COVID-19 Supply Chain Impact For HVAC
6 MIN. READ
HVAC technicians already know that the last 18 months have been difficult for business due to the COVID-19 supply chain impacts and other problems. Indeed, adding to the uncertainty and risk of the pandemic and its associated financial challenges and additional safety protocols, there has been a significant disruption to the world’s supply chains for all types of equipment.
Air conditioning and heating parts and equipment are in short supply. But demand has rapidly increased with millions of people suddenly working from home. Additionally, extreme weather has hit hard in both the winter and the summer.
In fact, the US experienced some of the hottest temperatures ever recorded from the Pacific Northwest to the Southwest. Plus, states in the Midwest hit all-time low temperatures, with multiple days near or below freezing earlier in 2021.
The problems in the supply chain are multi-faceted and complex, which make them even harder to resolve. It is unlikely that things will be back to normal soon. Experts predict that it could take a year after the issues are resolved for some companies to recover completely.
For HVAC companies, it is essential to understand the COVID-19 supply chain impacts, and what they will mean for business. It is also essential to diversify where you get your parts and supplies from in the future to prevent disruptions as much as possible in uncertain times.
Manufacturing and shipping bottlenecks
The manufacturing and shipping industry was hit particularly hard during COVID-19 and is still only operating at a fraction of its peak. Some of the immediate impacts include:
- Job loss: More than six million people lost their jobs in manufacturing alone. That represents 7% of the entire industry workforce. These jobs have been slow to recover. Even in places where manufacturing jobs are available, there is a shortage of workers to hire.
- Ship call drops: The United Nations Conference on Trade and Development reported a 20% drop in ship calls because of restrictions and lockdowns. Reduction in international shipping echoed throughout the supply chain with months of lead time increases.
- Supplier lead time: Millions of consumers continue to purchase goods, especially those with disposable income that they might have otherwise spent on travel, dining out and other experiences. Production demand is up, but manufacturers are still struggling with workforce shortages and other challenges. The manufacturing lead time is the longest it has been since 1987, according to the manufacturing purchasing managers’ index economic indicators.
- Air cargo capacity: Compared to the same time in 2019, air cargo capacity was down 12% in July 2021.
- OEM production bottlenecks: Even as COVID-19 infection levels were going down when the vaccine first rolled out in early 2021, truckers and trailer suppliers could see a looming problem with original equipment manufacturing (OEM). The Heavy Duty Manufacturers Association conducted market research and found that 90% of professionals in the industry believed that the shortage was already underway in early 2021 and that it will only get worse as the year goes on.
The speed and duration of the pandemic have demonstrated how fragile global supply chains can be as well as the value in developing a more robust and diverse range of suppliers from which to purchase goods. Many HVAC companies are looking at how to work with suppliers closer to home to minimize the risks in global shipping and trade and other COVID-19 supply chain impacts.
Raw material shortages
The HVAC industry is built on raw materials, and a shortage in one small part can ricochet out into massive shortages. So, with multiple raw materials nowhere to be found, the industry is hurting, especially in regards to air conditioners. A/C requires semiconductors and a range of raw materials, including:
- Steel: China wants to cut back its steel production. But, America’s aging steel mills could not ramp up production quickly enough to meet the surging demand.
- Aluminum: An oversupply in the market is about to end, and new demand for aluminum is likely to increase prices.
- Copper: Experts warn that the world might “run out of copper” with only enough supply to meet the demand for about 3.3 weeks. Plus, copper tubes have doubled in price compared to the previous year.
- Plastic: Constraints on raw materials to make plastic – namely polyethylene, polypropylene, and monoethylene – are making it hard for manufacturers to keep up with the demand for plastics.
Meanwhile, the demand for these essential HVAC products has jumped as more people now need to purchase things like computers and laptops to work and learn from home, upgrade their television and other entertainment devices, or purchase new vehicles. Between the increase in demand, workforce shortages and COVID-19 surges in some of the only places in the world where semiconductors are made, air conditioner manufacturing is facing a brutal storm.
Indeed, COVID-19 supply chain impacts have created severe issues with these materials. However, the pandemic is not the only reason for the shortages. Other disasters like extreme weather, the Suez Canal container ship blockage and factory fires have multiplied the effects of COVID-19.
Looking to the future
Unfortunately, it does not look like the current issues are likely to let up in the near future. Manufacturers have all announced price increases, ranging from AAON with a 5% increase to Lennox increasing prices anywhere from 6% to 9%. Other major manufacturers like Carrier, Trane, York, Evapco and A.O. Smith have all announced similar increases in the 6-8.5% range.
Meanwhile, semiconductor prices are not going down while shortages continue. A 10-30% increase is likely to stick around for a while as countries and companies make plans to boost their own semiconductor manufacturing capabilities. Metal prices are also up 72% and likely to stay high due to:
- Continuing demand for manufactured goods (especially vehicles).
- Planned investments in infrastructure.
- The reopening of economies around the world.
How to protect your HVAC business from COVID-19 supply chain impacts
There are a few steps that HVAC technicians can take to build more resilience against the inevitable COVID-19 supply chain impacts in the future:
- Communication: Talk to your suppliers regularly to gauge current lead times and shortages. Build relationships with your suppliers to maximize the chance of getting what you need when it is in stock.
- Diversification: Having more suppliers in your network can help you find products that are in short supply. The Raiven Marketplace helps you find suppliers in your area, state, region or anywhere in the U.S. The platform includes tools to compare prices and services to find reliable partners.
- Strategic purchasing: It might be tempting to stockpile items right now when they are harder to come by. However, purchasing a lot of products could backfire if there is no demand to support those orders later. Instead, it is important to use high-quality forecasting tools to help you predict what you will need to purchase at the right time to have items in stock without the need to store them in the meantime and risk losing money.
It is impossible to control the global supply chain. If the past 18 months have taught us anything, it is that we cannot predict the future with any certainty. With the right tools and careful planning, though, you can minimize the long-term risks to your business.