ERA’s quarterly insights regarding market conditions, potential impacts on procurement, and supply chain planning.
General Supply Chain Observations & Updates
Supply Chain & Freight
Overall, S&P Global Market Intelligence reports that “companies are looking to conserve cash with a wide range of data showing inventory strategies have returned to ‘just in time’ approaches.”1 Tariffs, sanctions, and politics are expected to continue to play their parts in supply chain outcomes, especially with the large number of elections taking place next year.
The Cass Transportation Index Report expects “modest year-over-year growth in consumer spending this holiday season, driven by acceleration in real disposable incomes, and the ongoing strong labor market.”2 It is projected that freight rates will keep decreasing due to the ready availability of trucks,3 as demand continues to decline and fuel costs fall.4
KEY TAKEAWAY: If you are one of those companies looking to conserve cash, this is a perfect time to look at your expenses, both direct and indirect, and see what can be done to lower them.
Corrugated
The end of Q3 2023 saw the merger of WestRock and Smurfit Kappa into Smurfit WestRock.5 It is worth watching how this powerhouse combination could affect the Corrugated industry, especially considering that International Paper is set to permanently close a mill in Orange, TX, and will cease production on two of its pulp machines in other locations.6
KEY TAKEAWAY:It is unclear how the recent market shifts will impact Corrugated supply and price. The best course of action here is to ensure your supplier communication lines are solid, your prices are directly tied to the RISI corrugated index, and that suppliers are prioritizing your account for material availability.
Lumber/Pallets
Lumber prices decreased throughout Q3 2023, due primarily to increased interest rates. “Because the construction industry is the largest downstream buyer of lumber, the effect of interest rates on this industry has been driving lumber price shifts.”7 Similarly, consumers aren’t out buying as much right now, so fewer pallets have been needed, and major changes up or down are not anticipated for the pallet market, in particular, for Q4 2023.8
However, Fastmarkets.com contributor Dustin Jalbert reports that “Fastmarkets projects US lumber consumption to grow by 18% through 2027…primarily fueled by residential construction and repair and remodeling activities.”9 Mr. Jalbert also discusses the move from hardwood to softwood, a “big switch” that PalletEnterprise.com has noticed happening in the pallet industry.10
KEY TAKEAWAYS: As we are at the beginning of the 2023 retail/holiday shopping season, this is the time of year when pallet availability tends to tighten. Good communication with your suppliers can help to ensure you are at the front of the line to receive pallets. Also, be sure to push back on any price increases by asking for detailed justification.
Plastics
Multiple linear-low-density polyethylene (LLDPE) producers announced a price increase in September, and yet another increase in October. Demand for LDPE and LLDPE film is also on the rise, leading to increased spot prices for all grades of film.11 Robin Chesshier, VP of PE for Resin Technology Inc., says the increases are due to “a very strong exports market…[and] an uptick in domestic demand which appeared to be partially attributed to prebuying due to hurricane season.”12 Prices are expected to remain flat across the five commodity resins going into year-end.
KEY TAKEAWAY:If your plastics/film suppliers increased prices in Q3, this was a justified move, as long as it was relatively small. We do not anticipate any further increases as 2023 wraps up.
Chemicals & Gases
Over the past three months, chemical production increased in the Gulf Coast region, where most of the nation’s petrochemical and synthetic materials are manufactured, but decreased in the regions where personal care and cleaning products are primarily produced.13 Overall, chemical companies such as Eastman Chemical have experienced “weak demand and customer inventory destocking across several end markets.” CEO Mark Costa adds, “demand remains muted as customers are cautious in the current challenging environment.”14
Industrial gas supplier Air Liquide reported sales to large industries were down for Q3 2023, and their electronics revenue was also down due to a slowdown in the memory sector.15 Violence in the Middle East and Israel have natural gas traders and producers on both sides of the Atlantic carefully watching developments.
KEY TAKEAWAY: For chemicals, this is still a good time to ask for supplier price reductions. For gases, watch out for price increases, but also make sure you are communicating well with your suppliers to ensure continuity of supply.
Metals
US steel prices increased due to the UAW strike, a number of mills performing scheduled maintenance, and a decline in manufacturing activity. 16/17 “At the same time, the surprising turn toward slower growth in China in recent months may dampen demand for industrial metals,” according to Rob Haworth, senior investment strategist at US Bank Wealth Management.18
KEY TAKEAWAY: After a long run of price decreases in most commodities dating back to early Q2, steel prices are starting to creep up. Make sure your supplier has exhausted your supply of lower priced material before accepting increases for new material.
Sources:
1) S&P Global Market Intelligence; 2) Cassinfo.com; 3) Inbound Logistics; 4) Procurement IQ-Corrugated Boxes; 5) WestRock Press Release; 6) The Packaging Portal; 7) Procurement IQ; 8) Pallet Blog; 9) Fastmarkets.com;
10) PalletEnterprise.com; 11)Market Dynamics Newsletter, September 11,2023; 12)Plastics Technology; 13) AmericanChemistry.com; 14) Reuters; 15) GasWorld;
16) Furguson Weekly Commodities Insider; 17) Focus Economics; 18) US Bank;
About the Authors
Travis Cantrell and Patrick Garr are Manufacturing Specialists with Expense Reduction Analysts. They both hold engineering degrees and have over 24 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.