Breaking Up “Scar Tissue” from COVID

There’s no question that building materials, after the initial chaos of the COVID-19 pandemic, bounced back strong and has flourished over the last couple of years. It goes without saying, however, that this boon has not been untouched by challenges. Just like the human body might sustain scarring after trauma, the industry is bound to experience residual fallout after a major business disruption.

We saw it from 2008 to 2009 with the Great Recession, when demand went off a cliff following a huge and prolonged run-up. Countless companies went under, joblessness soared and construction workers had to find new vocations. The impact was palpable, and the hard-hit lumber industry spent the next 10 or 11 years basically treading water—until the next major disruption. Although that event, COVID-19, propelled us in a more favorable direction, we are nonetheless left dealing with some “scar tissue.”

Pain Points

Some measures of pre-COVID-19 normalcy have been restored, but many of the problems that arose or were exacerbated during the public health emergency persist. The supply chain continues to struggle, for example. There are weather issues, COVID-19 issues, log availability issues, and unresolved trade issues between Canada and the United States. The list goes on, but a couple of areas are particularly troubling.

• Labor shortage is out of control at all stops along the supply chain, and it’s probably going to stay that way for the next five to 10 years. We can’t do everything we used to get done in a day with all of the other issues still in play. So, then, who’s going to do the work? It’s not as if we can just flip a switch and bring in a bunch of people to get everything done. 

• Commodity prices have skyrocketed, helping the average price of a single-family home in the United States continue its upward trajectory. That figure now stands at above $300,000, which is out of reach for many, especially first-time buyers. I’ve heard the arguments that today’s younger generations care less about ownership, but I disagree. I think everyone still wants to own their living space—the pandemic obviously highlighted that. Homeownership is still the ultimate goal for a lot of people, and as an industry we’re at the front lines of making that possible.

Lumber, Heal Thyself

That being said, the industry does have opportunities ahead to fix some of the areas where it’s hurting.

Self-promotion: For every worker another industry lands, it’s one fewer that we have the opportunity to capture. Once they come in, people may move around to different employers, but they tend not to leave the lumber or building materials ecosystem. At Amerhart, some of our people have 25, 35, 40 years of experience in; that’s a common theme at other companies. The question becomes how do we fill the funnel? How do we deliver the message of why someone should be in this industry? We need to be able to convey that you can earn a good living as a plumber, or in the trades, or working in a sawmill, or working for a wholesale lumber distributor.

Time will tell, but perhaps the industry’s new high profile in the public eye will help promote its career potential. The lumber industry has had more visibility in the news for the average person than ever before, courtesy of more mainstream articles, industry presence on CNBC and other platforms and even memes spread through social media.

Sustainability focus: A big part of raising the status of the lumber industry comes down to playing up the good. It’s tough to find a product that grows freely and can be sustainably managed. We’re contributing meaningfully to people’s lives and doing so in a responsible manner. We provide an essential service, and where you live became a lot more important during COVID-19. 

Coming out of the pandemic, we can leverage that. The sustainability message is a good way to do that. It’s up to us to make sure not only that the message is heard loud and clear, but that it is heard outside of the industry. Maybe if we can talk about it in a broader context—why it’s important to the city you live in, for example—it will hit home.

Regardless of how you feel about consolidation—which is happening at every level of the lumber industry—larger companies might aid this effort as they have the resources and scale to disseminate these kind of these messages.

Innovation: If demand is growing and the pool of workers is shrinking, it will be impossible to keep up. What are the alternatives? It’s either automation or otherwise finding a way to get things done with fewer people. In light of the shortage of semitruck drivers, for example, that means advancing the self-driving concept, making it easier to be a truck driver, or automating other parts and pieces of our operations: receiving materials, loading trucks, etc. Something’s going to have to give. A lot of companies are already rethinking logistics, and third-party participation in the segment is certain to gain momentum in the future. 

In addition, we could see significant disruption in the residential market, with new materials or new technologies such as 3D printing potentially reducing costs. The industry also could revisit the potential of prefabricated homes and manufactured housing as cost-cutting options that have generated a lot of hype in the past but failed to have a lasting impact at scale. 

Consolidation may help promote movement here, too, through the efficiencies it creates. Eight steps in a supply chain obviously are going to work better than 17. So, when you talk about making housing affordable and fostering innovation, getting there might be faster with fewer players and more streamlined relationships than with three times the number of companies and less transparency.

Healthier Future?

These themes are likely to play out over the long term, but for now the COVID-19 pandemic has taught the wood products industry an important lesson in self-care. The entire supply chain—from wholesalers to retailers to builders—is becoming more cognizant of how and where they thrive in the business. There’s more thought centered around where a company gets its products, who it partners with, and controlling the inputs and raw materials. When you can’t get a part for a $500,000 machine because it’s sitting on a barge in the middle of the Pacific Ocean, you start to wonder if maybe we should make them somewhere closer to home. 

There’s also an acknowledgment that we can no longer do everything for everybody all of the time. In the past, a company might run its mill 24/7, 365 days a year, cranking out as much production as possible regardless of what’s going on. There’s now greater sensitivity to operating in a smarter way that delivers sustained success. Everyone, including Amerhart, is exploring what that route is for their individual business. Our company grew and built a reputation on always saying “yes” to whatever was asked of us. We just can’t do that anymore—we don’t have enough people. We have to pick and choose where we want to focus. 

We also have to surmount our trepidation. Today’s business climate feels a lot like the run-up to the Great Recession, and there’s a sense of anxiety that our good fortunes will not last. It’s as if things are too good to be true, that something is waiting to hit the fan, and that we’re not ready for whatever it is. In turn, there is, at times, a hesitancy to make needed investments. And that’s scar tissue, too.

– Chad Warpinski is president of 11-branch Midwest distributor Amerhart, Green Bay, Wi. (www.amerhart.com).

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