The New York metro region has always been a hard place to do business. Contractors, developers, and facility managers must continually manage challenges like delayed delivery of materials, labor shortages, and demanding schedules.
Building materials shortages and supply chain issues are also challenges, but they are not unique to our region. Even when it is possible to secure the needed supplies, fluctuating prices can change unexpectedly.
What Drives Shortages?
A complex range of influences has caused the supply chain issues, wreaking havoc today. Contributing factors include obvious ones, such as the general state of the global economy. But they are also impacted by a perfect storm of smaller events. For the construction industry, there are specific supply chain problems causing a shortage in building materials. These include:
- Transportation. While there are reasons to be optimistic that port backlogs and truck availability are improving, we are still nowhere near the pre-pandemic levels of shipping efficiency. Lead times for container shipments are much longer than in 2019.
- Raw material and component shortages. The global supply of building materials such as steel, aluminum, copper, and several rare earth elements has been heavily disrupted by the war between Russia and Ukraine and the slowed economy of mainland China.
- Semiconductors. The market for microchips, and the semiconductors they are made from, are in very low supply, and many experts do not expect the shortage to ease until at least 2024, when new capital investments come online. In a digital age where the manufacturing and shipping sectors rely wholly on the information economy, this has impacted the supply chain functions in many ways.
- Demand. Despite the lingering effects of the pandemic, consumer demand has remained relatively robust even in the face of uncertain economic headwinds. Moreover, demand-side factors like hoarding, panic-buying, and the widespread (albeit reluctant) acceptance of price hikes have driven many suppliers to implement strategic inventory allocation. In other words, sellers are adopting tactics that prioritize certain clients over others to avoid logistical or supply shortfalls.
- Labor. Following the mass retirement of many Baby Boomers, resignations and career changes in younger generations, and workers’ relocation, there are now ongoing shortages of both skilled and unskilled labor in manufacturing and distribution. These continue to impact the workforce’s output and capacity and therefore limit their employers’ capabilities.
What’s Causing Steel Shortages?
Steel is an important building material for many contractors. However, since 2020, the steel demand has increased to record-breaking (and at times, volatile) levels, causing major market disruptions. The trend may be reversing; prices have begun to fall and are now at the lowest point since December 2020.
However, The World Steel Association reports a projected 2.2 percent growth in demand for 2022, following the increase in demand by 4.5 percent in 2021, up from just 0.1 percent in 2020.
The projected demand increase is driven primarily by automobile and appliance manufacturers, and a shortage of some components is still hurting the recovery.
Although worldwide steel production is up, global consumption is also up. North America (producing 117 million tonnes of crude steel) will have to compete with Europe (309 million tonnes, including Russia) and, more importantly, Asia (1,403 million tonnes) for the world’s steel supply. This global competition, plus other factors such as inflation, automation, and the uncertain future of the auto industry, means that steel will continue to be a hot–if volatile–commodity for years to come.
What’s Driving Lumber Prices?
Recent spikes in wood prices have taken many by surprise. Labor shortages, transportation, and pandemic-related supply chain issues, especially in lumber-rich Canada, caused a rapid jump in wood commodity prices to nearly $1,500 (per-thousand-board-feet) in May of 2021. Although prices have fallen from June to August 2022, they still hovered in the range of $500 to $750–more than triple the low April 2020 figure of $262.
But buyers are seeing commensurate drops in trade prices. With the pandemic winding down and transportation problems getting resolved, construction volume (and therefore demand) is now one of the main drivers behind higher lumber costs. However, demand is on a downward trend and may continue to drop. New home sales in the United States fell to the lowest level since April 2020, affected in part by rising interest rates and inflation.
If demand continues to diminish, lumber commodities may track to trade in the $400s within a year, roughly at the same prices as July 2019. If this prediction holds, contractors and developers can expect more affordable and available lumber by the summer of 2023.
What’s Next for Insulation?
The demand for insulation has been high, and the supply short since 2020. This caused significant delays in many construction projects as work teams waited for insulation deliveries that arrived days, weeks, or even months later than expected.
Insulation shortages occurred partly because many factories laid off workers, reduced capacity, or shut down entirely in the early days of the pandemic. When the market outlook brightened, manufacturers rushed to restaff and resume production, but the labor shortage had already begun, and few producers were able to rebound quickly.
All these factors have heavily affected the cost of insulation. As a result, prices have increased 19.2 percent from 2021-2022. Still, demand for insulation is projected to increase by 3.1 percent in 2023 despite continual price escalation.
Changes in global demand have also contributed to shortages. Notably, the People’s Republic of China, a major exporter of fiberglass, has seen its currency (the yuan) strengthen relative to the U.S. dollar, increasing the costs of imports to American markets.
Some experts predict that home construction will cool in 2023, and other fiberglass-reliant markets such as the recreational vehicle, pool, and spa industries may drop in price. If demand drops as forecasted, it may improve insulation availability and affordability.
Will There Be Continued Drywall and Acoustic Ceiling Shortages?
Lead times have remained long on all specialty gypsum products. Global supply disruptions have continually slowed the transportation of the raw materials used to produce drywall and ceiling tiles. This includes:
- Vermiculite (sometimes imported from places like China or Russia)
- Latex (often imported from places like Thailand, Cameroon, and Guatemala)
- Wax (often imported from China)
- Gypsum (often imported from Oman, Bangladesh, and Vietnam)
- Fiberglass (sometimes imported from China, Germany, and Belgium).
Political conflicts, labor shortages, transportation issues, and pandemic-related restrictions have combined to create an unpredictable supply chain and regularly cause sharp price increases. As a result, while commodity products’ lead times are closer to normal and generally more stable, allocation is still limited.
Like many other products, the cost and burden of energy, transportation, and freight have only increased. Consequently, raw input costs have risen higher and higher. Many national drywall manufacturers have announced price increases in the past months, and there are no signs of price drops any time soon. Optimistically, some experts predict that price growth may slow–but not cease–in the next twelve months.
What can Contractors, Developers, and Facility Managers do?
With so many changes happening, it’s more important than ever to review contracts closely to ensure they cover contingencies for delays, the need for substitutions, and price increases. Plan projects, deliverables, and timelines in ways that assume price increases and shortages for the next few years.
Talk to building material distributors about value engineering. At Metro, our 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. To accomplish this effectively, we often ask our customers to submit two or three manufacturers for approval to increase flexibility.
Of course, with so many moving parts, it’s always difficult to precisely predict what the next twelve months hold in store for the supply chain. But no matter what happens, contractors, developers, and facility managers can protect their supply chain by building close relationships with efficient distributors and suppliers.
Loyal customers become valued clients. While the instinct may be to shop around for the lowest price, Metro believes that good partnerships are the strongest insurance policy. We are here to help our customers find what they need when they need it at a fair price, and we are agreeable to modify. We treat our customers like we want to be treated. Contact us today to learn how we can help customers in Nassau County, Suffolk County, Manhattan, Queens, Brooklyn, the Bronx, Staten Island, New Jersey, and Connecticut.
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