ERA’s quarterly insights regarding market conditions, potential impacts on procurement, and supply chain planning.
General Supply Chain Observations & Updates
Supply Chain & Freight
At the start of 2024, supply chain professionals are embarking on one of two strategies: “…a more conservative ‘just in case’ approach and a leaner ‘just in time’ approach in a high-interest rate environment.”1 This is a prime opportunity for companies interested in reducing expenses to focus on consolidating their supplier pool to leverage higher volume orders in exchange for price concessions.
Trucking freight rates continue to fall and are not expected to increase until Q2 or Q3 of this year.2 The enactment of the Emissions Trading Systems (ETS) on January 1, 2024, will have a “significant impact” on the container shipping market, which is already struggling with overcapacity issues. Furthermore, the volatility of the Red Sea situation and the ongoing disruptions, plus the Panama drought significantly reducing Panama Canal shipments, will further affect container shipping and the global supply chain as a whole.3,4
KEY TAKEAWAY: Company executives should set the direction for their firms based on “just in case” or “just in time” planning and ensure that their staff execute accordingly. If “just in time” is your company’s strategy, it’s important to have open lines of communication with suppliers and contingencies established for backup sources or transportation disruptions.
Corrugated
Major cardboard producers such as International Paper, WestRock, and Packaging Corporation of America proposed 12% to 18% price increases for January 2024. However, Resource Information Systems Inc. Pulp & Paper did not accept these changes and kept linerboard flat with their January publication.
“It is an unusual time of year to raise prices when demand usually drops off following the holidays,” Greg Rudder, Pulp & Paper Week managing editor, told the Wall Street Journal. “But it reflects greater demand and lower supplies than a year ago, as well as an effort by producers to reverse falling prices.”5
Corrugated producers claim demand is increasing, and they have to cover rising production costs, so their customers will have to pay more. Additionally, the current push towards sustainability has put corrugated boxes front and center, and corrugated suppliers are enjoying the attention. The price forecast for 2024 is projecting a 2% to 5% increase throughout the year, and it would not surprise us to see a small increase occur before the end of Q1’24
KEY TAKEAWAY::If you do not have a contractual document in place with your corrugated supplier(s), you may soon be at their mercy regarding price levels (recent price increase letters were sent to many companies in Dec’23); firming up those relationships and having transparent price mechanisms in place should be a top priority, as we enter what could be a rocky 2024.
Lumber/Pallets
Fastmarkets.com said in their 2024 predictions for softwood lumber markets that “mill staffing and production has now recovered fully, the surge in demand from the R&R and single family boom have corrected, and transportation and distribution are facing a fraction of the disruptions we saw in 2021 and 2022. We are now in normal demand-supply equilibrium, which suggests the price-surge environment we saw for two years is over.”6 Watch for lumber prices to stay the same or increase slightly.
However, according to Natalya Calleja, VP of Marketing and Communications for 48Forty Solutions, “factors like interest rates and climbing energy costs seem poised to put a damper on wood pallet demand,”7 and pallet makers are likely dropping their prices to stay competitive.8
KEY TAKEAWAYS: We saw price reductions for the purpose of staying competitive firsthand in Q3 and Q4, with a number of suppliers trying to undercut their competition to maintain utilization of their capacity. If you did not receive price reductions on pallets, especially recycled pallets, now is the time to ask your current supplier for a price review or to reach out to the competition for quotes.
Chemicals & Gases
According to The American Chemistry Council, “demand for chemicals remains weak, both in the US and abroad.” The “unprecedented destocking cycle” has now ended, but restocking has not yet begun.9 We will likely see chemical companies focusing on cutting carbon intensity and providing more services for their customers throughout 2024. For example, according to Garth Hoff, Director of Industry Strategy for Pricefx, “surcharges, while justified attempts to stabilize pricing amidst global uncertainties, should be paired with value-added services for customers, to stay competitive. These could include expedited delivery, extensive customer support, or innovative package solutions – just a few options companies can offer to customers to stand out from competitors and justify premium pricing.”10
The lower natural gas prices in the past six months resulted in a drop in drilling activity in the US Midwest and Rockies.
Drilling activity may pick up in the next six months, but natural gas profits are expected to stay flat.11
KEY TAKEAWAY: Chemicals are another area in which we have seen prices coming down. Asking your supplier(s) for (a) price review(s) or obtaining competitive quotes are appropriate steps to take in the current economy. ERA’s experts can negotiate with your chemical suppliers for more value-added solutions during the current competitive environment
Plastics
Buyers seized well-priced resin to restock inventories, and December proved to hold the highest volume of resin purchases in almost two years.12 All major producers of Low-Density Polyethylene (LDPE) have announced a $0.05/lb increase for January 2024. Additionally, “political unrest in the Middle East will continue to put pressure on the logistical cost and could trickle into the cost of oil which could cause wild swings for spot LLDPE pricing.”13
KEY TAKEAWAY: This is another area that could be very bumpy in 2024; working with your supply base to ensure your place in line, as well as to insist on transparent price mechanisms, is of utmost importance to protect your company with respect to price and material availability.
Metals
Spot iron ore pricing hit a multi-year high in the first week of January. Pricing is expected to stay high.14
US steel prices hit a six-month peak in December, with cold rolled coil and hot dipped galvanized steel sheet prices also spiking. According to Nick Webb, Ryerson’s Director of Risk Management, Commodity Hedging, “the start of 2024 signaled much of the same, with domestic steel mill Cleveland Cliffs announcing a $50/ton price increase…overall, current conditions in the domestic steel market are characterized by rising prices and cautious production.”15 Additionally, Fastmarkets notes that “healthy order books have pushed lead times into January and even February in some instances, giving mills the leverage to raise offers rapidly.”16
KEY TAKEAWAY: We observed a significant uptick in steel prices in the last two months of 2023, and it looks like that may be the very beginning of the increase cycle; other metals were still relatively flat, but they could follow suit soon. This is another area where it’s important to have agreements in place to protect your firm with respect to supply and price.
About the Authors
Travis Cantrell and Patrick Garr are Manufacturing Specialists with Expense Reduction Analysts. They both hold engineering degrees and have over 29 years of collective experience studying complicated client expenditures in Direct Material, Industrial Chemicals/Gases, Packaging Suppliers, and Factory Consumables/MRO. ERA utilizes its in-depth subject-matter expertise to negotiate with suppliers and deliver best-in-class sourcing solutions for their clients.
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Sources:
1) 2024: A Disjointed World, S&P Global Market Intelligence Outlook Report; 2) Fleet Owner 3) Bollore Logistics 4) How the Panama Canal is Adapting to the Worse Drought in a Century, WSJ; 5) What Cardboard Prices Tell Us About the State of the Economy, WSJ; 6) Six Predictions for the Housing and Softwood Lumber Markets | 2024 preview, Fastmarkets; 7) Discovering the Future, PalletCentral; 8) Vertical IQ; 9) American Chemistry Council; 10) PriceFx; 11) Market Screener; 12) Plastics Today; 13) LLDPE Polyethylene Market Dynamics Update; 14) Core Report 2024-1-12; 15) Ryerson; 16) Ferguson Weekly Commodities Insider