Factory Backlogs Surge as Freight and Steel Costs Soar
Factory backlogs build as freight and steel costs climb
Unfilled orders at U.S. factories continued to grow in August while shipments stalled, adding pressure to manufacturers, suppliers and the trucking companies that move materials and finished goods through the industrial supply chain.
The Census Bureau reported Oct. 2 that unfilled factory orders increased 0.6% to $1.6096 trillion. Backlogs have risen in 25 of the past 26 months. Transportation equipment accounted for $1.0099 trillion of the total and led the increase in August.
At the same time, factory shipments were virtually unchanged at $658.6 billion. That ended a streak of eight consecutive monthly increases. New orders rose 0.1% to $663.5 billion, meaning manufacturers continued to add work slightly faster than they cleared existing orders.
The unfilled-orders-to-shipments ratio rose to 6.87 in August from 6.81 in July. The Census Bureau does not adjust these figures for inflation, so the totals reflect both the volume of work and changes in prices.
For trucking, the figures point to continued demand for inbound steel, components and other industrial materials, along with outbound transportation equipment and machinery. They also show why factory-related freight may remain difficult to schedule when production is constrained by labor shortages, material availability and rising transportation costs.
A fabricated metal products manufacturer responding to the Institute for Supply Management said its orders were running above forecast through the end of the year. However, the company said a severe worker shortage was limiting production and that steel availability was becoming more difficult.
“The second challenge is general availability of steel; the market is getting worse, and more production delays are expected as we gap out of needed material,” the respondent said.
Steel shortages and delayed production can affect trucking in several ways. Loads may be rescheduled when a plant is waiting for material, while carriers may face longer loading windows or changes to delivery appointments. When components finally arrive, plants may also need to move finished products quickly to customers that have already been waiting.
Transportation costs continue to rise
Manufacturing cost pressures increased in September. ISM’s manufacturing index registered 54.5, marking the ninth consecutive month of expansion, but its prices index climbed 6.8 points to 77.9. ISM said 58.6% of respondents reported paying higher prices, up from 46.2% in August.
Freight was listed among commodities that increased in price for a seventh straight month. Diesel fuel appeared on the list for the second consecutive month. No commodity was reported as declining in price.
The Energy Information Administration’s weekly benchmark diesel price, which is used in many fuel surcharge formulas, reached a record $6.529 per gallon on Sept. 21. Higher diesel prices raise the cost of operating trucks and can increase transportation costs for manufacturers moving steel, machinery, vehicles and other heavy industrial freight.
ISM attributed the increase in prices to higher steel and aluminum costs, tariffs on imported goods and higher petroleum-related costs. Respondents also cited freight rates and fuel costs as factors affecting the price of components and finished products.
One food, beverage and tobacco products manufacturer told ISM that fuel costs were still affecting transportation costs and the overall cost of goods. A machinery manufacturer cited higher costs for overseas components because of tariffs and freight rates.
Manufacturers also reported limited inventory availability. ISM’s inventories index fell two points to 48.6 in September, returning to contraction. The customers’ inventories index fell to 41.6 and remained in “too low” territory for the 24th consecutive month. ISM said low customer inventories are generally viewed as supportive of future production.
Trade activity adds another layer of uncertainty
August trade data showed a sharp increase in imports before Canada’s retaliatory tariffs took effect in September. U.S. goods imports rose $17.2 billion to $342.2 billion, while the goods trade deficit widened $12.8 billion to $136.6 billion.
Industrial supplies accounted for $9.1 billion of the import increase. Crude oil rose by $3.3 billion, nonmonetary gold by $3.1 billion and capital goods by $6.2 billion. The capital goods increase included $2.4 billion in semiconductors and $1.3 billion in other industrial machinery.
The U.S. goods deficit with Canada widened by $4.1 billion to $7.1 billion in August as imports from Canada rose to $37.1 billion. Canada imposed retaliatory tariffs ranging from 15% to 50% on about C$27.6 billion in U.S. goods on Sept. 8 after trade talks broke down, according to the information provided.
An ISM machinery respondent said the tariffs had increased cross-border costs and disrupted supply chains developed over many years. The company reported that orders and delivery times for semiconductors, electronics and government work had doubled.
For professional drivers and carriers serving manufacturing customers, the immediate issue is not a lack of factory orders. It is the ability of plants and suppliers to obtain the labor, steel, components and transportation capacity needed to turn those orders into shipments. With backlogs still rising and diesel, freight and industrial materials costing more, scheduling and operating costs remain central concerns across the manufacturing freight network.
