PURCHASING HOTLINE

By Staff -- Purchasing, 11/2/2000

The U.S. economy is forecast to grow at 3.5% in 2001-slower than expected, but still quite healthy.

The U.S. economy is forecast to grow at 3.5% in 2001-slower than expected, but still quite healthy. That's good news, because it's keeping the Federal Reserve Board in the background, at least for the moment. The other good news is that productivity continues to improve dramatically-close to 6% for manufacturing. Wall Street, which is never a good indicator of economic health, is jittery about every piece of bad news, even "rumors" that there are electronic component shortages-a fact that has been prominently reported for months. See Buylines, page 26 in this issue, for a current economics analysis by Anne Millen Porter.

Look for the U.S. trade deficit to keep climbing

Look for the U.S. trade deficit to keep climbing because of the strong dollar and high oil prices. This year's deficit in goods and services may hit $370 billion, 40% above '99. Experts say it will climb slightly in 2001.

Expect efforts to improve air cargo delivery at congested airports in Northeast.

Expect efforts to improve air cargo delivery at congested airports in Northeast. The Federal Aviation Administration plans to allow carriers to use military space and may approve new Canadian routes. Next: Look for a traffic control system based on global positioning from UPS Aviation Technologies. Efforts under way to open new runways at headache airports, such as Boston's Logan, however, are hung up by local squabbling. Efforts to expand capacity at small regional airports may work better.

Ozone layer warning.

Ozone layer warning. If you buy plastic foam, chemicals to make foam, or products that contain insulating foam, this is a good time to rethink your strategic buying plan. Blowing agents that contain any ozone-depleting substances-generally categorized as hcfcs-will be outlawed under the Montreal Protocol and Clean Air Act. Efforts by industry to delay this long-awaited outcome have been fruitless, and the EPA may have even tightened the rules under a recent ruling called snap for Significant New Alternatives Policy. One major hcfc supplier has received requests for millions of pounds of hcfcs for customer stockpiling purposes. Production of hcfcs will be banned in the USA after 2002. Material can be drawn from stockpiles through 2004. Many foams have already switched to pentane and other non-ozone-depleting chemicals. For more information, see story on page 44 in this issue.

Looking for a few good mavens.

Looking for a few good mavens. One of the strengths of Purchasing Magazine is our monthly updates on current business conditions both for the general economy and for specific sectors, including chemicals, metals and electronics. We're now accepting new panelists for our surveys. We need buyers who will take a few minutes to fill out the surveys and return them so that all can benefit from knowledge of business trends from the buyer's view. If you've used our data in your planning, isn't it time to help a little? All answers are confidential and your participation is confidential. Only your mailman knows for sure. Please send an e-mail to dsmock@cahners.com, indicating your name, full mailing address, and the key products you buy.

There's still time to enter Purchasing's annual Welcome Booklet contest.

There's still time to enter Purchasing's annual Welcome Booklet contest. This is how your department presents itself to your supplier and other communities. It's important to put your best foot forward. Make sure you include (at least as an additional insert) the names and addresses of your buying team. Send to Doug Smock, Purchasing Magazine, 275 Washington St., Newton, Mass. 02458. Deadline: Dec. 6.

Make or buy on freight?

Make or buy on freight? The Internet is creating opportunities to cut freight costs by aggregating demand with other companies and cutting deadhead trips. But there's another alternative, too. There's reportedly a glut of used tractor-trailers, creating some good buy opportunities. One source says you can get a three-year-old truck for 40% below the price of a two-year-old one. There were record-breaking sales years for 18-wheelers in '98 and '99, and some are off the road and up for sale. Sales of new rigs are expected to plunge 17% this year, another 13% next year. It's bad news for companies that supply metals, plastics, mechanical components and a myriad of other supplies to truck OEMs because production is nose-diving.

Potential electric power short circuit:

Potential electric power short circuit: The domestic power transmission network needs some work. A new report from Cambridge Energy Research Associates says lack of investment is causing transmission congestion, threatening quality and reliability. "The partial unbundling of the electric power business has created a muddled mixture of competition and cooperation-a patchwork of solutions and approaches," says Larry Makovitch of cera.

Electric generation capacity will be adequate

Electric generation capacity will be adequate over the next nine years if current plant construction trends continue, says the North American Electric Reliability Council adequacy committee in a new report. Demand is forecast to grow 60,000 MW over the next five years, with capacity projected to grow between 109,000 to 193,000 MW. Peak demand growth is forecast to rise 1.9% annually in the U.S. and 1.2% in Canada. Merchant power providers are playing a key role in meeting forecast demand. "Capacity additions are increasingly being driven by market signals and not the maintenance of a prescribed capacity margin," says the nerc committee. The report also states that transmission reliability may be a concern.

Demand for office space is at a peak

Demand for office space is at a peak, particularly in cities such as San Francisco and Boston where dot.coms drove markets into a tizzy. It's said that 80% of all office buildings under construction are already leased and new space will be absorbed for at least the next two to five years. But, all bets are off if the slide continues in high-technology stock prices. Wall Street's attitude this fall about high-techs: guilty until proven innocent.

The building and bandwidth boom are combining to crimp supplies of fiber optic cable.

The building and bandwidth boom are combining to crimp supplies of fiber optic cable. Some telecom firms are substituting copper wire plus digital subscriber lines as an alternative, but at a speed sacrifice. If you're in charge of an office expansion, check the cable situation early.

Energy surcharge hits metals.

Energy surcharge hits metals . Universal Stainless & Alloy Products of Bridgeville, Pa., is posting a surcharge in an effort to recoup higher natural gas prices. The surcharge will be determined monthly by comparing the previous month's Nymex daily settlement price with a base rate of $2.20 per thousand cubic feet. The surcharge will be pro-rated based on the amount of gas used to produce specific grades and types of products.

Producers are pushing for increases in polyethylene prices

Producers are pushing for increases in polyethylene prices, citing higher feedstock costs as the driver. A 5¢/lb "temporary voluntary allowance" was repealed in October, and several companies posted 3¢/lb price increases for November. It's not clear which way the market will go. Market factors that contributed to softness over the summer are still in place, and some buyers say conditions don't warrant substantial price increases. Big capacity increases probably will keep a damper on too much upward movement in pricing. Union Carbide is starting up two 650 million lb/yr reactors in Canada and Nova Chemicals will be ramping up an 850-million pounder in Alberta by April of 2001.

Titanium markets are starting to turn.

Titanium markets are starting to turn. Experts forecast that shipments will reach 50-53 million pounds this year, up from 48 million pounds last year when an inventory overhang depressed production. Titanium shipments nose-dived after Asian customer canceled major aircraft orders. One new application for the lightweight metal is set to debut: a tailpipe/muffler assembly in the 2001 Corvette Z06.

Global steel consumption will rise 2% annually through 2005

Global steel consumption will rise 2% annually through 2005, pushed in part by higher Chinese demand. That's a forecast released last month by the International Iron and Steel Institute, which held its annual meeting in Melbourne, Australia. The iisi projects that demand from Japan will decline over the next five years.

For the second year in a row, many less-than-truckload carriers came through with fall rate increases.

For the second year in a row, many less-than-truckload carriers came through with fall rate increases. These increases, once customary for the spring, came smack in the middle of the busiest shipping season. Like they did in 1999, many carriers raised their rates in the 5% range. The rate increases are meeting with mixed reviews, as many manufacturers say they are hard to justify and unfair to the consumer. But not everyone is a critic of the increases. Madhav Pappu, assistant professor in the department of Logistics for the University of North Texas, says these carriers have no choice but to raise their rates. Pappu says the industry is still recovering from increased labor costs and soaring fuel prices. "This industry has been squeezed for such a very long time," says Pappu. "And with the things the transportation companies are doing today, I think customers will be willing to pay for it."