Pandemic Still Impacting Construction Building Supply & Demand

While 2020 was labeled "unprecedented times", 2021 is proving to continue with even more uncertainty. The start of the COVID-19 pandemic last year caused disruptions across the world and all industries with rippling effects that are still being felt in the building industry today.

The question begs, is the construction industry in a tailspin? Many are saying it's testing the willpower and determination of those great companies in the home building and remodeling sector to overcome obstacles that the weak may not survive. To find alternative material options, train new labor and find new processes to adapt, it's safe to say that while in the midst of these trying times that we are likely to see a shift in the marketplace in the year ahead.

In a survey conducted by the NAHB in May of 2021, while lumber took a noticeable hit that was all over the media, many other trades have (are) experiencing catastrophic material shortages. The survey found that over "90% of builders reported shortages of appliances, 87% reported a shortage of windows and doors, and more than 50% of builders reported shortages of steel beams, insulation, roofing materials, vinyl siding, copper wiring, and plumbing fixtures, among other materials." as stated in a recent publication by The National Law Review.

Although many states are resuming close to "normal" capacity, the effects of the pandemic have caused a few major hurdles that are worthy of discussion and understanding for any homeowner looking to remodel:

Supply Chain Disruptions

As the saying goes, a chain is only as strong as its weakest link. This past year it has become apparent that there are weaknesses everywhere in our global supply chain. Production cuts, government shutdown orders and issues with imports have all stifled supply chain production. While entire production lines were temporarily paused or shrank dramatically during the pandemic, these same manufacturers have not been able to reopen and hire quickly enough to keep up with demand. Bearing in mind that many complex supply chains are reliant on other businesses for key materials. One example that local Phoenix remodeler Todd Whittaker Drywall Inc., or better known as TWD has shared is the immense disruption in cabinet manufacturing. Well-known cabinet companies are scrambling to assemble cabinetry amidst a shortage of hinges and other hardware that they are reliant on to complete the production of their products. If all of the parts are not readily available to complete an assembly, products we use on a daily basis in the building cannot be produced. These shortages of key components are resulting in order backlogs, delivery delays, and rising costs of transportation.

Growing Demand

There are many reasons why the demand for remodeling, home improvements, and bigger homes continues to rapidly grow, especially in the Arizona housing market. More time is being spent at home resulting in the immediate need for improvements and repairs. Families have learned to become flexible to at-home schooling and child care needs. Employers have pivoted to create work-at-home setups and positions in order to keep operations running efficiently from day to day. Generational living continues to rise as grown parents, grandparents and grandchildren look at living under one roof in order to help each other. Families are now making large purchases with savings that they've accumulated during the pandemic from staying home, having to cancel vacation plans or more. Simply put, our daily routines have evolved and needs have changed.

Labor Shortages

Unemployment assistance and benefits paired with stimulus monies have allowed some households the opportunity to rethink their career paths during the pandemic, thus causing employees to choose not to return to the workforce. With rising demand for construction services, the building industry finds itself in a vulnerable position being unable to find skilled labor and/or those willing to learn new skills. When there is a shortage of skilled labor, demand and wages increase, which in turn drives up the cost of construction overall.

Let's not forget about the safety and wellbeing of the current workforce in place now. With this 2nd wave of COVID making its way through the states, employers still have to enforce the necessary safety protocols for those that have been exposed or that test positive putting employees into quarantine. With high demand and work orders flowing in, most companies are still not able to operate at full capacity with their available workforce in order to meet the pent-up demand.

TWD reflects on conversations with their suppliers, specifically cabinetry. Just last week one of the cabinet plants they purchase from was shut down completely due to COVID illness going through their workforce. Mills have not fully reopened due to not having the labor to fulfill positions, consequently adding to the supply chain disruption.

Fuel Surcharges

Companies across the U.S. are putting into play fuel surcharges in an effort to recoup rising costs of fuel consumption. These charges are typically a percentage based on current fuel charges for individual companies, as well as fluctuations to diesel fuel prices reported by the U.S. Energy Information Administration (EIA). Depending on the nature of the company, these surcharges being passed along can be seen in upwards of 10-15%.

Rising Costs

Increasing production costs are being passed from the manufacturers to the suppliers, trade contractors, and consumers without a moment's notice. Manufacturers and suppliers are not honoring pricing once agreed upon, leaving the contractors to absorb the rising cost or go back to their clients to try and make up the cost difference. In an article released by the White House, they state "Another impact of the shortages has been abrupt price increases. Between May 2020 and May 2021, prices of commodities tracked within the Producer Price Index rose by 19 percent, the largest year-over-year increase since 1974."

Todd Whittaker, Owner of design-build remodeling company TWD, shares that they have taken the stance of holding pricing with their homeowners for 30 days. While price increases continue to roll in and a handful of their suppliers are only holding pricing for minimal days, their team is doing everything they can to maintain integrity with their customers, find alternative materials and/or subcontractors to fill the need, issue out orders to their vendors the moment a contract signs in order to secure product and pricing, and ultimately make communication their #1 priority.

Forbes described some of the price hikes being contributed to our global trade market. The cost of shipping containers has doubled over recent years, demand for goods is on the rise, we are experiencing lower shipping container turnover, and containers are even being uncollected by vessels; all of which creates an imbalance in supply and demand. "The number of empty containers jumped 47% compared to last year due to the heavy demand in Asia. Further strains from the grounding of the Ever Grand in the Suez Canal in March and the shutdown of the key port in southern China in May and June left roughly 350,000 containers idle. Until the container circulation improves, prices will likely keep rising." claims Forbes in a recent statement.

Shipping Delays

As you've probably heard shipping delays have been a hot topic for many businesses. Congestion at international ports and terminals trying to get materials has created another set of challenges. More ships are needed for imports, however, they will take time to build and are not expected until 2023. As the size of ships continues to increase, the need for a truck, train, and warehouse capacity will need to follow suit.

Labor shortages have hit the U.S. transportation industry just like others, with drivers leaving the trucking industry altogether. Orders are left sitting with no drivers available to transport materials. To offset these shortages, large fleets such as Walmart are looking to mass hire with large signing bonuses and higher wages just to keep products moving. While this will help Walmart, we wonder what repercussions will be felt by smaller businesses needing to move inventory. Haulers and railroads are feeling the restraints as well. Furloughed workers have been slow to return, causing increased turnaround times in shipping.

Despite these challenges that the Arizona construction industry is currently battling, if we've learned anything from them, it is to double down on the importance of taking care of your employees and investing in your internal workforce. A career in construction has always been a reliable and rewarding path that you can earn a good living doing. By staying focused on the big picture, striving to evolve with new ideas and ways of building, there is no doubt that smart and resilient builders and contractors will emerge stronger than ever to take care of our Phoenix homeowners.

"55% of Americans who have been working remotely since the start of the COVID-19 pandemic say that, since working remotely, they are more likely to make home improvements." - NAHB

When you're ready to remodel or need home repairs ….

The team at TWD has been serving Phoenix homeowners with all of their home improvement needs since 1996. Their storefront location, expert on-staff employees, and dedication to superior customer service is what makes them the perfect contractor for your next project. Offering such services as kitchen and bathroom remodeling, full home renovations, drywall, stucco, painting, and more, they are a local family-owned business that you can trust. Visit their website at www.twdaz.com today for more information on the services they offer, view their extensive portfolio of projects complete, and read real customer reviews. Then when you're ready, click to request your consultation in their design showroom or in-home appointment.