did sustain damage from flooding and high winds, the toll was less than seen with other similarly sized hurricanes. This was due to several factors, including the eye making landfall in a more rural area, having a relatively narrow hurricane force wind field, it being a fast-moving storm, and a rapid decrease in intensity once landfall was made. While many of our key utility infrastructure material manufacturers assisted with storm response efforts, overall demand was not tremendous and impact to the supply chain is expected to be very low. Some impacts to orders and lead times for common storm response materials, such as poles, crossarms, overhead pole line hardware, conductor, etc., may occur, but these impacts are expected to be small and short-lived.
In addition to Idalia’s impacts, we are monitoring the status of Hurricane Lee, which intensified to a Category 5 storm early on September 8 as it moved through the eastern Caribbean. At the time of this publishing, it is not forecasted to make a direct hit on any of the Caribbean Islands. While it is still too early to definitively know if it will have direct impacts on the U.S. mainland, most forecasts predict the storm will turn north, weaken and avoid making landfall.
Lead times are beginning to show a trend of contracting by a few days throughout 2023 in all market segments but remain elevated compared to the April 2020 baseline by almost 70%. July to August saw average lead times in the electric utility segment and the construction segment increased by less than one day. Industrial and PVF/natural gas lead times remained flat when comparing month over month. While challenges still exist in some product categories, recent months have seen more consistency, which allows for more accurate forecasting and inventory management
We continue to collaborate with our national carrier partners to understand trends and impacts in the freight markets. We continue to see month-over-month improvements in transportation capacity and costs across the entire supply network. While some risks remain, we anticipate transportation networks and systems being relatively stable in 2023.
In many areas, the production of commodities is continuing to outpace demand. As pandemic-high demand continues to stabilize, and with a slower than expected Chinese recovery, we have seen most commodity prices soften so far this year. Many factors play a role in commodity pricing (demand in China, fluctuating domestic demand, interest rate decisions, natural disasters/events, geopolitical events, etc.) and, while some of these factors are conflicting with the potential to drive prices up or down, continued softening is expected in most areas.
August’s labor market reflected the impact of higher interest rates and the Fed’s efforts to cool the economy with hiring remaining steady (187,000 jobs were added) and the unemployment rate rising (3.8%). Job growth figures from June and July were revised down by a combined 110,000 jobs, making the outlook weaker than it previously appeared. While gradual cooling in the job market is now visible, the August gain was still above the number of jobs required to absorb the flow of people into the labor force. Average hourly earnings rose $0.08, with a yearly increase of 4.3%, with wage growth topping at 5% last year amid sever labor shortages. The labor force participation rate, which measures the number of people seeking work or working, rose to 62.8% after seeing a steady 62.6% over the past five months, showing a slight shift of workers back into the labor force. Health care, leisure and hospitality, and construction industries all added jobs while transportation and warehousing lost jobs, which is largely reflecting the shutdown of Yellow Trucking.
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 2023.
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.