Recent job reports were not as high as expected, though some sectors of the building industry have seen product demand increase by as much as 27%. Why, then, is the hiring rate down in parts of the building sector?
One reason that comes to mind is the increased price of materials. These costs have skyrocketed in the past year due to pandemic-related stress on the global supply chain. These price increases are the result of work disruptions which, in turn, led to a shortage of many key building materials.
Material shortages
Material shortages have also caused project delays nationwide. Why, exactly, did this happen?
When the Covid-19 pandemic forced factories to shut down for several months, manufacturers and wholesale retailers began to rethink their entire production and inventory strategies. They were anticipating a sharp downturn in business due to the uncertainty of Covid-related health and business restrictions.
This, however, turned out to be an extremely premature call. Shortly after shutdowns in almost all American industries last year, the construction sector was deemed ‘essential’ by state and federal authorities. This meant that all bets were off.
The result? All projects then in progress and in the planning stage went forward at a frantic pace, with firms still unsure of what pandemic-related developments were to come. Again, though, it quickly became clear that there would be no slowdown in construction, and projects would continue largely as planned.
Manufacturers and distributors of building materials, on the other hand, were subject to social distancing rules, PPE requirements, and local shutdowns due to Covid outbreaks. They did not anticipate the massive volume of work going forward, nor were they necessarily prepared to handle it.
Compounding the material shortages, too, is a significantly reduced workforce, which only adds to the time it takes to get products out the door. Along with shipping delays and extended lead times, these developments plunged the supply chain into crisis.
For example, vinyl window manufacturers who could normally produce a window in 1-2 weeks had their lead time increase to between 6-12 weeks. Why? Because factory workers had to maintain a social distance of 6’, effectively reducing floor capacity to 50%.
I can tell you from my own experience that a lot of window manufacturing is done nearly shoulder-to-shoulder. Couple this new production reality with potentially infected workers and what you get is a recipe for disaster.
Glass manufacturers, too, did not anticipate the surge in demand that followed early shutdowns in the industry. Think about it:
You have mile-long glass factories that, for efficiency purposes, must run 24 hours a day, 365 days a year suddenly shutting down. That is unheard of, given the cost of restarting these massive production lines.
Lumber supply chain
Now, let us consider the lumber supply chain. We have plenty of sustainable forests and, prior to the pandemic, we had a steady flow of framing and pressure-treated lumber. Due to the knee-jerk reaction to early industry shutdowns, however, current and future orders were cut by 50% and, in some cases, cancelled outright. Within a month, though, the construction industry was moving full steam ahead.
Around 2 months later, we began running out of basic 2×4 framing lumber, and pressure treated 4x4s were non-existent. A massive backorder of basic lumber, then, helped raise costs across the supply chain that we are still experiencing today. In fact, building material costs are up to 24% higher than they were before the pandemic. Lumber alone is up 171% since Covid started according to Forbes.
Okay, you might be thinking, I get the picture and have experienced this in my industry, too. So, where was the slowdown in new construction? Simply put, it never happened.
Now, companies must absorb the price increases and pass them on to customers, changing contracts to reflect the increased cost of materials. I suppose this would qualify as ‘force majeure’, but I haven’t seen this clause invoked as of late.
How long will this last?
Current industry projections do not see a leveling-off of supply chain prices until late 2023 or early 2024. Lumber pricing will retreat in 2022 and see pre-pandemic levels in 2023 according to Forbes. This is true across industries and sectors, too, with the Consumer Price Index reflecting a 5% price increase overall. In other words, we are only at the start of what is likely to be a bumpy economic recovery for most.
