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UPDATED 3.19.2024 – 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

We continue to see varying degrees of supply chain improvement across the core markets we serve (construction, industrial and utility). Ocean freight rates and transit times have stabilized as carriers have adjusted to ongoing environmental and geopolitical issues in the Panama and Suez Canals. Fuel prices remain elevated based on declining global reserves, continued OPEC+ production cuts and ongoing geopolitical risks in the Middle East and Russia. 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.

The Federal Reserve (the Fed) has worked to drive down inflation for two years by raising interest rates 11 times between March 2022 and July 2023. Despite these efforts, inflation rose unexpectedly in February to 3.2%, which is below inflation’s peak of 9% in June 2022 but still above the Fed’s targeted 2% level. The Fed is set to meet again on Tuesday, March 19 and Wednesday, March 20, and, while no adjustments to interest rates are expected, many will be carefully analyzing the revised economic forecasts from this meeting and potential impacts to a previously predicted decrease in June. The longer inflation keeps rising, the less likely the Fed will lower interest rates. The Labor Department cited gasoline and housing for the increase in February, saying those two indexes accounted for 60% of the month’s increase. The CPI core index, which includes volatile food and energy prices, saw a 3.1% increase over the past year, which is a 1.9% decrease from this time last year.

 

Material Lead Times

Material lead times in February continued their downward trend. Overall lead times since January 2023 have decreased 20%; however, they remain above more than 40% above pre-pandemic levels. All core markets have seen decreases, including the utility market, which has seen the most significant impact.

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

We continue to collaborate with our national carrier partners to understand trends and impacts in the freight markets. Overall freight capacity remains strong with increasing stability both in ocean and over-the-road transportation.

  • Ocean freight – Ocean container rates have stabilized, down 16% over the past 30 days, but remain elevated 75% over the past 12 months. As a reminder, the ocean freight market saw significant disruptions the past quarter driven by the following environmental and geopolitical situations:
    • Historic droughts continue in Panama, reducing the throughput of container ships through the Panama Canal by nearly 40%. This is causing considerable delays at the canal or forcing ships to take longer routes and the situation is not expected to improve for several months. Nearly 40% of all U.S. container traffic and $270 billion in cargo moves through the canal annually. This situation is improving with 12% of capacity expected to come back online in March.
    • Ongoing attacks on cargo ships by Yemen’s Houthi rebels in the Bab al-Mandab Strait, which is a key waterway connecting the Red Sea and the Gulf of Aden through the critical Suez Canal. More than 30% of all global container trade passes through the Suez annually. The majority of container ships are now avoiding this route and shipping around the Cape of Good Hope, adding an average 7-10 days of transit time.

We continue to monitor both situations accordingly, but the market is now accounting for these situations in their capacity, making transit times more stable and predictable. 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 2022/2023 ILWU and PMA labor negotiations across 29 West Coast ports, which reached resolution this past summer. We continue to monitor this situation closely and how this may elevate supply chain risk.

  • Over-the-road (OTR) freight – As demand remains soft, trucking capacity continues to be readily available for flatbeds and enclosed vans. Diesel fuel prices remain elevated based on declining reserves, stronger-than- expected economic sentiment and as OPEC+ extends production cuts equal to 3% of global demand through the second quarter. Oil prices hit a four-month high on March 13, driven heavily by attacks on Russian oil refineries, which could cause further disruption in fuel prices. The less-than-truckload (LTL) market remains stable following the August bankruptcy filing of YRC, formerly the third largest LTL carrier in the market. While data shows trucking capacity has exited the market over seven of the last nine months, carriers continue to invest in
    new/replacement capital assets in the market with truck orders up 11% over prior year. According to DAT Freight & Analytics, for flatbed trailers, it is estimated that there are now 14 loads every trailer on the road — down 15% from this time last year and up 3% over prior month. For enclosed vans, there are an estimated 2.8 loads per truck on the road, down 40% from last month and down 10% from last year.
  • Fleet sustainability — Border States continues to develop our fleet sustainability strategy, including measurement of our greenhouse gas (GHG) emissions, utilization of alternative fuel vehicles (AFVs) in our fleet, in support of our objective to reduce our carbon emissions by 50% by 2030. We will continue to provide our customers with updates as this strategy evolves. We are also working toward 100% of Border States vehicles having modernized route optimization software installed by Tuesday, April 1, 2025. This investment will allow Border States to drive fewer overall miles in support of our emission reduction targets, in addition to providing our customers with better visibility to their deliveries in route.

Raw Material (Commodity) Updates

While most raw material prices have held steady or seen some softening, there are many factors (interest rate decisions, geopolitical events, fluctuating supply/demand, tariffs) that impact and play a role in pricing, availability and potential volatility of commodities. While each commodity is impacted differently, we anticipate the potential for continued ups and downs based on these factors.

  • Copper – February copper averages held steady after prices rose early in the month and then settled with the start of the Chinese New Year on February 10, when Shanghai warehouses released more copper than anticipated. This is the largest spike in copper inventory since early 2020. It’s unclear why levels increased so dramatically this year, but Chinese economic policies, domestic copper mining projects and production decreases in the Chilean state mine Codelco are all factors that will continue to impact the price and availability of copper.
  • Aluminum – Aluminum prices increased for the first time in over a year following the second-largest aluminum smelter in the United States shutting down operations. Prices are still down when comparing 2023 to 2024, but this increase could be a sign of what’s to come with the closure of a smelter having the potential to impact aluminum supply and availability.
  • Steel – At the end of February, the United States announced more than 500 new sanctions against Russia, adding Russia’s largest steel pipe producer to the list. In addition to Russian tariffs, Mexico has vowed to impose retaliatory tariffs on steel if the United States reinstates tariffs on Mexican steel and aluminum. The United States previously lifted tariffs on Mexican steel in 2019, which were implemented to protect the U.S. industry if shipments from Mexico grew above certain levels. Steel prices remain slightly elevated when comparing 2023 to 2024. The pockets of ongoing maintenance disrupting supply with some vendors, the impact of tariffs and the continued discussions around the acquisition of U.S. Steel, which has drawn concerns from some members of congress, are all factors that could have an impact on the future price and availability of steel.
  • Crude Oil – The Energy Information Administration (EIA) increased its outlook for Brent crude oil prices for this year and 2025, with barrels averaging $87 per barrel, up 5.6% from the previous month’s forecast. While conflict in the Middle East has not yet disrupted oil in the region, the rollback of production by OPEC+ has resulted in reduced inventory levels.
  • Resins — Resin prices were up slightly month over month and up 16% when compared to last year. Supply is readily available, and demand has softened. Oil serves as an indicator for PVC, so there is the potential for price impacts based on significant changes to crude oil prices and demand increasing as we enter the construction season.
  • Lumber — Lumber prices hovered around a five-week high, reaching the $570 per 1,000 feet benchmark. The potential for reduced borrowing costs may drive housing demand up increasing the need for lumber, a key building material. Exports from Canada have depleted by 18%, likely the result of past wildfires which could potentially strain supply and further impact prices and availability.

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

Labor Challenges and Inflation

The U.S. labor market added 275,000 jobs in February, which exceeded expectations and outpaced January’s gains of 229,000. The labor market remained strong despite interest rates, inflation and slowing economic indicators. Although more jobs were added than expected, other factors suggest some cooling. Payroll gains for December and January were revised down, the unemployment rate increased to 3.9% and wage growth was less than expected. With the unemployment rate rising to a two-year high and a much weaker rise in wages, there is less concern from economists that the apparent strength of the labor market will drive inflation higher again

 

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.