COVID-19

I have been sharing supply chain woe stories over the past year plus, ever since the Chinese commie crud took over the headlines. I work in the world of industrial distribution.

Many of those supply chain issues remain to this very day, and some are getting worse. I have been in the industry for 35 years (HVAC distribution specifically, a subset of industrial distribution) and with a mature industry such as the one I am in, supply chain always had ebbs and flows, however these were easily predictable and looked like a very shallow sine wave. Over the past year and continuing to today, the supply chain is very spiky and extremely difficult to navigate.

Disasters such as the Suez Canal closure and plants getting damaged in Texas over the Winter added to an already miserable time. Many businesses are opening back up and demand is surging as equipment that was previously mothballed or otherwise inoperative is coming online (and breaking). We continue to have transportation issues with LTL (for those who don’t know, LTL stands for Less Than Load, or semi trailers that are making deliveries of many skids of product to different locations rather than a straight shot to one location) being a disaster right now. Labor is a problem as many that were laid off have either moved to other jobs, or simply refuse to come back to work due to overly generous federal and state unemployment benefits.

The whole enchilada is quite the mess. Oddly, when I go to work in the morning I am resigned at this point to just saying to myself “I wonder what insane thing I will have to deal with today” and just put my head down and deal with it. When you get used to adversity things don’t bother you as much, I suppose.

I made the decision to never cancel any orders and simply take on more inventory. This hurts in the short term as cash flow and inventory turns are adversely impacted, but mission number one is to smooth out these spiky curves to our customers, so they can continue to make money – it needs to be my job to bear the brunt of this and to make it virtually unnoticed for our contractors. It remains quite the challenge. There will be major issues this Summer with imported equipment such as ductless mini splits, window airs and dehumidifiers imported from over there due to the persistent port delays on the West Coast. These issues are already happening. As hard as I am trying, I can’t get every product for every customer in these conditions. Most have been understanding. If they aren’t, well, I can’t unload the containers so….

Here is an interesting story about a different industry, flowers. I always take my wife out to a nice brunch for Mother’s Day. In addition, I always get her a corsage with three spray roses, the white ones with the red tips. I called the florist to order it up yesterday and the person on the other end laughed and said that they hadn’t seen spray roses in a year. In fact, when I go to pick up my corsage, they couldn’t even tell me what type of flower it would be. The shipment of flowers shows up and they have to make do with what shows up. She said that it was probable that I could get a single white rose but no guarantees. I told her that I could completely relate as I have been living this hell for a while too. She was pleased to speak with someone who was sort of in the same boat and went on to tell me that the last year was full of enormous challenges in the flower industry – that a lot of flowers simply didn’t exist to purchase.

While that is an anecdote, it is still telling of how we will likely see supply chain issues for some time to come.

As you all probably know, there is a ship stuck in the Suez Canal, which is blocking transit. You may not think this directly affects you, but it will. It’s just a matter of time.

I own an HVAC distributor, and HVAC is a subset of industrial distribution. Most manufacturers are still reeling from last year’s Covid issues. Commodities like copper, steel, aluminum and sliver were already spiking in price before this latest logistics issue.

I spoke with one of my major component suppliers this week. The cost of a container from Asia to the US was $5k last year. This year it is $15k. And there simply aren’t enough to go around.

While the Suez blockage doesn’t directly affect this trade route, it does affect the overall global logistical issues – and wreaks havoc on just in time producers.

I have one manufacturer of HVAC equipment that suspended all new orders a few months ago as they grapple with staffing issues.

When you combine all of this, I don’t think that there is any question that there will be finished good shortages again this Summer. First affected will be stuff made “over there”. We are already seeing shortages on things like ductless mini split systems because of the continuing port slowdowns on the west coast of the USA. It isn’t even Summer yet.

Here is where it affects you. The guys who have the stuff will win. Hands down. I made an enormous inventory investment this Winter and Spring, placing orders far in advance of what I normally would. I’m not going to let that investment go to waste – and I’m not spending basically every waking hour getting stuff in my barns to help my contractors get their jobs done for nothing. If I’m the only guy who has it (and trust me, on some things, I will be) – the price just went up. It’s nothing personal, just business.

Believe me when I say that I wish my life were easier and yours cheaper, but I won’t be alone in this. If you end up with an issue with anything from car parts to electrical to something as simple as a washer breaking down, you will be paying more in the very near future.

Sorry.

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.