As we continue to navigate ongoing global supply chain challenges, Border States is committed to keeping you updated regarding material impacts, inflationary pressures and other market trends. We continue to work diligently to provide you with the most current information possible, knowing this information could change at any point.
Supply Chain Brief
Our supply chain remains volatile with consideration to the impacts of natural disasters, labor shortages, the impacts of strikes, material availability in some market segments, transportation risks, particularly with ocean freight, 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 prepandemic averages, we expect ongoing global inflation will continue to drive price pressures this year.
The Federal Reserve (the Fed) announced its second interest rate cut of 2024, reducing its benchmark rate by 0.25%. This cut, which is half the size of September’s reduction, lowers the federal fund rates to a range of 4.5%–4.75%from its current 4.75%–5% levels. This rate represents the interest rate banks charge each other for short-term loans. Although inflation has cooled, it is still above the Fed’s 2% target, and consumer prices remain high. Many economists expect an additional cut at the Fed’s December meeting and predict rates will bottom out in May between 3.50% and 3.75%, but the CPI data and overall economic sentiment will be the key drivers of this decision.
While the full impacts of the 2024 presidential election — both short- and long-term— are unknown, president-elect Donald Trump’s victory likely sets the U.S. economy on the path for higher tariffs, lower taxes, deregulation and proposals to lower consumer costs. Many economists predict that, if fully implemented, Trump’s economic agenda could drive up inflation, which could potentially cause the Fed to
keep interest rates higher for longer. Trump has proposed imposing tariffs of 60% or more on Chinese imports and across-the-board tariffs of 10%. Trump’s platform has also included proposals to offset tariff impacts by lowering other costs (energy, capping credit card interest rate, lower corporate income tax, boosting oil and gas production, etc.). We also expect that if the proposed tariffs are enacted, it will continue to incentivize onshoring and nearshoring of manufacturing.
The Consumer Price Index (CPI), which measures price changes across commonly purchased goods and services and the average change over time in the price paid for those goods, rose last month by 0.2% and was up 2.6% from the year before. While most economists had predicted the increase, which was primarily driven by shelter prices, the increase took inflation further away from the Fed’s target of 2%. The Producer Price Index (PPI), which measures the average price changes seen by producers and manufacturers, came in at 2.4% over prior year, with a one-month increase of 0.2%.
The 2024 Atlantic hurricane season has seen five hurricanes make landfall on the United States mainland so far, most notably, Hurricanes Helene and Milton. Over the past two weeks, we have monitored Tropical Storm Rafael, the latest tropical storm to form in the Gulf region. The initial trajectory suggested potential impacts to oil refining areas, which have historically driven impacts to pricing and availability of resin based products (PVC, gas-pipe, HDPE conduit, etc). Fortunately, this storm has dissipated with minimal impact. Hurricane season runs through Saturday, November 30.
After a three-day strike shutdown at 36 East and Gulf Coast ports in October, the International Longshoremen’s Association (ILA) — the union representing 45,000 dockworkers, and the United States Maritime Alliance (USMX) — representing the ports and shipping companies — said they would begin negotiations in November ahead of an extended deadline of Wednesday, January 15, 2025. Despite a tentative resolution on wages, port automation remains an open issue with union members. Many experts suggest negotiations will again come down to the wire, and there is risk of additional work stoppage. We continue to work with our vendor partners to understand contingency plans and potential impacts in the event of another strike
Material Lead Times
Average lead times have decreased by 30% over the past 12 months and 11% over the past six months, with improvements across all core markets we serve. Key areas we continue to observe are noted below.
To mitigate potential disruptions due to the East and Gulf Coast port work stoppage and impacts of both Hurricane Helene and Hurricane Milton, proactive measures were taken to secure the continuity of our supply chain. This includes, but is not limited to, forward buy activity.
On November 11, the approximately 400 union machinists working in Eaton’s BLine Highland and Troy, Illinois, facilities who are members of the International Association of Machinists and Aerospace Workers District No. 9 voted to ratify the proposed collective bargaining agreement, and employees returned to work. The workers had been on strike since October 21. When the strike began, proactive measures were taken to mitigate potential disruption, we are continuing to evaluate the impact to lead times.
Impacted Construction/Industrial Categories
- Distribution equipment: circuit breakers, load centers, panels, switches
- Fuses
- Meter sockets and hubs
- Automation products controls
- Strut
- Cable tray
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 cost of goods and services.
- Ocean freight – Container shipping rates remain flat over prior month, but still 70%–80% above historical (pre-pandemic) averages. Rates remain elevated due to continued strong U.S. import demand and ongoing disruptions in the Red Sea and Middle East, forcing most ocean shipments to use the Cape of Good Hope vs. the Suez Canal. This shift adds an estimated 10 days and 30% fuel cost per sailing. U.S. import volumes remain strong, with October being the fourth consecutive month above 2.4 million TEU’s (20-foot container equivalent). This is a threshold that historically signals an expected constraint on U.S. maritime logistics. Chinese imports also remain strong, with October being the fifth month in 2024 above 900,000 TEU’s — a mark not achieved in a single month in 2023. The results of the presidential election will create some expected volatility and uncertainty in Chinese relations both short and long term. The ongoing labor issues with East and Gulf Coast ports creates an elevated risk of additional port constraints that would impact lead times and freight costs across many product categories.
- Trucking Market – The trucking market continues to be a shipper’s market with weak demand and spot linehaul rates below historical averages. Trucking volumes year over year are down 20%. Small carriers continue to exit the market, which, long term, will create tighter market capacity. October data suggests some tightening in availability, but it was highly regional-driven by response efforts with Hurricanes Milton and Helene in the Southeast region, coupled with anticipated seasonal holiday demand. Diesel fuel prices are flat over prior month but have continued the general decline over the past two years, down more than 30% since 2022. This softening is driven by ongoing strong oil production in the United States, softer-than-expected global demand and continued market corrections as ongoing conflicts in Ukraine/Russia and the Middle East have caused minimal disruption to global supply. Many experts continue to suggest the trucking market has hit “the bottom” and expect both availabilities to outpace demand and rates to remain low into the middle of next year
Raw Material (Commodity) Updates
While the full impacts of the 2024 presidential election are unknown, and the potential effects are likely to lag at least a few months, President-elect Donald Trump’s victory has generated uncertainty regarding the anticipated impacts to the commodity market. Trump’s “pro-business” policies certainly favor the strength of the U.S. dollar, but this optimism is also at conflict with potential tariff impacts that would affect several commodity prices. Most commodities have continued to see prices increase year over year and holding flat, to down slightly, month over month (see commodity-specific details below).
- Copper – The Fed’s interest rate cut of a one-quarter point during their November meeting has supported the strengthening of copper’s value. When the dollar weakens, metal prices typically rise. In addition, global demand for copper remains strong as the focus on clean energy technologies and electric vehicles continue. This growing demand is creating pressure to increase supply, and revitalizing old mines is quicker and less expensive than building new ones. Copper prices have increased roughly 17% when compared to last year, 6% when compared to the prior quarter and are down 4% month over month.
- Aluminum – Aluminum prices increased nearly 20% in October, edging toward record highs due to production issues with alumina, a crucial raw material refined from bauxite and smelted into aluminum. Guinea, a global supplier of bauxite, suspended shipments from a major producer due to a dispute with government customer officials. Rising alumina costs are also driving up aluminum smelter expenses. Since smelters require two tons of alumina for every ton of refined aluminum, they may need to increase prices to maintain profit margins. If they cannot, some smelters might reduce production or even shut down, which can, in turn, limit supply and push prices higher.
- Steel – While steel prices continue to trend down year over year, there is a potential for price increases as suppliers enter maintenance season, which temporarily reduces supply and limits availability. Japanese steelmaker Nippon Steel Corporation (NSC) is in a definitive agreement to purchase United States Steel Corporation (U.S. Steel), adding an estimated 20 million metric tons of steel capacity through the acquisition. NSC has said they still expect to close the merger this year, pending a U.S. national security review, despite opposition from both President Biden and President-elect Trump. Ahead of the election, Trump vowed to block the deal.
- Crude Oil – While steel prices continue to trend down year over year, there is a potential for price increases as suppliers enter maintenance season, which temporarily reduces supply and limits availability. Japanese steelmaker Nippon Steel Corporation (NSC) is in a definitive agreement to purchase United States Steel Corporation (U.S. Steel), adding an estimated 20 million metric tons of steel capacity through the acquisition. NSC has said they still expect to close the merger this year, pending a U.S. national security review, despite opposition from both President Biden and President-elect Trump. Ahead of the election, Trump vowed to block the deal.
- Resins — Resin production and availability have remained steady in recent months, with prices holding relatively flat (but up from the prior year). With Tropical Storm Rafael expected to dissipate in the Gulf of Mexico, initial concerns and potential impacts to oil refining areas, which have historically driven impacts to pricing and availability of resin, are no longer expected to pose a risk.
- Lumber — Lumber prices saw a six-month high, rising to $550 per 1,000-foot board. Single-family home sales reached a 16-month high, and pending home sales saw their largest jump since January 2023, reinforcing the projected increase in demand outlook for construction materials as interest rates continue to decline. The Fed’s interest rate decisions globally restricted access to affordable wood, and U.S. supply shortages will all impact future pricing and availability of lumber.
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Labor Challenges and Inflation
Job growth slowed in October with the Labor Department reporting employers added 12,000 jobs for the month, well below the 113,000 gain predicted by economists. The number of jobs added were also revised down for August and September. Two hurricanes and a major strike by Boeing were contributing factors to the decline, with employment in the manufacturing sector declining in October. With the October data being heavily influenced by these factors (hurricanes and strikes), many economists anticipate the figure is down further than “normal” and not reflective of an underlying strong labor market. A cooling labor market and slowing price growth gives the Fed more confidence in their ability to cut rates without driving inflation.
The unemployment rate was 4.1%, and the labor force participation rate, which measures how many people are working or seeking, was down slightly month over month to 62.6% (from 62.7%). While a declining labor force participation rate can be a signal of underlying economic problems, there are other factors to be considered, including a shift in social or demographic trends and the scope of the decline, which is still relatively flat.
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.