Border States Supply Chain Update for August 2024

As the industry continues to navigate ongoing global supply chain challenges, Border States is committed to keeping businesses updated regarding material impacts, inflationary pressures, and other market trends.

Supply Chain Brief

The global supply chain remains fragile, even as some stabilization and improved predictability arise. Ocean freight rates softened over prior month but remain more than double historical averages. Historic import volumes and continued water way disruptions are creating tighter capacity and higher shipping costs. Core commodities — most notably copper and aluminum —continue to run higher over the past quarter and year over year. The amended 301 tariffs announced by the White House in May continue to put additional price pressure on steel and aluminum. While the labor market is tightening and wage growth has normalized to pre-pandemic averages, ongoing freight and raw material costs will continue to drive price pressures this year.

In July, the U.S. experienced an outage with CrowdStrike — a cloud-based cybersecurity platform — due to a faulty software upgrade. This incident impacted more than 8.5 million Windows devices, concentrated heavily in the airline, medical, and banking industries. While Border States does not use
CrowdStrike, and was unaffected by the incident, it is a serious reminder of the ever-present threat cyberattacks and technology failures can have on the global supply chain.

Atlantic hurricane season continues with an above-average storm season expected in 2024. Hurricane Debby hit Florida on August 5 as a category one storm. While not as strong as Hurricane Beryl in July, this storm created a path of destruction lasting nearly a week, with tornadoes and flooding also impacting the East Coast. Flooding continued to be a concern in many areas already affected by Debby due to additional thunderstorms. Border States is monitoring potential impacts to orders and lead times for common storm response materials, such as poles, crossarms, overhead pole line hardware, conductors, etc., but any impact is expected to be short-lived. Hurricane Ernesto hit Puerto Rico, leaving much of the country without power. There are risks of potential supply chain challenges from this event, with some suppliers having manufacturing facilities or indirect supply chains in the country.

The International Longshoreman’s Association (ILA) — the largest maritime union in North America representing 85,000 longshore workers — is threatening to strike if a new labor agreement is not reached by Monday, September 30. While experts expect resolution prior to the expiration, with many stating a strike is unlikely, more than half of the cargo shipped to the United States from around the world comes through these ports and would have widespread impacts across the supply chain if a strike were to take place. The ILA and the United States Maritime Alliance (USMX) will resume negotiations later this month.

The Federal Reserve (the Fed) left interest rates unchanged at their July meeting. Fed chair, Jerome Powell, said at a news conference that a rate cut “could be on the table” at its next meeting on Wednesday, September 18. Powell also made it clear that the Fed is focused on the labor market, which showed further signs of softening in July, with job growth slowing and unemployment rising. In addition, the July CPI, which measures the average change over time in prices paid for consumer goods and is the most widely used measure of inflation, came in at 2.9% (with core CPI at 3.2%), which is the smallest annual increase in more than three years. Both July’s CPI and labor statistics reaffirm a pattern of decreasing inflation and an increased likelihood of a September rate cut.

Material Lead Times

Overall lead times remained flat compared to the previous months, with the utility market seeing an increase from 51 days to 52 days. While lead-time changes are slowing and have decreased over the last year, overall lead times are still elevated by 23% compared to pre-pandemic levels. Key areas to observe are listed 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
Border States continues to monitor the U.S. and global freight markets to understand trends that could potentially impact material lead times, freight costs, and the price for finished goods.

• Ocean freight – Container rates softened slightly in July but remain more than 250% above historical (pracademic averages) as capacity tightens on strong demand and continued waterway disruption. July was the third-largest month on record for import volumes into the United States and the largest month of Chinese imports on record. Ocean freight moving through the Red Sea and Suez Canals remains highly constricted due to ongoing attacks from Houthi rebels in Yemen. A reminder — the Suez traditionally handles roughly 30% of global container trade and is the primary shipping artery from Eastern Asia to Europe. This traffic continues to divert around the Cape of Good Hope in Africa, adding an average of 4,000 nautical miles, 1–2 weeks of transit time, and $1-plus million in fuel costs to an average sailing. Last month, the Panama Canal Authority announced plans for a $1.6 billion reservoir to address water shortages over the next six years. There is also good news: Due to heavy rains, the canal has seen capacity rates return to 90% in recent weeks.
• Over-the-road (OTR) freight – The U.S. trucking market remains soft with excess capacity. Load-to-truck ratios for flatbeds and vans remain below historical averages prior to the pandemic. Spot rates have declined more than 20% over the past year because of this excess capacity. Due to the ongoing challenges, more small carriers continue to exit the market than are entering. Border States are also seeing orders for Class 8 (semi) trucks declining, down 7% over the prior year. It appears that the trucking market has hit the bottom, but the market should remain favorable to shippers into 2025.

Raw Material (Commodity) Updates
China’s economic slowdown and recessionary fears in the United States have fueled concerns driving declining demand for oil, copper, and other commodities; with most commodities experiencing price decreases month over month. Early August saw U.S. stocks ending in losses, with all three major indexes registering their biggest three-day percentage decline since June.

Recessionary fears are impacting global markets as investors are backing out of higher-risk assets following weaker-than-expected economic data from July. Almost all commodities continue to anticipate the impacts of the Section 301 tariffs, with the original August 1 date to go into effect being delayed.

• Copper – High supply and reduced demand from China’s economic slowdown resulted in copper prices falling $0.17 from June to July. Prices remain higher than this time last year, and long-term prospects show significant demand for copper due to growing technological advancements like electric vehicles, data centers and the push for clean energy. Short-term predictions are mixed based on the potential impact of China’s economic slowdown (as they are one of the largest consumers of metals). On August 16, a three-day strike at BHP’s Escondida copper mine in Chile, the largest copper mine in the world, ended after management and the union reached a collective contract agreement, easing some concerns about global copper supply disruptions. Additionally, Chile’s Codelco mine is ramping up efforts to recover from a 25-year low in production with plans to progressively ramp up production through 2030.
• Aluminum – Aluminum prices have steadily fallen since early June due to China’s economic slowdown and slowing demand, leaving the market uncertain about future prices. Aluminum’s average price in July was $1.27, which is $0.08 lower than June but $0.06 higher than July 2023. The Section 301 tariffs expected to become effective on August 1 have been delayed due to the Office of the U.S. Trade Representative’s ongoing review of over 1,100 public comments. The new tariffs will take effect approximately two-weeks after the final determination is made public.
• Steel – Steel prices have fallen as Chinese steel floods the market, causing oversupply coupled with weakened demand. Chinese steelmakers are unloading their excess steel production, with predictions that China could end the year with record-high export totals, as their domestic consumption falls forcing the steel industry worldwide to compete with cheaper Chinese steel products in the market.
• Crude Oil – Crude oil prices continue their downward trend, decreasing roughly 9% month over month and 7% when compared to this time last year. Recessionary concerns in the United States are putting continued downward pressure on crude oil prices while heightened tensions in the Middle East have re-surfaced potential supply risk.
• Resins — PVC manufacturers are experiencing some resin prices increases, with month over month price changes up 0–1% (and up 10%–20% year over year). Flatbed trucking is back in operation in the Houston, Texas, area after Hurricane Beryl struck the region in early July. Resin plants were not significantly impacted by storm delays.
• Lumber — Lumber prices have decreased by 11.43% since the beginning of 2024. The sharper than expected rebound of U.S. building permits and housing statistics in June increased the outlook for short-term residential construction activity, holding prices above $500 per thousand-foot board feet, which is close to a seven-week high of $510 at the end of July. U.S. labor market data and manufacturing activity continues to drive uncertainty regarding future price and supply trends.

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Labor Challenges and Inflation

Hiring slowed in July with employers adding only 114,000 jobs, which is far less than economists had expected, and the lowest monthly job growth seen since December 2020. The unemployment rate also increased to 4.3%, up from 4.1%, which is the highest point seen since 2021. The labor participation rate, which measures how many people are working or seeking work, increased in July to 62.7% as more people have entered the labor force. Slowing wage growth, a faster than expected slowing in job growth, and the rising unemployment rates have heightened recessionary fears and increased the likelihood that the Fed will decrease interest rates in September.