In a report dated August 15, 2023, Border States posted it’s “Impacts On Global Supply Chain Logistics” report, which included a series of product categories plus the latest delivery issues from both the overseas shipping industry and the domestic trucking situation, and how it is working to help customers overcome the situations that still exist.
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 many supply chain challenges persist, we continue to see ongoing improvement. Freight capacity with ocean and trucking carriers have normalized based on fewer goods being transported, driven by slowing demand and elevated inventory levels in many U.S. companies. Ocean rates have stabilized to pre-pandemic levels but did see the first increase in nearly two years this month. UPS and the Teamsters Union reached a tentative five-year agreement, avoiding a strike that would have crippled the U.S. supply chain. 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.
In July, the Federal Reserve (Fed) increased interest rates by a quarter of a point, which was expected after continued strength in the labor market. Since July’s rate increase, the U.S. reported job growth that reached its lowest levels since December 2020, adding 187,000 jobs in July. While the labor market continues to show signs of slowing, wage growth remains higher than expected.
The Fed is set to meet again on Wednesday, September 20, and while most predictions anticipate they will maintain rates at current levels, Fed Chair Jerome Powell stressed that they are seeking proof inflation is “durably down” and will be taking a “meeting-by-meeting” approach toward rates. The June Consumer Price Index (CPI) showed inflation at 3%, and July’s CPI had inflation raising 3.2% from a year ago, which is still above the targeted Fed rate of 2%. The CPI will release again on Wednesday, September 13, and be a notable input in terms of what to expect in September’s meeting and beyond. As mentioned above, it is currently expected that rates will hold in September; however, anticipate an additional increase before the end of the year. 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.
Material Lead Times
Lead times have held fairly consistent month over month but remain nearly 70% above April 2020 levels across all markets. June to July saw lead times in the electric utility segment and the construction segment increase by less than a day. Industrial lead times remained flat, and natural gas/PVF lead times decreased slightly from 50.98 days to 50.77 days 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.
Impacted Construction/Industrial Categories
- Distribution equipment: circuit breakers, load centers, panels, switches
- Wiring devices and wall plates
- Fuses
- Meter sockets and hubs
- Automation products controls
Impacted Electric and Natural Gas Utility Categories
- Wire and cable – 600V aluminum, bare overhead distribution and transmission, primary underground
- Transformers, capacitors, voltage regulators
- Padmount switchgear
- Pole line hardware
- Fiberglass box pads, enclosures, pedestals, splice cases and hand holes
- Transmission insulators and related hardware
- Guystrand
- 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. 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
- Ocean freight – Ocean lead times and capacity continue to improve driven by economic uncertainty, slowing demand and rising U.S. inventories. Year-over- year U.S. container imports were down 14% in July but up 5% compared to June. U.S. imports have essentially normalized to pre-pandemic levels seen in 2019, so this decline in volumes is not necessarily a cause for economic concern. Container costs rose for the first time in nearly two years this month. According to the Drewry container index, global container costs are up 19% over the past 30 days. The primary driver is shippers are blanking (canceling) sailings due to slowing demand and to stabilize falling container prices. Prices remain 80%–90% lower than pandemic highs seen in 2021.
- Over-the-road (OTR) freight – We continue to see good availability of trucking capacity and declining fright rates driven by slowing demand, inflated inventories in the United States and growing economic uncertainty. While the UPS labor agreement brought stability to the small parcel freight segment, it is likely the new deal will put wage pressure on other carriers (e.g., FedEx Ground, USPS) that will likely result in rising small parcel costs in United States over the next several years. There is also growing risk in the LTL market with YRC (Yellow) — the fourth-largest LTL carrier in the United States — filing for Chapter 11 bankruptcy earlier this month. YRC has ceased their operations, which included more than 30,000 employees, 12,000 trucks and an estimated 50,000 daily shipments at their peak. While, under normal conditions, this would have a significant impact on U.S. freight capacity, this occurred at a time where excess capacity exists due to slowing demand for ground transportation. While the majority of YRC’s capacity has already been absorbed, this could be a risk when ground transportation demand increases in the future. Diesel prices reached the highest point since March following five consecutive weeks of increases. These increases are the result of OPEC+ announcing an additional one-million-barrels-per-day production cut in July that will run through at least September. Prices are still 30% below highs seen in June last year. According to DAT Freight & Analytics, for flatbed trailers, it is estimated that there are now seven loads for every trailer on the road — down from 97 at the peak in May 2021 and more than 80% from last year. For enclosed vans, there are an estimated 2.6 loads per truck on the road, flat over prior month and down more than 30% year over year. The national average cost per mile for a spot-rate flatbed in March was $2.51 per mile, down 1% from prior month and 17% over prior year. The national average cost per mile for a spot-rate dry van last month was $2.07 per mile, down 1% over prior month and 30% over prior year.
- Fleet sustainability — Border States continues to develop our fleet sustainability strategy, including utilization of alternative fuel vehicles (AFVs) in our fleet, in support of our objective to reduce carbon emissions by 50% by 2030. While today’s battery technology performance does not support utilization of electric vehicles in all use cases within our fleet, there are some specific applications where electrification make sense to support our customers and environmental objectives. We have our first electric vehicle in use and are gathering important data on use case and performance. We will continue to provide our customers updates as this strategy evolves. We are also in the process of implementing enhanced route optimization software that will significantly reduce the number of miles driven by our more than 440 fleet vehicles.
Raw Material (Commodity) Updates
There continues to be uncertainty around whether commodities will see a recovery or continued decline, with most commodities seeing softening from 2022 levels so far this year. Multiple factors, some conflicting, play a role in commodity pricing and volatility. While many experts anticipate continued softening in most areas, uncertainty across many of the drivers (i.e., increased likelihood that the government will boost stimulus in China, fluctuating demand driven by product shortages and interest rate hikes, wildfires in Canada, geopolitical events, etc.) makes it difficult to predict what to expect next.
- Copper – China, the world’s top metal consumer, saw their consumer prices fall 0.3% in July when compared to the previous year, driving the likelihood and raising pressure on the government to boost stimulus. A strong U.S. dollar coupled with the faster-than-expected fall of China’s import and exports in July makes copper less attractive to buy and further weighs on the market. Continued uncertainty and ebb and flow of pricing is expected based on what is happening in the global news. Three-month copper prices on the London Metal Exchange were down 0.5% (but up when compared to July 2022).
- Aluminum – Concern of limited supply of non-Russian aluminum and the potential oversupply of Russian aluminum leading to excess that few buyers are willing to use continues. Aluminum producers are pushing for sanctions on Russian-origin aluminum as decreasing demand continues to be reported. Aluminum prices are down 12% when comparing July 2022 to July 2023. Magnesium, a key additive in aluminum production, continues to be the primary driver of the slight uptick in pricing that was seen in past months but has not been enough to signal a new trend in pricing, creating continued uncertainty for what to expect in the aluminum market.
- Steel – The ongoing microchip shortage has impacted the automobile sector in the United States, specifically slowing the production of electric vehicles. While pent-up demand for vehicles is still strong, the microchip shortage and ongoing interest rate hikes from the Fed are impacting the industry, which is impacting steel demand. A Chinese stimulus package could result in upward prices for aluminum, but continued softening/flattening is still expected. Both hot-rolled steel and cold-rolled steel saw prices decrease when looking at June to July and from 2022 to 2023.
- Crude Oil – Output cuts by Saudi Arabia and Russia have continued to tighten crude oil supply, which is offsetting concerns over slow demand from China. Saudi Arabia has pledged to continue a voluntary production cut of one million barrels a day, which took effect in July, through the end of September. While Russia has said it will cut exports by 300,000 barrels a day through the end of the month in an effort to continue to get ahead of significant price declines. June to July saw WTI (U.S.) index prices increase to $81.41/barrel amid these concerns of low supply
- Resins — Month over month, resin prices declined (HDPE resin was down 4% from June to July and 29% compared to the previous year). Overall, the PVC market continues to decline as demand has softened with some large projects being cancelled. Prices will likely show continued decline or remain flat in the coming months despite some suppliers citing cost pressures with flatbeds and labor.
- Lumber — Despite slowing U.S. demand for housing, the loss of Canadian lumber sources due to wildfires may be a factor in increasing pricing in future months, as the United States purchases a significant amount of its lumber from Canada. Wildfires in Canada led to widespread damage and forced evacuation, with more than 30 million acres of Canadian land being affected and impacting the softwood lumber supply the construction industry uses for framing and plywood. There is potential for continued risk and damage as the wildfire season does not typically end until October. Even with concerns of decreasing supply, lumber prices declined from June to July as housing demand softened.
Labor Challenges and Inflation
According to the Bureau of Labor Statistics, the United States added 187,000 jobs in July, which is under the job growth forecast of 200,000 and the lowest number of jobs added in 2023 so far (and the lowest since December 2020). July’s growth was slightly higher than growth in June, which was revised from a gain of 209,000 to a gain of 185,000. The unemployment rate dipped slightly to 3.5% (down from 3.6%), and average hourly earnings increased slightly month over month by 0.4% (but up 4.4% year over year in July). July marked the fifth consecutive month that the overall labor participation rate, which measures the number of people seeking work or working, was at 62.6%. Job openings still outnumber unemployed workers. While job growth is slowing and the labor market continues to show signs of cooling and coming into better balance, wage growth remains strong.
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 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
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