The tally of damage inflicted by the devastating hurricanes in Florida, Texas, and Puerto Rico—combined with fires on the West Coast—is still being compiled, but it’s already becoming clear that one result nationwide will be product shortages and possibly the return of allocations.
Dealers who foresee the shortages tell ProSales they already have begun responding. Some who could afford to do so placed larger-than-usual orders in July and August. As danger approached, others began calling their most faithful customers to learn their needs and thus make sure those customers will get whatever scarce supplies will be available. Many have alerted their employees to be on the lookout for strangers who show up and try to buy up every sheet of drywall or sheet lumber in the store.
Hurricane Harvey alone would have caused issues; John Burns Real Estate Consulting believes Harvey destroyed 35,000 homes and substantially damaged another 150,000 in South Texas. It predicts that Harvey alone will produce a 4% increase in repair and remodel spending nationwide.
Then came Hurricane Irma. CoreLogic has estimated total insured and uninsured losses from damage to properties at $42.5 billion to $65 billion. The destruction caused by Hurricane Maria could be even more expensive— $40 billion to $85 billion in insured losses, the catastrophe modeling firm AIR Worldwide estimates. But 85% of those losses are in Puerto Rico, so Maria’s impact on the mainland supply chain might be limited.
On the other hand, the fires in Western states and Canada could ultimately hurt LBM as much as or more than the hurricanes. British Columbia’s forest industry will need at least five years to recover from this year’s fires, the province’s forest ministry says, as more than 1,200 blazes since April 1 have destroyed 4,440 square miles of land and 22.5 billion board feet of lumber.
Even if we don’t end up with allocations, the price shocks already are there. The Random Lengths index for framing lumber as of Sept. 22 was at its highest point since March 2013, while the index for panels was up 36% from the same week last year.
What to do? Dealers who remember past shortages and allocations suggest these tactics:
Pay whatever is the going rate regardless of price. Don’t try to bargain again until vendors start calling you with deals.
Remember: It’s more important to have materials, no matter how costly they are, than to go without. You can’t sell what you don’t have. And even if you think the price is high, odds are there’s a customer needy enough to pay at that new rate.
Decide who your best customers are and protect them. We’re talking about the ones who have stood by you over the years. This is the time to repay them—and win some love—by reaching out to them, learning their needs, and then making certain that whatever you can get into stock will be enough to meet their needs.
Punish deadbeats. Customers who don’t pay their bills on time shouldn’t be on your MVP list, regardless of how much they buy.
Understand that your vendors will treat you the same way you’re treating your customers. Their typical tack is to see who buys the most from them and then give those dealers the biggest share of their scarce resources. And they’ll also be quite aware of how quickly you pay your bills.
Beware the unknown buyer. It’s common for people who know the value of a hard-to-get item to hire a rental van and travel to where that product still is on the shelves, then try to buy as much of those goods as possible. Their plan is to head to a hurricane-damaged area and sell those goods at a hefty markup. That’s legal, and it produces nice revenues for you, but the sale isn’t worth it if you then can’t serve your most faithful customers.
