HOUSTON – (By Ken Pinto for Realty News Report) – As home sales in Texas and beyond continue to outpace the homebuilding industry’s ability to build, demand has also stimulated tremendous bottlenecks across the construction supply chain, resulting in skyrocketing costs, diminished material availability, and overarching delivery days.
According to the National Association of Home Builders, building material prices in March 2022 increased 20.4 percent on a year-over-year basis and have increased 33 percent since the start of the pandemic.Beyond the publicized 200 percent-plus increase in lumber, copper wire is up 565 percent, aluminum wire up 207 percent and steel plate is up 89 percent.
Supply chain strain is extremely broad and moves well beyond material expenses. Allow me to illustrate:
Houston is home to 92 percent of U.S. production of petrochemicals that were crippled by the power outages and subzero temperatures that took hold of the state in February 2021. Texas’ oil industry is,more than a year later, just beginning to experience relief.Oil isn’t exclusively an energy source for heating and fuel. Numerous petrochemical by-products used in construction include paint, acrylic stucco, plastic pipe, house wrap, vinyl windows, grout, composite countertops, switch cover plates, toilet seats, roof shingles, and anything made with an adhesive (wood flooring, plywood, composite siding, cabinets, and doors). Though capacity has been restored to the petrochemical plants, an allocation still exists to sort through the backlog and continued high demand.
Material price increases are further exacerbated by extensive acquisition lead times. What used to be predictable is no longer. The previous lead time for window orders was 7-10-days and now, its 12-30 weeks. Garage doors could be turned around in one day, but now, three-months. Therefore, new home construction, previously plotted from foundation to finished across a 95-working days or six-month timeline, is now 8-12 months.
Resolution of a single bottleneck alone won’t change the end result. Efforts to solve them are heroic, but none will be successful until past approaches are altered to create a more sustainable path – which unfortunately cannot be done overnight. Other connected concerns include:
- Stalled Shipping: Shipping containers, now difficult to source, are also limited in availability as many containers are stuck in the wrong places (in other countries, on ships, trains or stuck at ports or in customs), thus disrupting supply chain and trade on a global scale. Even previously used containers considered litter, have been upcycled into pools, hydroponic gardens, or tiny homes.
- Access to axles: Equally hard to find are the axles used to haul a shipping container via trucks. Trucks and truck drivers aren’t just in short supply in the U.S. (60,000 less than are needed), the shortage exacerbates supply chain strain and finished goods/material pricing, thus costing the consumer (and builder) even more in both time and expense. In China, the predicament is worse. To secure a truck, Chinese manufacturers must enter a line queue with long waits to advance in line and more delays to get booking onto a container ship. Once those ships arrive in a U.S. port, they await offload for upwards of two weeks. Even ports operating at full capacity struggle with space – playing a game of Tetris with newly arrived containers and those scheduled outbound from the port.
- Labor woes: People too, whether crew members on a container ship, truckers in the U.S., factory assembly line workers, or dock workers, play an important role in supply chain success or failure. The onset of another COVID lockdown in China has shut down factories that supply components and finished products destined for America. These same challenges exist in the U.S. where factories remain short staffed, even after multiple rounds of wage and benefit increases.
Even against a cascade of challenges facing them, some builders are successfully cycling home construction in 2022 the same as they did in 2019. The difference? In addition to doing things that make them a better customer (fast pay, easy to deal with, polite, no change orders post-submission) they are communicating SKU (stock keeping unit code) demand upstream and securing inventory well in advance of need by asking dealers to set aside inventory for them as it comes in, thus ensuring they have the products they want, when they need it.
I’m often asked, “When will everything go back to the way it was?” My guess is never. Our industry has changed and the home builders with the best supply chain management strategies will have advantage over those who continue to order only when they need it. The victorious will be those that study timelines and delivery schedules, strengthen supplier and dealer relationships, and predict consumer product demands using historic data, to forecast and plan ahead.
May 2, 2022 – Realty News Report
Ken Pinto is a 40-year homebuilding industry veteran and author of “How Much is the Milk?”
File: The Supply Chain Crisis
Related: Houston Port to Benefit as Companies Shift Away From Over-reliance on China
Related: Port of Houston No. 1 U.S. port in waterborne tonnage
Photo: Courtesy Port of Houston