The industrial sector has faced numerous challenges in 2022, including fluctuations in steel prices, disruptions in the freight industry, and ongoing impacts of the COVID-19 pandemic on the labor market. These trends have had significant consequences for the sector. Understanding their impact is crucial for businesses navigating this uncertain landscape.
The industrial sector is a critical component of the global economy. Determining the challenges and opportunities it faces is essential for businesses and investors alike.
Fluctuations in Steel Prices: The Impact of Supply and Demand, Raw Materials, and Trade Tensions
Rising raw material costs, increased competition, trade tensions, supply and demand issues, and the pandemic have contributed to the industry’s price fluctuations. When demand is high, and supply is low, prices rise. This has been the case in recent years due to the COVID-19 pandemic, which has disrupted global supply chains and caused delays in shipping. Container ships sitting offshore for extended periods have also contributed to low supply.
Because steel is made from various raw materials, including iron ore, coal, and limestone, the price of these materials can impact the overall cost. In recent years, there has been a rise in the cost of iron ore, which also contributed to higher steel prices.
Trade tensions and increased competition have also played a role in these fluctuations. Trade tensions between the United States and China, for example, have had a large impact on the global steel market, as China is a major producer and exporter of steel.
Steel prices have seen significant fluctuations in the last 30 months. In May 2020, steel prices reached their lowest point at $21.89 per core weight. However, prices began to rise and peaked at $98.11 in September of that year before falling back to $32.97 last week. The current price as of December 23, 2022, is $34.79 per cwt, or hundredweight.
Supply and demand significantly impact lead times for steel products, such as pallet racking. When steel prices are high, it is often due to low supply. Under normal circumstances, lead times for a new rack might be four to eight weeks. However, lead times have extended out as long as 40 weeks over the past two years.
This increase in lead times has also contributed to the rise in the prices of used steel products, as companies may turn to used material to meet their needs more quickly. Cold rolled steel is commonly used in standard pallet racking, while hot rolled steel is used in structural racking.
Challenges and Adaptations in the Freight Industry
The freight industry has faced several challenges in 2022, with a shortage of nearly 78,000 drivers and increased demand due to the shift toward direct-to-consumer purchases. This has increased the number of loads per truck and put pressure on carriers.
The pandemic has also significantly impacted the freight industry, disrupted global supply chains and caused delays in shipping. Many carriers have had to implement new safety measures and protocols to protect their workers and maintain operations, creating additional costs and challenges.
Additionally, many roads and highways are in poor condition, creating delays and increased costs for carriers. There is a lack of storage capacity at ports and airports as well, which can cause bottlenecks and delays in shipping.
Despite these challenges, the industry has shifted to meet the needs of its customers. Many carriers have turned to technology to address these challenges, such as GPS tracking and real-time visibility, to improve efficiency and reduce costs. Some carriers focused on building relationships with key customers and investing in their own infrastructures, such as warehouses and distribution centers, to better meet the needs of their customers.
The Impact of COVID-19 on the Industrial Labor Market
To protect their workers and maintain operations, many companies have implemented new measures such as social distancing, mask-wearing, and frequent cleaning and disinfecting. These measures have added costs and operational challenges, particularly for companies in sectors that were already facing economic difficulties.
Estimates suggest 2-4 million global workers are out of work due to long-term COVID-19 symptoms. Outside of pandemic-related illness, the manufacturing industry has been impacted by factory closures and supply chain disruptions, leading to job losses and a decline in employment.
However, e-commerce and online retail have seen an increase in demand and have ramped up hiring. The warehouse and distribution sector has experienced a surge in demand due to the shift toward online shopping and direct-to-consumer deliveries. This has led to a shift in the skillset needed in the industrial labor market, with a greater emphasis on technology and digital skills.
As the economy recovers from the pandemic, companies must stay abreast of changes in the labor market and adjust their operations accordingly to remain competitive.
Impacts of Economic and Geopolitical Factors on the Industrial Real Estate Market
The industrial real estate market in the United States has remained steady in 2022, despite the slowdown seen in other sectors of the commercial real estate market. While demand for multifamily and office spaces has decreased, the demand for industrial properties such as warehouses and manufacturing facilities has remained strong. This is due in part to the growth of e-commerce and the increased need for distribution centers to meet the demand for online shopping.
A recent CommercialEdge market report reveals the demand for industrial properties has led to a significant increase in rental prices. The report noted that the trend of surging rent price growth has been consistent across major American markets, with a yearly national average rise of 6.5% in industrial space. Additionally, the average in-place lease rate reached $7 per square foot in November of 2022, showing a slight increase of five cents compared to the previous month. This demonstrates that rental prices are continuing to increase, which is indicative of strong demand for industrial real estate. The highest rents are in coastal areas such as Los Angeles, Seattle, and New jersey ranging from $9 to $12. The lower rent, more accessible markets are across the South and Midwest in Memphis, Columbus and St. Louis.
The industrial sector has seen steady rent growth and positive net absorption in recent quarters, with the vacancy rate remaining relatively low. The demand for industrial properties is likely to continue as businesses look to optimize their supply chain operations and adapt to the changing needs of consumers. Overall, the industrial real estate market in the United States is likely to remain stable moving into 2023. Despite any potential economic and geopolitical headwinds, the sector appears to be well-positioned to continue its momentum. Businesses are likely to remain bullish on industrial properties as they look for ways to optimize their supply chain operations and meet the needs of their consumers. With continued demand, landlords are likely to see steady rent growth and positive absorption in the coming year.
Resilience and Adaptability in the Face of Ongoing Industrial Challenges
In 2022, the steel industry faced price fluctuations due to supply and demand, raw material costs, and trade tensions. The freight industry has struggled with a shortage of drivers and increased demand due to the shift toward direct-to-consumer purchases and disruptions caused by the COVID-19 pandemic.
The commercial real estate market has seen a slowdown in some sectors, such as apartments and office spaces, while other sectors, such as retail and neighborhood centers, have experienced continued growth. Finally, the industrial labor market has faced disruptions due to the COVID-19 pandemic, with some sectors experiencing job losses and unemployment while others have had to ramp up hiring to meet increased demand.
Despite these challenges, the industrial sector has demonstrated resilience and adaptability in the face of unprecedented disruptions. By staying attuned to developments and adapting to changing circumstances, businesses in the industrial sector can position themselves for success in the years ahead.