Texas Eases Cross-Border Manual Inspection Mandates
RedStone Resource
April 20, 2022
Inside This Edition
US Business Inventories Remain Too Low Across Most Sectors
The US inventory-to-sales-ratios (ITSR) were updated recently and most of them remain “too low” compared to historic levels. Total business ITSRs were still sitting at lows that would keep the global supply chain scrambling for materials and finished goods.
Texas Eases Cross-Border Manual Inspection Mandates
The Conference Board’s Measure of Consumer Confidence came in at 108.0, up from 103.6 in August. This was the second consecutive month that jobs, good wage growth, and some declining gasoline prices helped to improve sentiment.
Transportation Producer Prices Remain Higher in March
The Producer Price Index (PPI) is a compilation of 200 surveys a month by the Census Bureau measuring the cost of using or purchasing certain commodities or services. The CB produces indexes for LTL, TL and Rail services and those indexes include a combination of spot and contract prices as well as the impacts from fuel surcharges.
ECONOMIC BRIEFING
China Approach to COVID Continues to Create Challenging Global Environment
More cities are now locked down from COVID risk in China and the impact to the global supply is still just being felt. More than 400 million people were estimated to be impacted by some level of COVID restrictions and domestic distribution systems were grinding to a halt. The latest estimates suggest that 50% of China’s GDP is at risk and being impacted by the lockdowns.
One impact is hitting the global commodity market. Although prices are still high, some of the demand from the Chinese market is dropping quickly and that is helping the global supply chain catch up slightly. Some commodity prices have started to ease off their peaks, although steel products are still hitting new all-time highs. Commodities that have high exposure to Russian metals are still in short supply and prices are reflecting that. One of the bigger challenges may come from disruptions to the US domestic supply chain and automotive assembly lines.
This is still a developing situation and the impacts from it will be felt for some time.
US Business Inventories Remain Too Low Across Most Sectors
The US inventory-to-sales-ratios (ITSR) were updated recently and most of them remain “too low” compared to historic levels. Total business ITSRs were still sitting at lows that would keep the global supply chain scrambling for materials and finished goods. By sector, retail, wholesale trade, and autos were still sitting well below acceptable levels. At these levels, they suggest that stockouts and backorders are still common.
But manufacturing was now showing that supply chains may be a bit more balanced, the most balanced since prior to the pandemic. This could slow some reorder activity in the manufacturing sector, or allow many manufacturers to catch up and remove backorders.
Most manufacturers have 90-95% of their components in stock and are not suffering from stockouts like they were prior to the summer of 2021 when 50-60% of their parts were out-of-stock. Again, what the latest COVID issues in China does to that supply and their inventory levels is yet to be seen.
TRANSPORTATION BRIEFING
Texas Eases Cross-Border Manual Inspection Mandates
Texas Governor Greg Abbott has eased additional manual inspections of cargo trucks along three major border crossings between Mexico and Texas. These inspections were deemed necessary by the Texas Government and unnecessary by Federal US Customs and Border Protection agents. Since the order was enacted last week, delays of hours of cargo throughput at the border crossing was hurting certain sectors. Many companies have temporarily abandoned just-in-time inventory strategies, but the additional inspections were creating some significant transit time delays. There was a much greater threat to perishables that have a short shelf life (fresh produce primarily).
One of the bigger factors is that it works to keep cross-border truck capacity tight. When a trucker is detained for an extended period, they lose operating hours. It costs them money, time, and it tightens capacity in an industry that is still tight. Some shippers were considering shifting modes and trying to move cargo via rail (which also adds additional transit time requirements), but capacity availability and reworking inspection activities remains a challenge. In any event, with three of the major port crossings now seeing easing of additional inspection requirements, freight flow velocity may improve.
Transportation Producer Prices Remain Higher in March
The Producer Price Index (PPI) is a compilation of 200 surveys a month by the Census Bureau measuring the cost of using or purchasing certain commodities or services. The CB produces indexes for LTL, TL and Rail services and those indexes include a combination of spot and contract prices as well as the impacts from fuel surcharges.
In March, TL prices were still trending 34.4% higher than they were at this time last year (and prices were elevated at that time as well). Less-than-truckload prices were 14.4% higher than they were at this time last year and rail freight prices were 7.8% higher. The rail sector has been slower to take more aggressive price increases despite having tight capacity in many regions of the country and across many commodity sectors.
Other sources are showing some softening of spot prices, but there is a lot of uncertainty in the market about the current slowing and whether it is a product of the closure of China’s activity (and slower inbound freight as as a result of February’s disruptions from the Lunar New Year and the Olympics), or whether it is signs of something bigger across the economy. This is also a period of normal softer seasonality that the country is working through, which could also be affecting prices. But for now, none of those changes are being reflected in the Federal data via the PPI.
