US & Global Economic Impact Analysis and Forecasts

Freedonia analysts and economists are sharing their insights on how major events are impacting different parts of the US and global economies.

Is This the End for Lean Inventories & Just-in-Time Deliveries? Producers & Distributors Avoided Inventory Buildups During COVID-19 Shut Downs but Many Still Struggle to Catch Up

The just-in-time, or lean inventory, method that spread throughout the world over the past few decades met its match with the COVID-19 crisis. While lean inventory methods help factories, distributors, and retailers minimize costs, they place potential strain on the factories and logistics companies that must make and distribute the goods just-in-time. Avoiding excess inventory and/or carrying costs is one the main principles of JIT systems.

Producers, distributors, and retailers canceled orders amid production shut-downs and sharp shifts in consumer behavior with an uncertain outlook around March 2020. Then consumer shifts to cooking and working from home led to high demand for a wide variety of goods (e.g., items such as toilet paper and flour packaged for retail rather than foodservice, as well as electronics, lawn and garden products, and home improvement materials).

However, the modern global production and distribution system relies on predictability and isn’t built for surprise surges in orders or rapid shifts in demand – it’s more streamlined to deliver a steady level of orders via the “just-in-time” methods.

The fact that the JIT system can’t handle a huge crisis is one of the known drawbacks, but no one expected a large hit to multiple supply chains at once, and any system would face strains in such circumstances. Typical challenges for the JIT system usually involve natural disasters such as hurricanes that results in closed roads and factories for a few days.

However, this era has put unprecedented pressure on the system, after a global pandemic -- and the widespread understanding that this won’t be the last one – and the extended supply disruptions (e.g., hurricanes, polar vortex, floods, factory closures, and a container ship blocking the Suez Canal) and the downstream effects of port backups and trucking delays.

Is this the end of lean inventories? More companies – especially those burned by high profile issues such as computer chip shortages and volatile lumber pricing – are rethinking the process and reconsidering how their supply chains might look going forward. Maintaining larger stocks of inventories might cushion against supply shocks and pricing volatility, but requires investment in warehouse space and related operations and more focus on potential challenges (or a greater tolerance for risk of overbuying or waste).

If JIT required data to get the right supplies to arrive at the right time, so does maintaining enough stocks to hedge challenges without overshooting.

This shift is something that will play out throughout the economy. Freedonia analysts will continue monitoring the effects of adjustments made to supply chains and will continue to consider how future adaptations to logistical processes could work in various industries.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Logistics: Logjams at Ports Continue & Supply Chain Challenges Persist

The global economy has been experiencing supply chain challenges since the start of the coronavirus pandemic. Troubles have cascaded from factory shutdowns to shifts in unexpected shifts in demand levels for products and materials to port shutdowns, which result backups and container ships stuck in the “wrong” places as well as challenges in staffing port workers, truck drivers, warehouse personnel, and others. All the way, things were complicated by hoarding, stockpiling, pricing volatility, and severe storms that closed ports or processors of plastic materials or various types of fuel. Whew.

Now, even previously unheard of measures – such as the Port of Long Beach going to 24/7 operations in September and companies (such as Home Depot and Walmart) hiring out their own container ships – are not making for sufficient solutions.

The functional implementation of 24/7 port operations has made the move at the Port of Long Beach not as quick a fix as some hoped. It will be tested further in the coming weeks and months as the Port of Los Angeles also begins 24/7 operations.

Prices to ship a container from Asia to the US remain at historically high levels – reportedly rising from a few thousand dollars per container in mid-2020 to the $20,000-$30,000 range. These costs pose a challenge for large shippers and are effectively impossible for smaller importers, and many guess that these challenges and high prices will extend well beyond the 2021 holiday season and through 2022.

So what’s to be done?

Some companies are rearranging their supply chains, if they can, by shifting needed production to areas that run through less crowded ports or to countries closer to their destination. Those that can do so more easily already have production facilities or relationships with suppliers in these places.

Some companies are ordering earlier and stocking up. Is this the end of just-in-time supply? At least for now, it is. Of course, this requires having the warehouse space available and the data needed to plan further in advance for stocks, parts, and material inputs.

Some are pivoting their business. Those that can backward integrate into parts production or materials supply are looking at ways to do that. Those that can operate in a related field or shift production to something that is needed locally and right away (e.g., personal protective equipment) are doing so.

Some companies are waiting it out. This requires longer waits for needed parts, materials, packaging, or products and often higher prices to customers. The kinks in the supply chain will eventually work themselves out… just not as quickly as many would prefer.

Freedonia analysts will continue monitoring the effects of the supply chain challenges and the pivots businesses are making to keep operations moving as smoothly as possible.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Acquisition Shows Effect of High Lumber Prices on Pallet Industry

While there have been a number of articles about the effect of the lumber shortages on the housing market, much less has been said about how the national lumber shortage has affected other industries. For instance, a leading end use for lumber in the US is pallets. Indeed, with more than 90% of pallets in the US made from hardwood and softwood lumber, the shortage of lumber has severely affected the pallet industry. Many sawmills have been prioritizing shipments to home builders and big-box retailers – who have more purchasing power – leading many pallet producers and retailers facing critical shortages of pallet cants and other lumber components needed to fix and repair pallets. Not only can firms produce fewer new pallets, but firms’ ability to repair damaged pallets has also been affected by the lumber shortage – companies unable to obtain replacement cants are faced with the difficult choice of cannibalizing one pallet to repair several others.

A recent acquisition announcement shows how one firm in coping with the shortage of lumber. Kamps – one of the nation’s leading pallet repair and management firms – announced that it would purchase Buckeye Diamond Logistics, a firm that also provides pallet repair and management services. The acquisition:

  • expands Kamps’ national pallet stock – a key consideration when firms are looking to lease as many pallets as possible to ensure timely shipment of their goods
  • boosts the company’s network of pallet repair and maintenance facilities
  • increases Kamps’ inventory of trailers used to haul pallets, making it better able to quickly shift pallets to a customer experiencing a temporary shortage
  • adds to Kamps’ purchasing power – some sawmills will only sell to firms willing to buy large quantities of lumber

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including Pallets and Global Pallets. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Mergers & Acquisitions Are Booming in 2021: Key Factors Driving Increased Activity

M & A activity has been very busy this spring. Across a wide variety of industries, we’re seeing a range of announcements from market leader combos to roll-ups of smaller, regional operations. But what’s behind this rise in activity?

Here are a few key factors driving acquisition and divestiture activity across the economy in 2021:

  • Owners of smaller firms are looking to retire after their businesses’ survived the COVID-19 pandemic (or in some cases, these businesses struggled and owners did not want to rebuild).
  • Certain industries with high pandemic-era sales (e.g., construction goods suppliers, home improvement distributors/retailers, packaged food companies, grocers, lawn and garden equipment and supplies firms) are flush with cash and high stock values and are looking to expand.
  • Pent-up interest from the limited activity of 2020, as transactions that were planned or considered pre-pandemic were put on hold due to economic uncertainty or the difficulty of completing due diligence when you aren't traveling. Some of these previously planned transactions are now going through.
  • Expectations of higher tax rates are leading some firms to cash out now or to make shifts that put them on better footing.
  • SPACs (special purpose acquisition companies) are being increasingly used for acquisitions to expand existing public or private companies.
  • Companies are reevaluating their business operations in the post-pandemic era and are sometimes making changes to what they see as their core operations, or are building on key capabilities that have grown over the course of the pandemic.

Freedonia Group analysts are keeping watch across a wide variety of industries for changes that portend market movements and shifts in the competitive environment.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Chemicals      Construction & Building Products      Consumer Goods      Covid-19      Energy & Petroleum      Food & Beverage      Industrial Components      Machinery & Equipment      Packaging      Plastics & Other Polymers      Services      Textiles & Nonwovens    

Strong Pallet Market Buffeted by Supply Chain Crises

The recent blockage – albeit temporary – of the Suez Canal demonstrated how tenuous the global supply can be, threating shipments of thousands of items worldwide. However, another item is as critical to the global economy as a giant freighter – and equally in peril: the humble pallet. Demand for pallets has risen over the past year as shipments of construction materials and numerous industrial products have remained strong, even during the COVID-19 pandemic. Furthermore, as more and more consumers shop from home, pallets are in demand to handle the vast number of packages shipped to and from warehouses and distribution centers.

However, as a recent article demonstrates, the swelling market for pallets is threatened by a series of challenges:

  • Surging lumber prices and a shortage of available lumber stock have made it difficult for wood pallet manufacturers to obtain the main raw material for their products.
  • Increasing nail prices – more than 100 can be used to assemble each pallet – have further driven up pallet costs.
  • Labor shortages – from workers needed to assemble pallets to the truckers needed to transport them to manufacturers and shippers – have producers scrambling to find employees to assemble and repair pallets and deliver them to customers.

While wood pallets will remain the leading pallet material going forward, rising costs and a lack of supply may encourages to use plastic pallets. Though more expensive, pallets made from plastic offer end users a number of advantages, such as lighter weight and the ability to be used for many trips before requiring repair or replacement. More importantly for suppliers, plastic pallets are more readily available than those made from wood.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including Pallets and Global Pallets. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Automotive & Transport      Covid-19      Industrial Components