6 Talking Points You Should Raise With Your Team This Spring
As spring comes in and Covid all too slowly goes away, will we resume our old ways of operating a construction supply company, or has the pandemic caused a reset of best practices? I believe that these continue to be unusual times. The sheet of paper above shows six talking points that a sales rep created to deal with customer questions today. Below, I've set down six talking points you should discuss with your team as they ask you about how your business should operate between now and Labor Day.
Product Shortages Will Remain Our Biggest Worry
One month ago, I described how bad the backup was at the ports of Los Angeles and Long Beach by publishing a map showing the number of container ships in the ports and stuck in the harbor, waiting for a berth. That map is the one below on the left. On the right, I've shown the same situation as of March 25. Clearly, all the products from China that you sell--or that go into products you sell--are taking their time getting to you.
Conditions have gotten so bad that fireworks companies have raised alarms that their supplies for this summer's fireworks sales and shows might not arrive on time. And no doubt you've probably heard of the giant container ship stuck in the Suez Canal, forcing hundreds of other ships transiting between Europe and Asia to change course and sail around Africa.
But wait, there's more: The freeze in Texas shut down resin plants, making OSB and scores of other products even harder to find. "Last week, several manufacturers implemented Force Majeure on all shipments to customers," SRS Distribution SVP Paul Whelan wrote to customers March 26, apparently using a euphemism for allocations. Shipping cycles likely will get even more extended, he added.
All this means that the discomfort and anxiety you've felt keeping track of shipments and passing along bad news to customers is likely to continue for months more.
Demand Won't Fall Even If Home Prices Rise
Evercore/ISI's Stephen Kim, one of the nation's most respected housing analysts, contends that reports about builders slowing construction are more a sign of their challenges keeping up production than they are a reaction to record-high lumber prices. Kim believes demand is so strong that new-home prices could rise 20% and mortgage rates could hit 4% and builders still could sell all the homes they can frame.
You can tell conditions are feverish by looking at sales of existing homes, Kim says. The National Association of Realtors reported that sale prices in February were 15.8% higher than the some month in 2020.
The overbuilding we did prior to the Great Recession has long been absorbed. This country has far fewer homes than it needs--particularly single-family homes. It will take years to sate that appetite.
The Economic Stimulus Package Will Stimulate Demand, Too
According to Census Bureau reports, while only 15.7% of the people who received the first stimulus payment last year used the money to reduce debt, that percentage rose to about half of all recipients when the second stimulus payment arrived in January. Over the 12 months ended March 10, the total amount of consumer debt owed to those banks had fallen by 12.7% to $747.84 billion. That's roughly $108.93 billion paid down since the pandemic began.Even when you add car loans and other forms of non-revolving credit, the total amount of consumer credit owed declined in 2020 for the first time in at least five years.
Now billions more dollars are being distributed. While some Americans will use this latest economic stimulus checks to buy food and cover essential needs, millions of others will take the windfall from Uncle Sam and pay down debt or bolster savings accounts.
Less debt means better credit scores. In some markets, what's been distributed in stimulus checks can go a long way toward covering a down payment, especially for starter homes. Add to these factors the fear that younger Americans have of missing out on historically low mortgage rates and you can see how your home builder and remodeler customers have even more reason to expect they'll continue to buy lots of products from you.
It's Time to Reset Expectations of a "Normal" Lumber Price
Since 1995, Jim Schumacher has been tracking prices for a variety of lumber grades, many of them West Coast-based. In the latest edition of Shoe's Lumber Report, the prices paid for 11 of 13 types of sawn and engineered wood are stamped "record high." I'm showing his composite chart here. Prices could plummet 50% and still would be higher than anything seen before 2020.
Lumber experts have spoken for more than a year about how crazy and unsustainable these prices are. Yes, both supply and demand issues have contributed to the stratospheric run-up in prices, and yes, supply slowly is increasing as more mills come on line and manufacturers work out kinks in the supply chain. But we've established above that demand won't abate anytime soon, and it's a long, long way to $400 lumber. Both dealers and builders need to reset their expectations of how much it should cost to frame a home.
Workers Will Keep Working Remotely. If So, What If ... ?
One dealer told me it successfully managed early in the pandemic to have many of its back-office people work from home. All went well until the dealer discovered there was nobody left in the office to stuff the monthly bills. The dealer scrambled and switched to electronic billing.
Now that more workers are out of the office compared to pre-Covid times, it makes sense to consider other forms of remote work. Outsourcing more tasks, such as credit/collections or take-offs, is one example. But even if you stick with you own people for those jobs, the new normal raises the question of whether you should consider hiring out-of-market, always-working-from-home talent.
I know of a remodeling company based in Virginia whose human resources director lives in San Diego, and another remodeler in Orange County, CA, that has a woman in Florida handle some of its calls. If you're based in a rural area and the talent you need is in a city two hours away, why not hire that person? If they're working remotely most of the time, it doesn't matter whether they live a county or a country away.
Slower Postal Service Is Increasingly Likely to Hurt Your Your Cash Flow
First-class mail is supposed to take no more than three days to go from sender to receiver. The U.S. Postal Service used to meet this standard at least 90% of the time, but that hasn't happened since last summer. And now USPS is proposing a 10-year plan that would add a couple days to its delivery target for 30% of those first-class letters.
You can expect Congress will fight the Postal Service's plans, but USPS knows that it's packages, not first-class mail, where its future lies. Combine the timetable change with past performance failures and you get an environment in which your mailed bills will take longer to reach your customers and longer for the customers' checks to come back. DSOs will increase. Payments will replenish your coffers more slowly.
How should you respond? It's time to raise that issue with your team.