Industrial Distribution One Year Into Covid

It was around a year ago now when we started to hear about this thing called Covid. My kneejerk at that time was “it’s just the f1cking flu”. Quite the year.

For those not acquainted, I own an HVAC distributor, and we are a subset of industrial distribution. I have written some updates along the way of this new Covidian world. Here are a few more thoughts of where we were, where we are, and where I think we are going.

1) I thought our AR was going to be ravaged. Boy was I wrong. AR is as healthy as it ever was. We probably have some PPP money being used improperly by some customers, but the fact of the matter really is that HVAC in general has been very, very strong. People had to stay at home and with extra money from not going on vacations decided to upgrade their HVAC systems. Indoor Air Quality (IAQ) was obviously a very good driver for us in both residential and commercial segments.

2) I originally thought that replacement parts would be an issue. Nope. It was all about finished goods, and still is. Our main domestic provider of HVAC equipment is digging out of the hole that seemed infinite in nature, caused by all of the distributors cancelling everything during the original shutdowns, and then re-ordering everything x 2 or more when the weather got hot in Summer. It was brutal, but we worked through it. All of the favors were called in, and I scoured the USA for new trading partners to come up with some solutions. That work paid off and will pay off in the future as now I have more partners to rely on. I have never worked so hard to get product – one week I worked 100 hours. I have had one day off since last February that wasn’t a holiday. Not looking for sympathy – these are things that you do when you are the boss but I’m glad we have a bit more normalcy now.

3) Right now, the ports on the West Coast are a mess, and there is a major container shipping issue to/from Asia. This is already causing hella problems with items such as ductless mini split systems, PTAC units, window airs, dehumidifiers, and the like. We are going to see major issues in these segments when it warms up.

4) Inventory controls are out the window. Product comes in surges rather than the patterns we were used to that had been developed over decades. We are still getting orders in on some items from last July. It is very tough to manage. We don’t dare send anything back to the manufacturers for fear of not getting the items again, but our turns are a farce right now. There really isn’t a solution, and we hope that our normal buying/supply patterns return later this year. I have rarely used my line of credit in the past, but until this thing normalizes, I have no choice.

5) Competition isn’t working as hard as I am. I really am happy about this as I am seeing new customers and coming up with innovative solutions or new products/vendors, and a lot of my competitors have either given up or just aren’t that interested in trying new things. It has really opened some doors. Hard work does create luck.

6) I protected, and continue to protect, our long time, loyal customers when the availability sh1t hit the fan and shielded them fiercely when other contractors came calling as their distributors ran out of product. We immediately halted new dealer acquisition and allocated product to “our guys”. My customers were very thankful for very few product outages. This created some angst as these potential new customers were offended when I politely told them to “pound it”, but that’s too bad. We did the right thing.

7) The future is bright. If we can get a handle on the inventory, we feel that there will be a burst of commercial work coming as companies get fully back up and running. I think that residential won’t slow down any time soon either. This polar vortex we are currently experiencing pushed a lot of units over the edge.

8) Some items are still hopeless. MERV 13 filters are a complete joke, along with UV product. MERV 13 filter lead times still sit at 16-20 weeks. Want a backup generator for your house? 20 weeks minimum. Our Bipolar Ionizer manufacturer that we represent has done a fantastic job re-supplying so that fight is over for now.

There is a lot of work left to do, but in general, we are finally, mercifully seeing some light at the end of the tunnel.

27 thoughts on “Industrial Distribution One Year Into Covid”

  1. Congratulations on surviving a tough year.

    I am still nursing along our 20 year old Trane HVAC system. Tucson summers can be brutal. Still better than New England in the age of Biden and AOC.

  2. At 20 years old, it may be time to get some estimates on a new system. Would probably pay for itself in energy savings pretty quickly in Tuscon.

  3. Thanks for all this information – really gives a picture of Covid times. I was surprised when our air conditioner went out last spring – new one in two days. But it was one of many expenses that mount in an old house (squirrels in the attic, garage apartment stairs became wobbly, etc. etc. We don’t want to leave this house but it is also a money hole. I don’t think I’ve ever spent a moment regretting getting out of my small business – I remember 100 hour weeks – with some pride at my perseverance if sometimes poor business sense, but not with all that much fondness.

  4. I think most houses in general are money holes and that a lot of times it is better to rent, but those equations are complex as emotions and the time value of money are so different for people across the spectrum. My humidifier croaked last week and I spent two hours fixing it (parts in stock!). Likely I should have called a contractor if I would have done a simple time value calculation, but how weak sauce is that? Emotions.

  5. Dan “how weak sauce is that? Emotions.”

    Yep. Add in Operant Conditioning with a Random Reward. Turn on a light, if the chicken pecks a bar it gets a food pellet reward. Chicken learns when light goes on to peck that bar. That’s Operant Conditioning. Know how to drive the chicken nuts? Reward it randomly. It will wildly, aggressively peck that bar.

    This explains what one sees at slot machines in Vegas. And, sigh, it is sometimes what I think is what happens with my successfully accomplishing a repair (car, computer, HVAC, plumbing, roofing, electrical). Gotta keep trying the next time that light comes on, the next time there’s a problem. Forget time value of money. (I’m retired, so I ought not consider that, right?)

    Appreciate your ‘war stories’ about running a business, Dan.(And those of others, eg Sgt Mom’s re publishing, or Mike’s re ‘doctoring’, or Ginny’s just above.) Gives flesh and blood to the skeleton of an economic understanding, not just making the theory walk, but making it people rather than abstract theory. Especially so when I encounter the nonsense from so many having neither training in (non-Keynesian) economics nor experience in business. Glad to learn you made it thru 2020, gained some customer loyalty.

  6. About as reliable as Zerohedge usually is, there aren’t a thousand container ships in the whole world. The jam is real but the number last I heard was in the 30’s, still a major problem if you’re waiting for something from Asia. Each ship holds the equivalent of from a couple of thousand, for the smallest, to around ten thousand truck loads of goods that somebody is waiting for. Ask Dan.

  7. I read @D’s container ship link. Interesting traffic jam. Could picture in my mind’s eye the view from Vincent St Thomas Bridge, or Palos Verdes, or even perhaps Signal Hill, each allowing one to see some of the 30-40 container ships inside the breakwater.

    Called younger brother, who is retired longshoreman with decades of experience stacking ‘cans’ (think trailer on 18 wheeler) in Port of LA/LB. On a couple of visits I joined him in cab of top handler (think fork lift, only 10X bigger), got to watch his technique. He set and maintained still-standing records for most cans placed or removed in a shift. Visualize that monster fork lift with double clutching going on so that the engine rpms could stay up and better operate the hydraulic system and raise or lower cans faster while at the same time the top handler was moving toward or away from the stack. Visualize when, with a can up several stories to go on a stack, acceleration or deceleration caused a momentary lift of the front or rear wheels. Deft handling and keen sense of load, but he did not have accidents, just was faster than other drivers. The rest of a moving team–from the crane operators who lifted cans off the ship, to the truck drivers who moved the cans around the dock, to the different levels of managers and checkers who assigned locations and kept tallies and tabs on locations–liked him being part of the team. Meant they could finish a quota, complete a shift at full pay, and go home early, even sometimes have an opportunity to stay and get overtime pay.

    My brother chuckled at my description of D’s link. He had seen some of that view of the ships. He thought that likely C19 influenced it, both with real problems and with possible ‘sick-outs’. Maybe in the next month C19 infections will continue to decline, and the bottleneck will get relieved.

    We talked briefly about a related irony.

    Sometime since about 2010 or so docked ships in the LA/LB Port were required to shift from using their own power to using shore power. Instead of raw smoke from a variety of fuels, some much more likely than others to pollute, shore power would come from sources that could select the fuel and scrub the smoke. I recall reading an LA Times essay on this transition from ship power as removing the single largest air pollution cause in So Cal, bigger, much to my surprise, than cars on freeways.

    Now, however, with as many ships floating inside the breakwater as docked and on shore power, the pollution problem would grow. We wondered how that might factor into the “gotta solve this congestion” problem.

    We also wondered how California and Federal mandates about pollution at cross-purposes with mandates about fuels might impact the congestion and choked/blocked supply-chain reality.

  8. Brian,
    It came straight from the title screen of the video itself. I didn’t watch it and the title might not have been from the whoever made the video. As the link I posted shows, this has been building for some time. But still, nowhere near a thousand ships.

    Both LA and Long Beach are reporting record number of containers handled, so it isn’t some sort of job action. Some of it seems to be a backlog created by the initial lock downs both here and in China. The rest is possibly increased orders, maybe because of uncertainty. There is also a shortage of empty containers in China as well as a slowdown in China clearing imported food for supposed covid testing that is straining their ports.

  9. The article says: “We seem to have settled into a new, new normal of roughly 30 container ships at anchor. Whether that will continue or not, I don’t know.”

    So there was a bad video title, that’s no reason to dismiss ZH. They’re sensationalistic and click-baity, but are still a decent place to find news.

  10. OK, I got HVAC. But what’s “AR” and “PPP”? Spell them all out on first use, then use the acronym/abbreviation if you must. If you want your readers to grasp the point you’re making, clarity above all.

  11. Pub2: Well, duh, everyone knows AR means Arkansas, and PPP means Public Policy Polling.
    That means Linus Or Lucy.

  12. Publius Secundinus: in the context, AR means “accounts receivable”. PPP – “personal protective equipment”.
    For future reference – WFH is not a mishap, but acronym for “work from home”.

    Hope that helps.

  13. The repair facility where I take my travel trailer has actually had to lay off some folks for lack of parts. Most of the items in a travel trailer are China junk. Even top end motor home units. The facility is making some repairs by stripping used parts. But that is complicated. The owner showed me a 3 inch stack of parts Àbackorders.
    One gentleman needed a $50 AC part for his 1/4 million $ motor home, no joy. He paid for a whole new unit, to get rolling to southern cal.
    I , on the other hand , decided just to use my fridge when plugged in to shore power. Ice chest when Boondocking . Gas absorption unit ain’t perkin. Have given some thought to the 12 volt fridges from Australia. They are highly rated, available , and way expensive.
    But if China joe shuts down interstate travel I won’t need any of that.

  14. @PubliusII – I guess I dash this stuff off assuming too many people know too much. Tatyana is correct on AR, but in my context I used PPP to mean Paycheck Protection Program.

    Jonathan will be docking me for this I’m sure as his standards of quality for blogging here are extremely high.

  15. another, more interesting [to me] question is how P had transformed into E in my mind? and how much closer this fact takes me toward all-out dementia?

  16. Keith: “The repair facility where I take my travel trailer has actually had to lay off some folks for lack of parts. Most of the items in a travel trailer are China junk.”

    Let me share a prognostication, to try to spark some entrepreneurial ideas. Clearly, the West (especially the US) is heading into troubled economic times, as the wages of de-industrialization and money printing (Quantitative Easing) fall due. One of the inevitable consequences is that the rulers of the Chinese Communist Party will at a time of their choosing pull the plug on exchanging valuable Chinese-made real goods for worthless freshly-printed dollar bills. Access to Chinese-made parts is going to become rather limited.

    In principle, this could be a good thing for the US. The smart response would be to restart domestic production of many different kinds of manufactured goods which are now imported from China. This would create jobs & tax revenue in the US. However, Beijing Biden’s gang will put massive regulatory obstacles in the way of this common sense response — claiming that dirty manufacturing will destroy the planet, don’t you know?, while their CCP masters smile.

    This will likely create a huge demand for currently non-existent repair facilities. We could imagine abandoned malls being converted into urban scrapyards where impoverished citizens could exchange broken toasters, phones, TV sets, etc for cans of beans. These urban repair shops would extract working parts from those paperweights, and then reassemble the useable parts into working units for sale — probably in exchange for cases of beans.

  17. Gavin: When that happens people won’t be meeting to figure out how to trade their scrap metal for food, they’ll be meeting to figure out how to use it to build guillotines.

  18. Brian Says:
    February 15th, 2021 at 11:01 am

    Gavin: When that happens people won’t be meeting to figure out how to trade their scrap metal for food, they’ll be meeting to figure out how to use it to build guillotines.

    Or make AR 15 lowers. The ammunition industry will be growing, as well, unless China Joe can shut it down.

  19. One of the inevitable consequences is that the rulers of the Chinese Communist Party will at a time of their choosing pull the plug on exchanging valuable Chinese-made real goods for worthless freshly-printed dollar bills.

    Consider that statement in relation to three others.

    1) None of that ‘valuable stuff’ is edible.

    2) Despite your claim that they are ‘worthless’, dollars are still the world’s trading currency, and nobody else seems to want the ‘valuable stuff’ China is making.

    3) The last time the Chinese tried to jump-start domestic production and consumption (The Great Leap Forward) they wound up starving millions of their own people.

    That’s not to say they couldn’t do it again, if the Chinese PTB deem it necessary to preserve the power of the CCP, but it’s likely that the resulting disruption will be far more devastating to China, and a lot less devastating to the U.S that y’all Doomsday theorists like to imagine.

  20. – Conservatives are a bunch of violent insurrections who are an imminent threat to overthrow the government.
    – Conservatives will hand over their guns when confiscation laws are passed, and will sit by and watch while Dems change all the rules to ensure that conservatives can never have any power again.
    Same people. Just pick one and go with it, guys.
    Dems are now completely made up of folks from CA, NY, IL, etc., and have zero sense that you can in fact push people too far.

  21. Christopher B.: … it’s likely that the resulting disruption will be far more devastating to China, and a lot less devastating to the U.S that y’all Doomsday theorists like to imagine.”

    I hope you are right — but am totally unconvinced. Forget Walmart — go to your local hardware store and check where the nuts & bolts which underpin civilization come from. It is not just high tech items like cell phones, computers, and machine tools that have to come from China because the US can no longer make them domestically.

    Or look at the numbers. China exports about $2.5 Trillion every year — and only 20% of it goes to the US. China has balanced trade with the World Excluding the US — exports about $2 Trillion, imports about $2 Trillion. And China chooses to run a massive trade surplus with only one country — the US — where China exports about $0.5 Trillion annually to the US but imports a mere $0.2 Trillion. The US gives China $0.3 Trillion of freshly printed dollar bills for the balance, year after year.

    Ask yourself — Why would the rulers of the Chinese Communist Party effectively subsidize the US to the extent of $0.3 Trillion every year? How long will they continue to exchange real goods for IOUs? Who is going to be more hurt when the CCP decides to stop?

  22. Dan, I have spent many minutes/hours doing “curbside consultations” for friends.

    Here is one on HVAC. I got an estimate today for a Home Depot product by the outfit that tells me they are the only contractor in Tucson for Home Depot. I had a very good experience with HD when I bought this house. We got an estimator out and ended up replacing all the windows and doors. It was well done and we paid for it over 2 years interest free.

    The HVAC unit we were discussing was similar to this one but Lennox brand, which I can’t find online at the moment. We did not want the variable fan and just a basic unit.

    The one in the link is about $6000. The furnace is Trane, as is the existing HVAC unit. The quote was $16,500. Why ? The unit is gas powered, not electric although of course the fan part is.

    I just am asking for some free advice.

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