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6 Factors Impacting Supply Shortages and Steel Prices

Contractors, developers, and end users in the New York Metro region have had challenging jobs during the pandemic. In addition to dealing with health and safety concerns, supply chain shortages have been a constant issue. When they are able to get the needed supplies, they find prices have increased and continue to climb.

While we all know that the world changed in 2020, almost two years later, our industry is still looking for some return to normality. But it’s not here yet.

It’s easy to criticize the stability of the world supply chain. We’ve become used to getting what we want when we want it. That’s why so many people were surprised and confused when shortages started. The pandemic has accelerated some aspects of the problem, but it wasn’t the only cause of backups and inflation. The reasons for a slowed supply chain are complicated, wide-ranging, and will continue even when the pandemic has subsided.

We’ve put together some of the primary reasons for the current shortages and inflation, but this list is not comprehensive. We hope it will help our customers understand the complexity of the issues we all face.

1. Americans are spending much less on vacations and going out. They are also spending much more on home improvements and supplies.

Demand for consumer goods has spiked. Overall, the nation’s consumer demand is up 22% vs. pre-pandemic levels. There’s also been a 74% jump in American spending on games and sporting goods and a 49% increase in U.S. sales of large and small home appliances. In 2020, our nation’s home improvement and repair spending grew by nearly 3% to $420 billion and was expected to grow another 4% by the end of 2021.

While the pre-pandemic research showed that people, especially Millennials, preferred experiences and travel over “stuff” back in 2019, when the pandemic hit, it was no longer possible to get out there and experience life. Even Millennials changed their minds and ended up buying a whole lot of stuff.

2. Increased Demand for All Kinds of Goods is Creating Backups at U.S. Ports. Text Here

There are well-documented issues with the global supply-chain infrastructure. Before the pandemic, California ports were already operating at capacity. There are often dozens of ships waiting in line to unload (but not thousands like some infamous social media posts have claimed.) This seems to be about twice the backlog compared to pre-pandemic numbers. To make things more complicated, ships are being loaded with more containers, an average of 7,000 per ship, compared to 4,000 per ship pre-pandemic.

New mega-ships that can carry 20,000 containers are more efficient at transporting goods, but they are also more labor-intensive to load and unload. According to the Wall Street Journal, “It takes 3,000 people working three days in shifts around the clock to load and unload a giant ship with capacity for 20,000 containers when it stops at one of the world’s biggest ports.” That’s 216,000 manhours per ship.

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Will this backup ever end? The short answer is yes, but probably not for a few years. The ports of Los Angeles and Long Beach are the well-publicized gateways to Asian trade. According to iContainer.com, these two ports handle about 25% of all containers. New York & New Jersey ports also handle about 11%, but they tend to handle petroleum, scrap metal, and bulk cargo industries. Seattle, Tacoma, Oakland, Houston, Georgia, Virginia, South Carolina, and Miami also have busy ports. Unfortunately, it’s not always practical or even possible to divert ships to other ports.

The recent infrastructure bill allocates $17 billion in port infrastructure and waterways to address repair and maintenance backlogs at our nation’s ports. But that’s a paltry sum compared to what’s needed to fix the problem. While this funding may drive electrification and smoother automation of handling containers, until we address bigger issues, insufficient or poorly-organized ports will continue to be a supply chain issue.

The volume of imports may also lessen. U.S. manufacturing, including steel, is taking advantage of the demand created by the imported supply backups and shortages to expand U.S. manufacturing facilities, eventually decreasing our dependence on imported goods.

And finally, while the pandemic produced a burst of consumer spending for home improvements and home goods, this bubble is unlikely to last. As the pandemic eases, the world slowly returns to normal, and dollars should be diverted towards travel and entertainment. That decreased spending on goods should reduce container backlogs at ports

3. More People Want Steel for All Kinds of Things, Making Less Available to Contractors

Consumer consumption has spiked by 22%. This translates to more people buying more products made with steel. Consumers are buying more cars and trucks, new appliances, steel-framed furniture, steel shelving, tools made with steel parts, and other goods manufactured using steel equipment.

During the pandemic, many steel resources were diverted to support the need for increased medical supplies, including more surgical tools, more medical equipment made with steel, and building more operating rooms and medical facilities using steel.

While it may seem that the need for steel will ease once the pandemic is under control, there is another market stressor in the near future. The $1.2 trillion infrastructure bill should launch some improvements on bridges, the power grid, airports, ports, infrastructure, and waterworks – all steel-intensive projects.

4. Pre-Pandemic Steel Tariffs Already Made Imported Steel Pricier.

In March 2018, a 25% steel tariff and 10% tariff on aluminum were imposed on imports. While this has caused some short-term challenges, tariffs will help in the long run, enabling domestic mills to become stronger.

5. U.S. Steel is Getting More Expensive.

The tariff did reenergize the U.S. steel market. It reduced unfair competition from foreign suppliers, and many domestic mills raised prices to compensate for demand. With tariffs still firmly in place and steel demand up now and for the foreseeable future, many U.S. steel companies are expanding domestic production. The expanded supply chain will reduce prices, but not soon.

Supply chain Building Supplies Distributor

6. The U.S Workforce is Changing, Creating Labor Shortages.

For years, experts have been warning us about what might happen when Baby Boomers retire. Although Boomers began retiring years ago, the retirement rate skyrocketed in 2020 and 2021, and industries such as manufacturing and trucking were hit hardest by the exodus of senior, skilled labor. These labor shortages added more stress to the supply chain.

Women also quit in record numbers during the pandemic as home-schooling and childcare became unmanageable. Experts predict that many of these women won’t return for years, creating a lasting gap in the workforce that will have long-range effects on the supply chain.

What can Contractors, Developers, and End Users do?

With so many moving parts, it’s unlikely that the supply chain will regain stability in 2022.  We recommend creating close relationships with your distributors and suppliers. Loyal customers who work closely with their building supplies distributor become valued clients. And like it or not, valued customers get preference. We also ask our customers to submit two or three manufacturers for approval. That provides flexibility as well as fostering goodwill.

While your instinct may be to shop around for the lowest price, we believe that partnerships and loyal relationships are your strongest tool to help you find what you need, when you need it, at a fair price. At Metro Interior Distributors, we are in it for the long haul. We want to find and support partners who will in turn support us now and in the future.

It’s also wise to review contracts closely to ensure they cover contingencies for delays, the need for substitutions, and price increases. Plan your projects, deliverables, and timelines in ways that factor in price increases and shortages in 2022 and maybe in 2023.

And finally, talk to your building supplies distributor about value engineering. Experienced sales teams can often suggest a brand or material substitution that meets structural and aesthetic requirements but may be less expensive or more readily available.