When manufacturers and partners around the world were grappling with pandemic-driven upheaval last year, nobody imagined that HVAC and other industries might arrive in 2021 to look back on the previous spring’s supply situation as… simpler?
The world is better off, of course, with vaccines and social distancing replacing an unchecked virus and total plant shutdowns. However, lingering COVID-related hurdles and other random events have created a host of material shortages that have combined to put stress on the construction industry in general.
These shortages and common price increases can add up to have a meaningful impact on HVAC companies, especially but not limited to those working in new construction.
It’s Fine, Except For Copper and Plastics and Microchips and…
Ken Simonson, chief economist for Associated General Contractors of America (AGC), has updated AGC contractors recently on the remarkable variety of affected materials and disciplines.
Steel tends to grab the most attention among raw materials. Amid rising prices and lengthening lead times, Simonson said that “some additional production capacity is expected to come online later this year, but industry analysts are not yet predicting when prices or delivery times will come down.”
Factors that having nothing to do with COVID-19 are also serving to make 2021 distinctive. On the plumbing side, Simonson quoted a Texas supplier who wrote to customers in late March, “Last month’s storms impacted three copper rod mills and has attributed to further tightening of finished goods supply.”
That pressure was expected to continue through the spring and possibly longer.
ALL TOGETHER NOW: Members of the National Guard teamed up to help a driver during last winter’s ice storm in Texas. Unfortunately, that storm damaged some key petrochemical manufacturing facilities that will need more than a quick shove to get back in gear. (Courtesy of the National Guard)
The February ice storms in Texas also derailed work at petrochemical plants in Houston that make resins and what Simonson describes as the “building blocks” for construction plastics. He said the freeze not only knocked down production but caused damage “that cannot easily be repaired, given the very specialized equipment and engineering expertise needed simultaneously for several facilities.”
The list of affected products here is long: “PVC pipe and plumbing supplies; vinyl siding and vapor barriers; geotextiles; paints, coatings, and highway striping materials; even packaging such as the wrapping around lumber or the layers in corrugated boxes.”
Some manufacturers who rely on these materials are delivering 50-70% allocations, Simonson said, joined by historically high lead times.
Simonson does expect supply to catch up, but expects that process to take months.
Cement and concrete face supply issues as well, most notably west of the Mississippi.
CTRL-ALT-DELAY: The list of scant traditional materials is long, but microchips are in short supply, too, and are likely to extend some production delays even further. (Courtesy of Pixabay)
Wood products, getting hit on two sides, are also harder to come by. Simonson said not only has demand surged thanks to COVID-fueled interest in decking and nonresidential renovation, but millworker and truck driver shortages are exacerbating the situation. On top of that, the aforementioned resin issues are creating slowdowns for certain engineered wood products.
Finally, no matter what is getting made and transported, modern logistics and a growing array of products rely on computers and the IoT. Those machines run on microchips, and as luck would have it, microchips are experiencing their own supply issues.
Construction may not have it quite as bad as the auto industry or consumer electronics industry in this regard. Nevertheless, Simonson said that chip shortages will cause additional delivery delays over the coming months.
The People Problem Remains
All of those shortages may do their part to disrupt and delay jobs that include HVAC, but according to Todd Young, vice president for commercial business at Ferguson Enterprises, these are just piling onto the most significant and longest-running shortage. Young commented in response to a request for input from the American Supply Association for this article.
“In terms of resources, the main one we’re lacking is time and talent,” he said.
Young outlined how distributors and others have adapted to supply chain issues and learned to roll with short-term circumstances as best they can. But that doesn’t eliminate the now-familiar reality of increased demand for IAQ products and heightened HVAC awareness among consumers in general.
Young has also seen a trend among facility managers to take the opportunity for some renovations or upgrades while many offices are still empty or close to it.
“This demand,” he said, “coupled with the reduced production rates and the skilled trade crisis, is the perfect storm.”
When Simonson sums up the situation on the commercial side as “Nonresidential construction is experiencing headwinds from postponed and canceled projects, steep increases in materials costs, and lengthening delivery times,” the picture doesn’t sound good. Adding that all this is “making it hard for most firms to add new construction jobs compared to a year ago” puts things in stark relief.
HARDI’s Brian Loftus, market research and benchmarking analyst for the distributors’ association, takes the cue to bring some more welcome news. The year in HVAC business, so far, is off to a good start.
“This strong start has pushed the annual sales growth rate from 4.1% at the end of 2020 all the way to 6.1% for the 12 months through 2021,” he wrote in a recent update. He cited improved product availability and some accumulated backorders working hand in hand along with price increases being passed through and an improving overall economy.
Loftus reported that “distributors have developed a greater appreciation for a ‘just in case’ inventory strategy and are buying sooner. “End market demand has not changed,” he said, “just the order pattern.”
In the face of the more recent materials shortages and personnel struggles, Loftus said HARDI members have been “inspired to build inventories sooner than usual to avoid the shortages and stress of last summer.”
Ferguson’s Young echoed a chorus of resilience and communication to get through a highly unusual group of negative factors that have stacked up like so many container ships around the Suez Canal.
“We work with our HVAC professionals to keep them informed of new products, possible substitutions, and any supply chain concerns that might affect them,” he said.
Young added that while Ferguson advises their contractors that these shortages could stay in play “for the next six months and perhaps longer,” he added that the pandemic may have loosened up attitudes for the better throughout the supply chain.
This rings especially true on the residential side when some flexibility may be required.
“One of the many things we’ve learned from COVID-19 is the importance of adjusting to change, and so most everyone is willing to work together to find a solution.”
At AGC, the team is staying in touch with and updating federal procurement officials, industry coalitions, and Biden administration officials. In particular, AGC would like to see “harmful tariffs” on construction materials eliminated and would like to see progress on expediting freight.
Speaking of transport, Loftus’ update cited March 2021 as the sixth-best month ever for intermodal rail originations. That, along with a recent 50% processing increase at the Port of Los Angeles, is fueling some optimism for clearing current congestion by summer and getting ready for seasonal pushes in the second half of the year.