Border States Supply Chain Update – September 2024

Supply Chain Brief

Our supply chain remains volatile with consideration to ongoing material availability in some market segments, transportation risks — particularly with ocean freight, ongoing labor challenges and shortages, and price volatility driven by continued economic inflation above targeted levels. Core commodities — most notably copper and aluminum — continue to run above historical averages, including last year. The amended 301 tariffs announced by the White House in May continue to put additional price pressure on steel and aluminum. While wage growth has normalized and labor participation has nearly returned to pre-pandemic averages, we expect ongoing global inflation will continue to drive price pressures this year.

Hurricane Francine made landfall in south-central Louisiana on September 11. The storm, which was originally expected to be a Category 1 hurricane, weakened to a tropical storm after making landfall as a Category 2 hurricane. Despite this year’s hurricane season predictions of an “above-normal” season for the United States, the activity has been less than predicted with potential impacts to the supply chain being managed and mitigated thus far. As the season progresses, we will continue to monitor the impacts of future storms on availability and lead times for storm response items, such as poles, crossarms, overhead pole line hardware, conductor, and other key product categories.

Negotiations with the United States Maritime Alliance, which represents port’s ownership, and the International Longshoremen’s Association (ILA), the largest maritime union in North America representing 85,000 longshore workers, continue with a series of key labor meetings being held this week. A strike has been authorized for Tuesday, October 1, if a contract cannot be reached. The U.S. East Coast and Gulf Coast ports handle nearly 50% of all U.S. imports and, while many companies have been moving shipping containers to the West Coast over strike fears, widespread impacts across the supply chain would result if a strike were to take place.

Current inflation numbers and other economic factors have many economists predicting the Federal Reserve (the Fed) will lower interest rates at their next meeting on Tuesday and Wednesday, September 17–18. Lowering interest rates encourages borrowing and spending, which boosts demand for goods and services. This increased demand in an economy, which appears healthy, could run the risk of putting additional upward pressure on prices, which could impact the Fed’s efforts to maintain price stability. Despite some recent fears of fragility in the global economy and a weakening labor market, the current
inflation rate is still above the Fed’s target of 2% and the U.S. economy remains relatively stable, making it difficult to anticipate the potential impacts (both positive and negative) a rate cut would have. As a reminder, the Fed increased interest rates 11 times between 2022 and 2023 in an effort to combat inflation.

The U.S. annual inflation rate in August fell to its lowest point since February 2021. Core inflation, which excludes volatile energy and food items, held steady at 3.2%, matching forecasts, but the CPI, which measures the average change over time in prices paid for goods, fell from 2.9% to 2.5% in August. The continued easing of pressure on the cost of goods and services for U.S. consumers further reinforces predictions of a September rate cut.

Material Lead Times

Lead time changes continue their trend of remaining relatively flat, with slight changes month over month overall and the utility market segment seeing lead times grow by one day. Despite the decrease in volatility, lead times are still elevated by 28% compared to pre-pandemic levels. Key areas we continue 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

We continue 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 – Ocean container rates have continued to soften, down 20% over the past quarter, but they remain more than double historical averages. Import volumes continue to run at historic levels, up 13% over last year in August and above the 2.4 million TEU benchmark, signifying elevated stress on the U.S. maritime system. Ocean freight moving through the Red Sea and Suez Canals remains highly constricted due to ongoing attacks from Houthi rebels in Yemen, keeping container prices elevated. 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. September is expected to be an above-average month for import traffic as many shippers work to import materials ahead of the potential labor stoppage or slowdown at 36 East and Gulf Coast ports on October 1
• Trucking Market – The U.S. trucking market remains soft, driven heavily by excess capacity, slowing economic conditions and elevated warehouse finished goods inventories in many industries following pandemic supply chain disruptions. Load to truck ratios — a benchmark for available capacity in the U.S. trucking market — are running 15%–20% below last year, signifying more available capacity this year. Linehaul-per-mile spot rates continue to run below historical averages, down more than 20% over the past two years. Diesel fuel prices are a contributing factor to lower trucking costs in the United States, driven by slowing demand, ongoing production growth in the U.S. oil market (barrel/day production up more than 10% over the past two years), softening Chinese oil demand and little impact of global supply from ongoing conflicts in oil producing regions (i.e., Ukraine, Middle East). We continue to believe the trucking market has hit the bottom and will remain soft through the first half of 2025.

Raw Material (Commodity) Updates

The impact of the Section 301 tariffs, which were originally set to go live on August 1 and have since been delayed, a slowing Chinese economy and the Fed’s upcoming interest rate decisions have fueled continued uncertainty regarding commodity prices and availability. While most commodities saw price
decreases from June to July, July to August resulted in most commodities seeing slight price increases, further cementing the difficulty in anticipating the timing and impact these factors can have on pricing and availability.

• Copper – Copper prices remain high compared to last year, but the upward trend in August began softening at the start of September. The future of copper prices and demand will be impacted by slowing demand in China and potential interest rate cuts by the Fed. Copper could see a boost if a rate cut takes place in September, as the commodity would benefit from a weaker U.S. dollar. In addition, Industrias Penoles, which is a mining and metallurgical company located in Mexico, announced an indefinite halt to operations at its Minera Tizapa mine in Mexico due to a strike called by the national mining union.
• Aluminum – Aluminum prices have increased month over month. The price increase is primarily due to the significant increase in alumina costs. Alumina, a key ingredient in aluminum production, has seen prices rise and that increase being passed on in the form of higher aluminum costs. In addition to the impact active ingredient costs have had and despite a weaker than expected Chinese economy, strong demand for aluminum in China, specifically in the solar energy, grid infrastructure and electric vehicle sectors, has further contributed to rising demand and prices. While aluminum prices have been strong, sustainability of current demand is unlikely, as aluminum requires much more energy to produce than copper.
• Steel – Despite steel prices increasing by roughly 10% in early September, economists predict average steel prices are likely to trend downward as China’s domestic demand is expected to soften. There is also risk and potential impact if Nippon Steel’s purchase of U.S. Steel falls through. U.S. Steel’s CEO has said if the sale falls through, the company might close its Pittsburg mill and shift production to its Arkansas mill. The sale is under two separate reviews by federal agency committees with both presidential candidates advocating for domestic steel.
• Crude Oil – Crude oil prices have continued their downward trend, decreasing roughly 7% month over month. OPEC+ has delayed plans to restart some output as demand has continued to weaken. Tropical Storm Francine, which hit Louisiana on September 11, has prompted drillers to evacuate crews, threatening nine major platforms
• Resins — PVC manufacturers are experiencing increases in resins costs, with HDPE resin increasing 6% month over month and PVC resin prices remaining unchanged. Production has remained steady, but manufacturers have the potential to be impacted by storms in the Gulf region.
• Lumber — Lumber prices have decreased 16% since the beginning of 2024 as supply has increased and demand continues to decline. Pending home sales and U.S. building permits have both declined and contributed to the overall decline in housing stats, which are contributing factors to lumber price trends. Interest rate decisions and the impact on the housing market continue to play a large role in the future supply and price of lumber.

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Labor Challenges and Inflation

The Bureau of Labor Statistics (BLS) reported that the U.S. economy added 142,000 jobs in August, which is 28,000 more than July but less than the 160,000 new positions that economists had forecasted for August. The unemployment rate fell one-tenth of a percent to 4.2%, wage growth came in slightly above expectations (up 3.8% year-over-year), and the number of open jobs declined to 7.7 million, which is the lowest reading since January 2021.

Every year, the BLS conducts a revision to its labor market data and, while these revisions do not impact the jobless rate (which is calculated using a different survey), the revised data found that the U.S. job market was not as strong as it appeared to be. Employers added 818,000 fewer jobs in the 12 months ending in March of 2024 than were originally reported. This downward revision, coupled with the August employment report, reinforces expectations that the U.S. labor market is slowing and further supports an anticipated rate cut by the Fed in their September meeting.

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.