The Pandemic Has Reset the Rules of Business
I’m sure you’ve heard people say that they wish the pandemic was behind us and things would return to normal. We all do, but I’m not sure what the new normal is. Unfortunately, this COVID-19 pandemic was, and is, life altering. From a business aspect, many firms closed their doors for good while others altered or implemented costly and time-consuming new standards. In some industries, people are working remotely, traveling less, using teleconferencing, and generally having less physical contact with their coworkers. These changes may be temporary or permanent. Only time will tell.
New tedious and labor-intensive ways of doing business are costly, and those expenses eventually have to be passed on to the consumer. These new business practices are in place all the way down the supply line, from the raw materials, to the transportation, to the manufacturer, to the supplier, to you, the roofing contractor. It all costs money and it adds to the final price of the finished products. While the price of raw materials may fluctuate, the cost of extra business practices and additional labor do not, and the inflation cycle has begun.
To make matters worse, there is a bottleneck of ships sitting off the California coast trying to unload their cargo while trucks are backed up in the same location trying to deliver their containers. It’s estimated that 40% of all United States supplies pass through Los Angeles or Long Beach harbors. The Federal Government has finally given the temporary approval to run both of these the ports 24 hours a day. Hopefully that will help ease the traffic congestion.
“The prices contractors pay for construction materials far outstripped the prices contractors charge in the 12 months, despite a recent decline in a few materials prices, while delivery problems intensified. Construction materials costs remain out of control despite a decline in some inputs last month. Meanwhile, supply bottlenecks continue to worsen, said Ken Simonson, chief economist, The Associated General Contractors (AGC). “Supply bottlenecks continue to worsen. There were double-digit percentage increases in the selling prices of most materials used in every type of construction with the exclusion of lumber and plywood, which fell 12.3% during the past 12 months.”
Everyone in business understands the law of supply and demand. With the harbor bottleneck in full swing adding to other problems, inflation had to rear its ugly head. With the Consumer Price Index (CPI) on the rise, it will be necessary to increase wages. Once the new increased wages take hold, that will mean the price of consumer goods will rise accordingly. Down the road, another rise in labor wages will be required and the cycle will repeat itself. Income never really catches up with the CPI, as it’s a constant battle. The people inflation hurts the most are those on a fixed income.
Meanwhile back at the ranch, material prices have been outstripping bid prices for a while. Recently, however, we’ve heard reports of material costs starting to come down, and the wait for supplies shortened to some degree. That’s shortened, not eliminated. Whether this is a result of lower demand or heightened supply, we’re not sure, but it’s certainly a trend we would like to see continue.