Drought has eased and booking slots have improved in the Panama Canal to near-normal levels of 35 boats per day,⁸ and the water levels of the Mississippi River are also returning,⁹ yet some shipping routes are approaching $10,000 per container,¹⁰ four times more than they were at the end of last year. This is being fueled by the continued Houthi attacks on vessels in the Red Sea—70 vessels since November, killing four sailors, with one vessel seized, and two sunk.¹¹ Houthi attacks have disrupted and reduced volume through Suez Canal to 1/10th of its typical volume.¹² Rerouting these vessels around Africa’s Cape of Good Hope has impacted 10% - 15% of world trade, and the impact has added up to 15 more days in transit time, and 40% in additional fuel costs.¹³ In reaction to these delays, customers have placed larger-than-normal orders earlier than usual, further exacerbating the issue.

Ukraine has largely adapted to being in a state of war while still effectively exporting material, including materials that we depend on in the U.S.¹⁴ But China, Russia, and Iran are becoming closer allies with each other.¹⁵ This is a concern to the U.S.,¹⁶ creating further tensions, and causing the U.S. to respond with additional tariffs and controls, including attempts to end workarounds used by buyers to avoid Chinese tariffs by passing those materials through other countries, like Mexico and Vietnam. In recent developments:

The White House announced it will impose tariffs on Chinese metals that are being routed through Mexico to avoid the China tariffs.¹⁷

A June letter from the U.S. Congressional Steel Caucus asked Gina Raimonda, U.S. Secretary of Commerce, to stop consideration of granting Vietnam “market economy status” with the U.S., citing Vietnam’s top-down government controlled economy and unfair competition for the U.S. steel industry.

48.2% of rare earth elements are located in China and Russia, so geopolitical tensions with the U.S. could be a problem, particularly with semi-conductors.¹⁸ The semiconductor industry is expected to be worth $1 trillion annually by 2030, with some semiconductors using over 300 materials. Increased demand for semiconductors will require increased volumes of materials. China mines 60 percent of the world’s rare earth elements and processes about 90%. The United States has no domestic production of 14 of the minerals on the critical minerals list and relies on other countries for these materials.¹⁹

Tensions also continue to grow between China and their neighbors, including Japan, The Philippines, and Taiwan.²⁰ Nearly half of the world’s 5,400 container ships passed through the Taiwan Strait in 2022,²¹ so changes in this region could affect ocean freight significantly. But we also rely heavily on Taiwan for our semi-conductors, and even with 73 new semiconductor fabrication facilities planned or currently under construction in the U.S.,²² it doesn’t help in near term, nor does it solve the problem of where the rare earth elements will come from for manufacturing of these chips. Furthermore, how does domestic chip manufacturing help if the rest of the item is manufactured offshore in China? Will we export chips to China to be used in those products?

There is still a lot to figure out in the long term to have a truly resilient and stable supply chain for products containing semi-conductors. To this point, on June 14 Reuters reported that President Biden issued an executive order formalizing a White House council on supply chain resilience and ordered a comprehensive study by year end.²³

In Rail, on August 9th, the Canada Industrial Relations Board (CIRB) approved Canadian rail workers’ right to strike, with workers voting to strike this past May. The strike commenced on August 22nd.²⁴ In a proactive response, U.S. West Coast freight facilities are being stressed as shippers divert containers from Canada to the U.S. to avoid potential operational issues, according to a report from ITS Logistics.²⁵

In trucking, it seems that the freight market has finally bottomed out after a two-year period of inventory destocking, excess trucking capacity, and historically low rates,²⁶ and freight rates are beginning to rise, although we haven’t seen this at DPR yet. The Port of Baltimore, which has been closed since the key bridge collapsed after having been hit by a ship, has reopened²⁷ but the bridge will take time to rebuild. Some HAZMAT trucks have been using the tunnels in Baltimore to save time instead of taking the 35-mile detour on congested highways. This could create serious issues, as having HAZMAT materials spill or combust in tunnels could cause safety problems and further snarl traffic around Baltimore. This problem is being amplified with the reopening of the port, as there is now more cargo, more containers, more trucks, and more traffic.²⁸

By focusing on having a best-in-class supply chain at DPR, we are actively adapting to a new world by bringing better solutions and more predictable results to our customers through continual change within our teams.

Through our strategic relationship with a distributor in Division 10 materials, we were able obtain materials in a more efficient supply network that were otherwise cost prohibitive. Why this matters: This helps us be cost effective for our customers, and meet their needs relative to preferred products.

Safety is important to not only our people but our projects. When it comes to ensuring proper specs for boots at the jobsite and protecting our folks, we partnered with a strategic supplier to aggregate our spend and standardize how we buy safety boots to enhance our site safety while reducing costs. Why this matters: Aggregation and standardization can help us drive sourcing strategy across all categories of materials including PPE and ensure safety for our people and projects.

As lead times for switchgear remain long, outside the box thinking has become routine. With a new project starting, temporary power was the first thing on the list. Through our relationships, we located over $10M in gear from a non-DPR project that had been cancelled, was available, and hadn’t been installed. The gear was acquired within a few weeks, saving months of schedule time by not having to order from the factory. Why this matters: Being able to explore different avenues of procurement allows us to cut down lead times and improve project schedules.

We needed an outside storage solution for ocean cargo for a project in Orlando. We provided a storage solution quickly, and for a shorter time frame than is typically able to be provided. Why this matters: Being able to react to short-term storage needs provides value to both the owner and the DPR team. It allows us to maintain the project schedule at appropriate storage costs without locking in long-term storage contracts, which would lead to inefficient excess unneeded capacity.

We have contracted with a national provider of warehousing that has the necessary rigging and storage capabilities for larger equipment, in locations that align with our DPR projects. Why this matters: Having warehouses that can handle and lift larger products means we can now store any type of material we need to support our projects and owners.

With a heat wave coming toward the Sacramento area, our Procurement team jumped in to support a pressing need for worker hydration. One of the vendors had inventory issues that would have prevented on-time delivery. The Procurement team provided an alternative solution, which met the needs of our customer, and ensured our job teams would remain well hydrated and stay safe. Why this matters: On time cost effective solutions, and the ability to pivot and solve unforeseen problems, helps ensure our projects are on time and on budget.