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.

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.

Worker Shortages & Need for Efficiency Propel Automation, Big Data, & Other Changes in Agriculture & Mining

If there’s one thing the COVID-19 pandemic has made clear, it’s that the effect that worker losses can have on productivity. As immigration has been limited, workers have sought jobs less exposed to pandemic infections, and more employees have had to take time off for illness, quarantine, or family care, companies have struggled to maintain output.

In an economy challenged by worker shortages – particularly in industries that have long been supported by immigrants and migrant workers – automation and efficiency are very high priorities.

While software as a service (SaaS) and leasing over ownership is a main feature in high-tech industries that expect to see frequent upgrades and product improvements, innovations are moving even those markets that have long seen as low-tech industries in this direction. To keep pace and ahead of that trend, companies such as John Deere are seeking to fundamentally transform both their businesses and product offerings in coming years.

With technological innovation revolutionizing farming, forestry, construction, and mining, Deere argues that customers now require more than just a piece of equipment. This could include:

  • hiring out the equipment as part of a comprehensive solution for farms, quarries, or mines
  • pairing increasingly automated machinery capable of collecting a lot of data about operations with advanced complementary technologies
  • management tools
  • maintenance services

With farmers and facility operators too busy or not sufficiently trained in data analysis to make the best use of all the data generated, equipment suppliers could offer data analysis services and digital platforms to make actionable data clear. Such offerings could help facilities operate more efficiently and sustainably.

However, such an integrated suite of equipment, software, and services could run into the user-side pressure for right-to-repair. Farmers and other users of heavy equipment have found that high-tech versions of equipment cannot be repaired by themselves or even by local shops, resulting in increased downtime when a problem arises. Not having operational equipment is a real drag on efficiency and could result in precious time lost during planting and harvesting seasons. Still, if equipment can be kept operational longer with less downtime by using remotely assessed software, that problem could be negated at least to a degree.

Freedonia analysts are carefully watching innovations in automation, efficiency, and right-to-repair as a way  to stay abreast of industry trends.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, particularly in the Machinery & Equipment area. Recent analysis is available covering topics such as Global Forestry Equipment, Global Mining Equipment, Global Off-Road Equipment Technology 2021, Global Power Lawn & Garden Equipment, and Global Power Tools, as well as Global Construction Equipment (coming soon). 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.

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Why Lots of Things We Buy Are Getting More Expensive…

The global economy is seeing shortages and historically high prices for things such as lumber, computer chips, plastic resins, corrugated board/boxes, and chicken – all products that have ripple effects into larger markets such as home construction, vehicle manufacturing, packaged goods, e-commerce shipments, and foodservice... what is going on here?

While there are often industry-specific challenges, there are several factors in common across much of the economy:

  • Shipping issues – there are shortages of containers (or containers in the wrong places), lags in unloading at ports, and shortages of commercial truckers that are slowing road transport
  • Supply constraint
    • from facility shutdowns or slowdowns, whether due to severe weather (e.g., processors of plastic resins were shut down during the February storms in Texas and still haven't caught up) or COVID outbreaks or operational restrictions (e.g., chicken processors)
    • from an inability to ramp up production any faster as some were already operating at full capacity in 2020, and while major investments are planned or underway, there are supply bottle necks at the machinery production level too
  • Demand-side issues as industries saw sales gains that were unprecedented, sudden, and even sustained

While some of these conditions existed in 2020, there were a lot of segments of the economy where we still didn’t see price increases until recently. Why not? Some retailers and manufacturers have had a sort of “decency pressure” on them…they haven't wanted to be seen as taking advantage of a pandemic so they have refrained from raising prices in some cases. However, that period is likely over. With more people vaccinated and fewer people dying, there will be less of a feeling that rising prices indicates profiteering in a crisis. Suppliers increasingly see their price increases as justified and fully in line with their rising costs.

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.

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