By Ken Simonson, Chief Economist, the Associated General Contractors of America
Contractors everywhere are coping with unprecedented price increases and delivery delays for key materials. For California construction firms, the problems are even more vexing in that some of the needed items are sitting just off the state’s coast or even on its docks.
Prices for many lumber and steel products have repeatedly set new records in the past several months. As of mid-May, some lumber prices were four times the level of a year earlier. The steel industry newsletter Fastmarkets AMM reported that its price index for hot-rolled coil steel recorded the highest weekly average level in the 60-year history of the index for the 13th week in a row for the week ending April 23.
Delivery dates for some items that are normally available in a few weeks had already stretched into 2022 by mid-April. Other vendors are imposing allocations—holding customers to a percentage of previous orders—or are refusing to quote firm delivery dates at all.
Inventories of many items are being depleted faster than producers can replenish them, raising the likelihood that shortages, delays, and price increases will continue to worsen for several more months. Items that previously were plentiful and relatively stable in price are being added to the problem list each week. For instance, a leading gypsum manufacturer notified customers on May 3 that prices for all “wallboard products will increase 20%” as of June 1. A supplier of framing and finishing products notified customers that it “will implement a minimum price increase of 10% on all products for all markets effective July 1st, 2021. This announcement is in addition to our June 1st, 2021 increase announcement.” A major manufacturer of roofing materials announced it would not accept orders for two weeks because inbound and outbound shipping had become so unreliable.
The huge variety of items experiencing these issues means that substitution of one product type for another is unlikely to provide relief. One contractor noted in early May, “With the supply chain issues related to…PVC materials, ductile iron pipe and fittings are an alternative. However, import Ductile Iron Fittings are increasing 23% on June 1, 2021. This is seemingly from all manufacturers.”
Many of the problems stem, at least in part, from coronavirus. Mills and other facilities shut down or had to reduce their onsite workforce early in the pandemic. Once demand started climbing last spring, producers were unable to catch up. Shortages of truck drivers, also partly attributable to the pandemic, added to delays.
But there are additional factors in each case. Steel and aluminum tariffs and quotas on a variety of countries, along with tariffs on Canadian lumber and numerous Chinese products and parts, have pushed up prices or limited supplies. Surging demand for consumer goods, appliances, cabinets, and other products from Asia absorbed available shipping capacity, containers, and port space in Los Angeles and Long Beach for ships to unload. Once the containers were stacked on the docks, there were not enough trains or trucks to haul them in timely fashion to inland destinations. By mid-April, the backup had partially shifted from ships moored offshore to containers waiting in port for 11 days, instead of the usual 1-2 days, to be loaded onto trains. The six-day blockage of the Suez Canal further disrupted the movement of goods, containerships, and containers.
A further set of hurdles arose from a severe winter storm in Texas last February. It damaged all of the petrochemical plants that produce the resins and other building blocks for construction plastics, while also adding to demand for PVC pipe to replace water pipes that had burst when the water froze. Until the damage is repaired, there are likely to be growing shortages of a huge assortment of construction plastics, including: PVC products; foam insulation and roofing materials; vinyl siding and moisture barriers; geotechnical material; acrylics for paints, highway striping material, and hard plastics; resins for binding the layers of oriented strand board and other engineered wood; and even packaging and wraps needed for shipping and storing construction products.
Uncorking each of these bottlenecks will take varying solutions and amounts of time. AGC of America is working with other industries to get the Biden administration to remove damaging tariffs and quotas and to examine ways of expediting shipments within the U.S. Getting more workers vaccinated and their dependents back in school or day care will add to labor supply. Some manufacturers are reopening, repairing, or building additional plants.
Contractors can’t end the upward spiral. But they can be prepared by staying in close touch with their suppliers, subcontractors, and owners. They can explore with owners the possibility of including cost-sharing or loss limits for materials. And they need to consider the optimal timing and quantity specifications for their orders.
Associated General Contractors of California
3095 Beacon Blvd.
West Sacramento, CA 95691
135 South State College Blvd., Suite 200
Brea, CA 92821
1320 Willow Pass Rd., Suite 600
Concord, CA 94520