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Economic Focus: A Moving Situation

Economic Focus: A Moving Situation

  • June 3, 2021
  • by Nick Allison, Analytics Manager and Melinda Knobloch, Logistics Manager

2021 continues to present challenges for supply chains of many industries.  From lumber to retail goods to copper to housing, the massive decline in demand from COVID-19 shutdowns and the subsequent surge in demand has left many industries unable to catch up with the volatility of the past 12-14 months.

Although this story is a few weeks old (late April), we saw a seasonally adjusted all-time high number of containers unloaded in the West Coast ports in February and March.  At one point in February, the L.A.-Long Beach backlog peaked at around 40 ships anchored off-shore.  In an effort to avoid this congestion, container carriers moved north to the Port of Oakland, creating another bottleneck in the San Francisco Bay. 

On the East Coast, the Port of Savannah in Georgia is on track to exceed a record five million 20-foot container units in the fiscal year (which ends in June).  This is not unique to the U.S.—for example, Singapore’s hub estimated a record-high throughput in March. 

And of course, we all remember the closure of the Suez Canal in March which delayed many vessels on their way to Europe, Asia and North America.  While imports to docks have soared, limitations of labor and infrastructure have created logjams as ports struggle to handle and offload goods.

On top of that, further pressure on supply chains comes from labor issues, as extended unemployment benefits and other government incentives have created a significant number of job openings yet to be filled—totaling 7.4 million as of the last business day of February, per the U.S. Bureau of Labor Statistics (March data will be published a few days after the writing of this article).  This includes over half a million job openings in manufacturing alone.  Once—or if—the incentives to remain unemployment reside, we should likely see the number of job openings decrease through the rest of 2021.

Along with retail goods, raw materials and other products, we see this confluence of issues affecting plywood and related products.  Through Q1, imports of ready-to-assemble kitchen cabinets (RTAs) are up 41.8% year over year (YoY); hardwood and softwood plywood imports up 19.0% and 15.8%, respectively, according to the USDA FAS portal. 

Despite this surge in imports—which is certainly related to a scorching hot start to 2021 in US single unit housing starts—inventory levels of these products in distribution and—specifically—retailers remain at very low levels, despite soaring prices. 

Even larger price increases of similar products (like OSB, sheathing, etc.) and supply chain issues (unloading product from containers at the ports) creates a dual issue of significant increases to demand while the flow through of product is congested. 

According to Melinda, there are countless other issues playing havoc with logistics, as freighters struggle to handle recent demand surges while dealing with labor issues (many driver retirements coupled with driver recruitment difficulties) and rising fuel costs/fuel availability. 

Domestic plywood manufacturers are dealing with these trucking issues, along with surging log costs and log shortages, labor issues (which can be exacerbated with local COVID-19 outbreaks) and rises in prices of other raw materials like glue and MDF.

It will take some time for this convergence of issues to be resolved for many industries, including plywood.  We expect demand to remain strong for the next several years, as we forecast double-digit growth in US single housing this year; moderate growth in 2022; slight growth in 2023. 

The unprecedented events of shutdowns followed by booming demand present a once in a lifetime challenge for manufacturing and supply chain for many product categories.