UPDATED 10.12.2023 – Impacts on Global Supply Chain Logistics (2024)

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

The attack on Israel by the militant group Hamas this past week has resulted in horrific humanitarian impacts, resulting in tragedy and loss for many. We want to acknowledge this humanitarian impact and will continue to monitor the situation and potential impact to the supply chain going forward. Today, the impact is expected to be minimal with the greatest risk on crude oil pricing and availability.

While many global supply chain challenges persist, we continue to see ongoing improvement. Ocean and truck freight capacity remains strong, and costs remain soft even as diesel fuel costs continue to rise. 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 September, the Federal Reserve (Fed) did not raise interest rates, which continued the pause in rate hikes that began in June’s meeting, ending a series of 11 previous increases. The Consumer Price Index and Producer Price Index are set for release this week, and that data, coupled with the stronger than expected labor market in September, will be key inputs in the Fed’s next rate decision which will take place in their next policy meeting on Tuesday, October 31–Wednesday, November 1.

While September’s stronger than expected labor market raises the likelihood of a rate hike this month, economists are still predicting that rates will hold as the central bank is focused less on total job gains and more on the unemployment rate. This is the result of more people joining the labor market, which allows wage growth and inflation to lower because employers don’t need to compete as aggressively to attract workers. The current annual inflation rate is 3.7% for 12 months through August, which is still above the Fed’s target of 2%. 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 are continuing the trend seen throughout 2023 of very gradual decreases. September was no exception in that overall lead times have decreased since January 1 by 8%. All market segments saw small decreases in lead times during September, including the utility market, although this market has trended up for the year. The overall consistent decreasing trend in 2023 is favorable, but lead times are still higher than the April 2020 baseline by 65%. The industrial, construction and natural gas/PVF segments have seen the most consistent month-over-month decreases.

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, pedestals, splice cases and hand holes
• 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. While some risks remain, we anticipate transportation networks and systems to remain relatively stable looking forward.

• Ocean freight –Container rates continue to soften, dropping 17% in September compared to August. This is attributed to continued excess ocean freight capacity and a forecasted decline on U.S. imports for the fourth quarter. Container rates have now declined by over 650% from pandemic highs seen in fall 2021 and, in some lanes, are even lower than pre-pandemic levels. While some attribute the softening in the container market as signs of economic concern, container imports into the United States, year to date, are up 2.5% compared to the same period in 2019 (pre-pandemic), suggesting that volumes and supply chains have normalized. With resolution of the ILWU and PMA labor negotiations earlier this year and based on current market outlooks, we do not anticipate ocean freight having a significant impact on supply chain resiliency near term.
• Over-the-road (OTR) freight –Trucking capacity remains readily available and spot prices remain low, even as diesel fuel costs continue to rise. Diesel fuel prices are up 4% in September over prior month and up 17% since May. The driver of these increases continues to be OPEC+ production cuts that have now been extended to the end of 2023 and concern on fuel availability heading into the winter heating season in the United States and Europe. According to DAT Freight & Analytics, for flatbed trailers, it is estimated there are now seven loads for every trailer on the road — down from 97 at the peak in May 2021 and down 60% from last year. For enclosed vans, there are an estimated 2.8 loads per truck on the road, flat from prior month and down more than 20% year over year. Spot rates for both flatbed and van transportation was flat month over month. In August, we shared the announcement of YRC — the fourth largest LTL carrier, filing for Chapter 11 bankruptcy. We shared in prior updates that the LTL market has largely been able to absorb the demand with minimal impact due to demand softening and excess trucking capacity available in the market. It is expected that YRC will finalize a sale of their real estate and fleet assets sometime in October, which will result in likely LTL capacity increases into early 2024.
• 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

While copper and crude oil show year-over-year price increases, most commodities have seen prices soften. Escalated geopolitical events, and other factors, have the potential to impact the price and availability of raw materials as we look forward.

• Copper – Copper is up 7% from September 2022 to September 2023, with a year-to-date average of $3.90. A few factors are driving confusion and uncertainty as it relates to copper and what to expect going forward. The first is the potential strike in Chile’s Escondida mine, as the union of supervisors rejected a contract offer from mine-owners. In addition, the Zambian government is expected to make a final decision on the sale of the Mopani Copper mines this month. New investors in Africa’s second-largest copper producing mine would aim to triple output, but the sale has been delayed by negotiations. Going forward, both of these dynamics have the potential to impact copper pricing and the continued push for sustainability which, in many cases, relies heavily on copper. The potential for demand to outpace supply would lead to consistently higher prices as investments in cleaner power sources continue to be a global need.

• Aluminum – The year-to-date aluminum average is currently at $1.28, which is an 11% decrease from September 2022 to September 2023. Aluminum demand has continued to soften as raw materials and finished goods become more readily available. Looking forward, China’s demand for base metal imports seems to be growing with primary aluminum imports at their highest since November of 2021. It is difficult to say if this increase is true demand or the result of China taking advantage of the lower-priced Russian aluminum. Russian aluminum is not officially sanctioned, but the U.S. market has imposed 200% import duties on Russian aluminum.

• Steel – Steel prices have declined year over year, and, like copper, many factors are at play when anticipating what to expect. The United States Auto Workers Union (UAW) has expanded its strike, adding nearly 7,000 workers to the roughly 18,000 UAW members on strike, which has impacted demand for steel as lower demand for auto steel has now contributed to falling prices. New sanctions on Russian steel also went into effect on September 30, requiring manufacturers to prove that their processed products do not contain Russian steel. These new European Union sanctions are likely to be a challenge in India, where they have been importing steel products from Russia excessively over the past 18 months. Hot rolled steel declined 6% and cold rolled steel declined 10% when compared to the prior month.

• Crude Oil – Supply risks are being assessed after Hamas’ attack on Israel this past week. While the direct impact of these developments on oil supply are currently limited, there is speculation that further escalation could trigger wider turmoil in the Middle East with the potential for tightened U.S. sanctions. The extended supply cuts from Saudi Arabia and Russia also continue to contribute to upward pricing. Oil prices have been on the rise since July, with the three-month average increasing by 19%.

• Resins — Resin continues to show little change month over month, with PVC conduit costs increasing slightly due to flatbed availability and labor costs. Record-setting exports to Latin America, Asia and Europe have driven down excess resin and supported steady pricing levels in recent months. PVC resin prices are flat month over month, up 3% from the prior quarter, but they continue to be down from the prior year (34%).

• Lumber — Lumber prices continue to decline, with a 1.21% month-over-month decrease and a 6.27% decrease when compared to this time last year. Interest rate hikes and their impact on the housing market and demand for new construction have been the primary driver of lumber softening. The loss of Canadian lumber sources due to the wildfires will impact the softwood lumber supply the construction industry uses for framing and plywood, but the true impact has not yet been realized and has been offset by slowing demand. There is the potential for continued risk and damage as wildfire season continues (typically ending in October).

Labor Challenges and Inflation

The U.S. economy added 336,000 positions in September, which was significantly more than predicted and the strongest gain since January. Economists had predicted that 170,000 jobs would be added and unemployment would dip to 3.7%, which remained at 3.8% for September. Average hourly earnings rose $0.07, dipping down the yearly increase to 4.2% from 4.3%. This decline is positive news for the Fed, but it’s still higher than the 3.5% pay increase they are seeking to align with their overall 2% inflation target. Wage growth topped 5% last year amid COVID-related labor shortages. The labor participation rate was unchanged at 62.8%, which is the highest since February 2020. Acting Labor Secretary Julie Su said the job market is still cooling despite the strong month in September and upward revisions for the summer months. She noted that monthly gains one year ago were averaging 423,000 and the current numbers are a sign of steady, stable growth.

Leisure and hospitality sectors led the job gains in September with government and health care also seeing additions. The return of schoolteachers and the departure of students from summer jobs made it challenging for officials to make their usual seasonal adjustments to September’s predictions. The ongoing strike of 25,000 UAW employees are not accounted for in last month’s figures as the strike began after the Labor’s survey.

What We’re Doing to Help Our Customers

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.