Monday, March 5, 2018

Rising Transportation and Lumber Costs Slamming Modular Home Industry

A lumber shortage has pushed prices to record highs as modular home factories stock up for what is expected to be one of the busiest construction seasons in years. Add in the new tariffs on steel about to be imposed and the new home buyer will take it on the chin in 2018.

Builders in the U.S. say the higher lumber costs are making homes more expensive. Lumber prices started rising last year after fires destroyed prime forests and a trade dispute between the U.S. and Canada restricted supplies.

Now a shortage of railcars and trucks is forcing modular home builders to pay even more.

The drive for cost cuts and higher margins at U.S. trucking and railroad operators is pinching their biggest customers to spend more on deliveries and consider raising their own prices as a way to pass along the costs.

Interviews with executives at 10 companies across the food, consumer goods and commodities sectors reveal that many are grappling with how to defend their profit margins as transportation costs climb at nearly double the inflation rate.

These industries just pass the increased costs off to the retail sales chain on products that cost a lot less than a new home. If the price of Tide detergent or a pound of coffee goes up 15 cents in one week the shopper barely notices. The price of a pair of sneakers going up $10 in one week barely raises an eyebrow as this may be a purchase made once a year.

Those increases could be a much as 10-20% and nobody blinks an eye but a new home price go up 3% and that could be the difference in selling or not selling a new home.

The prospect of higher prices on chicken, cereal and snacks costs comes as inflation emerged as a more distinct threat in recent weeks. The U.S. Labor Department reported earlier this month that underlying consumer prices in January posted their biggest gain in more than a year.

As U.S. economic growth has revved up, railroads and truck fleets have not expanded capacity to keep pace - a decision applauded by Wall Street. Shares of CSX Corp, Norfolk Southern, and Union Pacific Corp have risen an average 22 percent over the past year as they cut headcount, locomotives and rail cars, and lengthened trains to lower expenses and raise margins.

Quickening economic growth, a shortage of drivers and reduced capacity, and higher fuel prices have driven up transportation costs, prompting some companies to threaten to raise prices on that higher priced steel and lumber making it a double whammy for builders.


Builder Bob said...

Coach, everyone has felt the pinch on profits from lumber but as you state in the article adding increasing transportation costs will start pricing many buyers to either look at resale or downsize their new home dreams.

Keep up the good work informing builders about all things modular

Devin Perry, NAHB's Building Systems Councils said...

Thank you for raising awareness of this issue. The National Association of Home Builders (NAHB) is actively working with elected officials to overturn harmful tariffs on steel/aluminum imports and Canadian softwood lumber.

The impacts of softwood lumber duties alone on the U.S. economy will include increased production by U.S. sawmills, reduced imports from Canada, and higher prices paid for lumber by consumers in the U.S., which in turn will lead to a reduced volume of new residential construction. NAHB estimates that the bottom line impact of these effects in 2018 will be a net loss of

$576.9 million in wages and salaries for U.S. workers,
$404.0 million in taxes and other revenue for governments in the U.S., and
9,370 full-time U.S. jobs.