Supply Chain Disruption in Building Supplies

Understanding the COVID-19-Induced Pricing and Availability Rollercoaster

2020 was expected to be a banner year, with continued growth for the building industry. After all, 2019 had handed off booming construction activity, and many economic indicators predicted that 2020 would be more of the same. In anticipation of that projection, North American mills continued producing lumber and panels, in anticipation of healthy demand during building season.

Those expectations were dashed as COVID-19 shut down the economy and the construction industry ground to a halt. Demand evaporated, retailers and suppliers were left holding inventory, and mill production shut down as workers were furloughed. Lumber and panel prices plummeted, as a result.

Housing Starts and Home Projects

With only limited easing of work restrictions, and many Americans working from home, lumber demand for home projects began to steadily increase in Summer 2020. Demand for new house builds was also at peak levels. Retail sector demand was strong, due to a strong desire to take on house projects for new stairs, decks, patios and pools.

With lumber mills closed for several months, and Covid-related labor shortages, there was very little supply. Lumber prices surged to all-time highs as construction companies and homeowners scrambled to snap up what limited inventory remained in retail stores and lumber yards.

In June 2021, lumber mill production eventually began to meet demand. This began the downward trajectory of the record high building materials. Pricing leveled out, and then began to fall, approaching prices that more so resembled “high” versus “astronomical”.

The Supply Chain Situation Today

To truly understand the rollercoaster of the panel and lumber market, it’s important to delve into the supply chain and explore the disruptions and other factors responsible for driving up the price. A steady bull market, coupled with widespread worker shortage and a global logistics nightmare is affecting everything from lumber to consumer electronics to food.

Demand – After a mid-Summer to early Fall 2021 ebb in building material pricing, the market is once again on an upward tract, due to continued labor shortages, wildfires and housing starts. There is also a housing shortage. The real estate industry is still seeing some of the highest prices in decades, due to limited inventory and high demand.

That problem has not resolved itself. It takes time to build a house, as well as find reasonably priced raw material. When the market opened back up, what little available inventory there was had vanished. New homes have not yet been finished, let alone completed, to satisfy the market. In many cases, contracted costs have doubled, tripled or have been cancelled due to lack of availability and costs substantially above initial estimates.

Existing Materials – Another reason is that wholesale and retail outlets are still holding expensive materials. When prices peaked at 300% of their norm earlier in 2021, buyers stopped their activities. With that demand gone, many businesses were left holding materials at a premium.

Prices will remain high until the more expensive materials have been purchased and wholesalers/retailers can restock at lower prices. Of course, whether lumber pricing will drop depends on many different factors, as well.

Rising Costs of Operation and Production – If there is one thing that we’ve learned from the pandemic, it is massive logistics snags, and spikes in cost. The costs of producing lumber is just one example. The U.S. has been experiencing a dramatic decrease in worker availability, which means that production is slower, and it costs more to turn logs into lumber. Slower production, mainly due to labor shortages, affects inventory levels for retailers and wholesalers across the country, which also impacts builders and consumers.

Logistics Nightmares – To say that the logistics industry is experiencing an upheaval is an understatement of epic proportions. Cargo ships remain lined up outside U.S. ports. Containers sit without chassis, and empty containers cannot be filled. The truck drivers needed to haul goods from point A to point B are also in short supply. Pallets, too, are especially scarce, further adding to shipping headaches.

Those supply chain snarls mean additional complications, including lower inventory, out-of-stock items, and higher prices for goods that actually make it to wholesalers and retailers.

When Will the Situation Change?

For those looking for an end to the high prices, lack of inventory, and other challenges, the watchword is “patience”. There is no simple solution to such a complex problem. What can you expect in the meantime?

There are a couple of possibilities. The first is that we are currently in the middle of another significant rise. If the supply chain chaos cannot be tamed in short order, building materials pricing will continue the upward trend, although we believe it is unlikely it will reach May 2021 levels.

Another possibility is that the supply chain snarls will slowly iron themselves out from successful efforts of industries and the U.S. federal government. In that case, you can look for a long, slow slide back to normalcy, although the occasional uptick is not out of the question.

About Marshall Boxes

At Marshall Boxes, we’re dedicated to providing our customers with the best value, and best experience possible. From custom crates to wood pallets and everything in between, our experienced team designs and delivers packaging to protect what matters most to your business. Contact us to learn more about how we can make your business more competitive, and give you greater peace of mind.