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UPDATED 5.20.2024 – 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

While there continues to be notable improvements in resiliency and stability in our supply chain, several challenges persist across all core markets we serve. Ocean freight rates are on the rise based on strong demand and longer sailings driven by environmental and geopolitical issues in the Panama and Suez Canals. While the Francis Scott Key bridge collapse in March has had some impact on the U.S. supply chain, near normal operations are expected to resume this month in the port of Baltimore, Maryland. Fuel prices remain volatile due to ongoing instability in OPEC+ countries. Lead times remain elevated but are improving at a varying rate by market. Commodities, particularly copper, are on the rise due to strong demand and supply disruptions in mining operations. This week, the White House announced changes to Section 301 tariffs on Chinese steel and aluminum, increasing these tariffs from 7.5% to 25% later this year, which could drive further inflationary impact on raw materials. Ongoing raw material, labor and ocean freight pressures may result in additional, finished good price pressures over the next quarter.

On April 30, Jerome Powell, Federal Reserve Chair (the Fed), announced that the Fed’s benchmark interest rate would remain unchanged due to inflation remaining well above target. He also said it was “unlikely” there would be a rate hike in the near future, saying the current rate is sufficiently restrictive for lowering inflation to the Fed’s 2% goal. Economists predict the Fed will not be ready to begin cutting rates this summer as previously expected, which pushes potential cuts into September or later. High rates are expected to slow job growth, which has remained strong but showed signs of cooling this month.

The Bureau of Labor Statistics released the latest Consumer Price Index (CPI) on May 15 with consumer prices rising 0.3% from March to April, which is down slightly from 0.4% the previous month. Measured year-over-year, inflation decreased from 3.5% to 3.4%, which is the first time this year the year-over-year figure has declined. This less-than-expected increase suggests inflation will resume its downward trend to start the second quarter. The CPI measures average change over time in prices paid for consumer goods and is the most widely used measure of inflation, influencing interest rate decisions by the Fed. The Fed will meet again on Tuesday and Wednesday, June 11 and 12.

 

Material Lead Times

The trend of gradual decreasing lead times has continued. All core markets saw a decline in lead times in April with an overall 13-month decline of 17%. While still elevated from pre-pandemic levels, lead-time stability, coupled with gradual lead- time decreases, allows for smoother operations and more reliable planning. Key categories where we continue to see extended lead times and material availability challenges are noted below.

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
  • 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

The freight markets have remained relatively stable with ongoing risks of labor stoppages, environmental challenges and geopolitical issues.

  • Ocean freight – Average container rates have increased 20% since the beginning of the year and are running 50%–100% higher than pre-pandemic averages, depending on the freight lane. While shippers have largely avoided the Panama and Suez Canals due to environmental and geopolitical issues, this has increased sailing times and costs. Strong U.S. import demand coupled with longer sailings has reduced overall market capacity, elevating container prices through the first four months of the year. As shared above, operations are expected to resume at the port of Baltimore in the coming week as wreckage from the Francis Scott Key bridge is cleared. We 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 is not reached prior to expiration on Monday, September 30, they would strike.
  • Over-the-road (OTR) freight – Trucking capacity has seen some tightening over the past 30 days, but utilization rates remain well below historical averages. Trucking spot rates on both van and flatbed shipments remain flat year over year and down compared to historical average as there is more capacity than supply in the market. Diesel fuel prices remain elevated above historical averages, but have softened for five consecutive weeks, even as instability continues in OPEC+ countries (i.e., Middle East, Russia). It is forecasted that the trucking market has hit the “bottom,” and capacity is expected to “tighten” in 2025 as demand rises and smaller carriers (i.e., 1–2 truck carriers) exit the market in 2024.
  • Fleet sustainability — Teamsters Canada, representing 9,000 rail workers at Canada’s two biggest railroads, has said 95% of its members have voted to strike as early as Wednesday, May 22, based on the inability to negotiate a revised labor deal. The length of rest periods between shifts remains the primary issue in reaching a new agreement. Should this strike occur, it would halt nearly $1 billion of goods moving daily across 40,000 miles of railway in Canada. While the direct impact in the United States would be minimal, there would be ripple effects: Additional congestion at U.S. railways and ports, price pressures on container and trucking spot rates. We will continue to monitor this situation in the coming weeks.

Raw Material (Commodity) Updates

While many factors continue to play a role in the price and availability of commodities (including but not limited to tariffs, interest rate decisions, geopolitical events, fluctuating supply/demand and the Chinese economy), many raw materials have seen price increases over the last month or since the start of 2024. Copper, aluminum, HDPE resin, PVC resin, tin, crude oil and lumber have all seen prices increase over the last quarter with mixed predictions across each commodity on what to expect in the coming months.

  • Copper – Copper’s year-to-date average is $3.99, which has already passed last year’s average of $3.86 and is the highest since mid-2022. Increased demand and mining supply disruptions are the primary factors contributing to increased prices. Electric vehicle demand, renewable energy, data centers and AI are adding to demand on top of seasonal construction. Cobre Panama, a mine that produced about 1.5% of the world’s copper supply, has continued to sit idle since it was shut down in November 2023. Citi analysts say copper is now in a bull market for the second time this century, and Bank of America raised its 2024 forecast for copper by 8%.
  • Aluminum – Aluminum is rebounding on borrowed momentum from copper, with the average price of aluminum rising to $1.31 in April (just $0.01 shy of the 2023 average). The aluminum supply is stable, but there has been an uptick in demand as contracts switch to using aluminum for wire jobs, the result of copper’s price increasing.
  • Steel – On May 14, the Biden Administration announced they would increase Section 301 tariffs on steel and aluminum imports from China from 7.5% to 25%. These tariffs are in addition to Section 232 tariffs on Chinese steel imports of 25% already in place and will likely impact future steel pricing. Month over month, steel prices decreased as Chinese steel has surged into the global market. China’s real estate market slump has hurt domestic demand for steel. Instead of cutting production, Chinese steelmakers increased it and are now exporting the excess. Chinese steel exports increased by 84%, 78%, 58% and 55% to India, Vietnam, Turkey and Brazil respectively in the 12 months prior to February and 33% overall, according to Chinese data.
  • Crude Oil – Crude oil prices have increased by nearly 11% since the beginning of 2024 and are expected to further increase by the end of this quarter. Experts are predicting that OPEC+ will likely extend their production cuts into the second half of the year. In addition, Chinese credit and inflation data indicated further challenges in stimulating demand (China is the world’s largest crude oil importer).
  • Resins — The PVC market overall remains soft as demand has declined and inventories remain strong, but it could be affected by rising oil prices later this year. Prices went up slightly month over month with manufacturers citing raw material cost, wage inflation, electricity costs and equipment costs for the increases.
  • Lumber — Lumber prices have decreased just over 15% since the beginning of 2024, with expectations that prices will increase over the next quarter as the construction season progresses. Price decreases have been the result of available supply continuing to outpace demand and the impact of the Fed’s interest rate decisions on new housing construction.

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

Labor Challenges and Inflation

Employers added 175,000 jobs in April, signaling slower but steady growth compared to earlier this year. April’s job gains were the smallest reported since October and lower than the average month gain of 242,000 last year. The unemployment rate increased to 3.9% (from 3.8% last month), marking the 27 th consecutive month that the unemployment rate was below 4%. The overall labor force participation rate, which measures how many people are working or seeking work, held steady at 62.7%. A higher labor force participation rate can help reduce inflation — when more people look for work, there is less pressure to raise wages.

Economists attribute the longer than expected period of unemployment to multiple factors. The aging baby boomer population has kept demand high for services as they retire. Also, stimulus checks that Americans received during the pandemic have lifted the economy despite higher interest rates.

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.