Most would think as the economy slows the availability of building materials and products for the home would be more plentiful and lower priced. However, there is a good chance the opposite may be true over the next few months. Building products are heavily driven by commodities like lumber, oil, and steel. When those raw materials face supply disruptions, that can trickle down the supply chain. COVID-19 (coronavirus disease) is slowing the production and delivery of raw materials in certain building material sectors as the requirement of social distancing is limiting manpower. Plus, there are some companies that have closed due to the disruptions.
The other huge factor is—cash is king. Since the Great Recession, companies have developed systems and processes that shifted away from the old paradigms of stocking huge amounts of inventory. Because cash flow is vital to business growth and health, many companies in the supply chain have adopted just in time inventory platforms. Technologies and algorithms dictate how much inventory should be on the ground as well as on the move at any given time to optimize cash flow in the company. During times like the current coronavirus pandemic, algorithms do not work well when there are disruptions in the supply chain that have never been considered. Products that suddenly flow every eight weeks instead of two weeks can create real shortages, especially if there is a high demand for them. The best example is the shortage of toilet paper. Limited back stock was overwhelmed and the manufacturers could not keep up with producing the product.
The other reason why builders and homeowners should expect disruptions in the supply of building products is the coronavirus lock downs that have been rolling throughout the world. For example, there are factories in China, which manufacture the pieces and parts for locks and garage door openers, which are assembled in Mexico, and later shipped to the United States. In the first quarter of 2020, manufacturing in China dropped as much as 80 percent and the parts needed to build products in Mexico were not shipped. Then in the second quarter, a double whammy occurred when Mexico shuttered a lot of its manufacturing. Because United States suppliers did not invest heavily in larger inventories in these products prior to the coronavirus pandemic, shortages are certain.
The final reason you will see shortages in certain building products is because there are companies struggling to do well prior to the coronavirus pandemic, which will fail in the next six months. Unfortunately, there are too many companies in America with poor business models that have too much debt. These companies were heading toward failure prior to the pandemic, and now the pandemic will be the final nail in their business coffin—not only in the building supply industry, but across the retail sector. High debt levels will shutter many stores.
Here is the best advice for keeping these disruptions from slowing down your construction project—make your product decisions early and place your orders with plenty of lead times. Making a decision two weeks before needing the product will result in a delay. Right now, it is about supply and not about price. If you haggle over the price for too long, you may miss the opportunity to purchase your item.
Here are the areas with foreseen problems:
- Masonry accessories and pneumatic nails from China.
- Garage door openers made in Mexico.
- Locks made in Mexico.
- Electrical components from China, including lighting fixtures.
- Interior doors made in America—manufacturing delayed by the coronavirus and reduced by plant closures.
- Social distancing requirements for windows made in American factories are creating reduced production and delays.
- Spruce lumber due to mill shutdowns and curtailments in Canada.
- CDX pine plywood because of countervailing tariffs in South America and production issues in the United States.
- Mouldings—possible shortages and higher prices due to tariff issues and mill curtailments in South America and China.
- Fasteners—expect higher pricing and supply issues due to tariffs.
- Other items in plumbing and HVAC, which rely on imported parts.
On top of this, there is a prediction of a bad hurricane season with many forecasters drawing a bullseye on Florida. The disruptions from the coronavirus coupled with the demands of hurricane season could exacerbate supply issues and elevate pricing.
With the availability of labor easing, now is a great time to work on home projects. In doing so, keep in mind that things will go a lot smoother if you plan ahead, make your product selections early, and place your orders in advance.
Don Magruder is the CEO of RoMac Building Supply, and he is also the host of the “Around the House” Television Show which is hosted weekly on Lake Sumter Television. For more information, go to www.Aroundthehouse.TV.