September 23, 2021
In the News
|I. Rebuilding Process Slow Following Hurricane Ida|
|II. Contractors Find New Ways to Cope with Elevated Lumber Prices|
Rebuilding Process Slow Following Hurricane Ida
Annacaroline Caruso, editorial associate
Louisiana and surrounding areas are continuing to deal with the fallout from Hurricane Ida, which ripped through the southeast section of the state in late August. Contractors in particular are facing challenges, amplified by preexisting supply chain issues and labor shortages, as they return to jobsites and begin the rebuilding process.
U.S. industrial production grew slightly in August despite the storm, but slowed with only a 0.4% gain, according to Wells Fargo. Manufacturing rose 0.2% last month, but would have increased more were it not for Ida. “The Louisiana economy is still on the mend from the pandemic-induced downturn, and the hurricane damages will only serve to prolong the region's recovery,” Wells Fargo says.
The struggle to find skilled workers and materials only adds to the complications facing the construction industry following the storm. However, while construction has slowed some, rebuilding has not completely halted, said Roxanne Price, CCE, CCRA, corporate credit manager at H&E Equipment Services, Inc (Baton Rouge, LA). “We had to help many of our customers by making sure they had generators and other essential equipment units, so they could continue to work,” Price said. “We had to think outside of the box to help our customers and support them.”
For some, the storm may also delay payments from debtors. “[Hurricane Ida] has affected the mail, so payments are coming in much slower and many of our customers are still struggling to get internet access,” said Mary Lou Schwartz, credit manager with Ferguson Enterprises LLC (Metairie, LA). But for others, it may still be too early to see the full impact Ida will have on customer payments, Price said. “Business is still thriving and there is still a lot of work going on.”
Henry D’Esposito, who leads construction research at the real estate services company JLL, told the Associated Press that the delays in acquiring certain materials like drywall, glass, steel and aluminum is throwing a wrench into their rebuilding plans. “A lot of the materials that you would need for any project and especially something this urgent — you’re not able to get on site for weeks or months,” D’Esposito said.
The cost of rebuilding is more expensive now too, thanks to skyrocketing construction material costs. Combined prices for windows, doors, roofing and other building products jumped 13% in the first six months of this year, according to Labor Department data. Labor costs are also higher and the longer construction projects are delayed; the longer workers need to be paid.
However, creditors should be cautious of outside contractors taking advantage of the labor shortage and the various jobs created by the hurricane, Price said. “We have to be very careful after hurricanes and storms because sometimes you’ll get general contractors who are just looking for work but aren’t necessarily the best customers,” she said. “You have to keep your guard up and still make sure you are doing a complete credit check.”
Contractors Find New Ways to Cope with Elevated Lumber Prices
Sebastian Obando, reporter, Construction Dive
U.S. commercial and residential builders breathed a sigh of relief last month when softwood lumber prices dropped more than 30% after reaching an all-time high in May. Although prices still remain elevated, they have come down to a more manageable level, experts told Construction Dive.
These fluctuations in the price of lumber are related to the supply chain, said Daniel Pomfrett, vice president at Cumming, a project and cost management firm. Now that lumber prices have started to decline, Pomfrett said contractors should not expect the upward spikes that characterized earlier pandemic stages.
"I think we're now starting to see that demand rise above as some people held back their projects in that pandemic period," said Pomfrett. "But the supply chains, in actually getting that raw material, that's really where we've seen that sort of pressure that's being built up and so, as that pressure is being released, what we're seeing is that the prices are coming down."
Lumber prices remain above pre-pandemic levels, despite dropping below the peak price observed in May 2021, according to Associated Builders and Contractors Chief Economist Anirban Basu. Though massive spikes are unlikely going forward, Basu said there continues to be "significant volatility."
A lot of lumber production comes from Washington state, said Pomfrett, which is experiencing a high number of COVID-19 cases. Anecdotally, Pomfrett said this stop-start nature of operations "is going to affect the production." Some Canadian producers have also cut production due to several factors, including wildfires, resin shortages and falling prices. However, with prices still elevated relative to pre-pandemic levels, the expectation is that production will continue to rise to meet demand, said Basu.
But since the pandemic reduces business confidence and interrupts production, contractors can expect fewer additions to capacity, which pushes prices higher, said Basu. At the same time, the variant suppresses confidence among consumers as well, which may cause some home buyers to postpone purchases, reducing new unit construction. That would suppress lumber prices, said Basu.
Dealing with delays
As lumber prices reached record levels earlier in the summer, many single-family home builders decided to postpone production. With the price of lumber, steel and other materials so elevated, spec building is riskier, said Basu.
On the commercial and multifamily side, project owners are delaying construction in some cases, he said.
In order to minimize disruptions from the ups and downs of the price of lumber and other building materials, Granger Hassmann, vice president of preconstruction and estimating for Adolfson & Peterson Construction, a Minnesota-based general contractor, said it’s important to be "very proactive." He said there are delays on the manufacturing side that can't be prepared for, so being flexible by considering different materials, systems or manufacturers is crucial.
"A procurement cycle may have been six weeks to two months in the past, and now it's maybe a week, it's just all about speed and management," said Hassmann. "This isn't the usual sequential process of you go after a project, you win the job, you wait for a contract, you start the process of building. You have to be very proactive."
Rising labor costs
Along with high material costs, supply chain disruptions and the COVID-19 delta variant threat continue to slow the construction industry’s recovery from the pandemic. As material prices level off, labor has become the dominant source in driving construction costs, Pomfrett said.
"If you take lumber markets, for example, even though lumber prices may come down, there are still going to be price increases [on the project] as a whole because labor skillset shortages are out there," said Pomfrett. "As people come back with more construction projects, we're going to have more work coming than we have for labor."
Workers have become more expensive, and the construction industry unemployment rate is back below 5%, suggesting labor costs will continue to rise "at an uncomfortable pace" among contractors into 2022, said Basu. For this reason, some project owners have been postponing project start dates since their projects are no longer financially feasible.
"If it were not for the delta variant, the economy would be racing ahead right now," said Basu. "Instead, the third quarter will usher forth only mediocre economic growth. That will keep the Federal Reserve in stimulative mode a bit longer than otherwise would be the case."
Reprinted with permission by Construction Dive.
eNews Poll Shows Payment Delays Remain Similar to This Time Last Year
Bryan Mason, editorial associate
Payment delays frustrate credit professionals. Due to shortages and supply chain disruptions, you may have seen an increase in payment delays as customers struggle to keep up with strong demand. In a recent NACM eNews poll, credit professionals were asked to compare their rate of payment delays from last year to this year.
More than 40% of survey respondents noted payment delays similar to that of 2020. Surprisingly, the second most common response showed that 36% of creditors were experiencing a decrease in delays. And, 21% of responders claim that their delays have increased compared with a year ago.
“The pandemic had a lot to do with the delays,” said Stuart Epstein, accounts receivable manager at Napa Auto (Roxboro, NC). “Companies are short staffed; people are out of work; workers are having trouble figuring out how to coordinate payments; and businesses that owe money also are trying to collect. It’s just a vicious cycle.” Epstein stressed the importance for companies to make a decision on “how they are going to get back on their feet” and for “ramping up collection efforts” in the credit and collections department.
“Credit managers need to switch things up and try something new,” said Merri Gammage, credit manager for Farmers Supply Cooperative (Ontario, OR). “If you are not getting the results you need with your old methods of collecting, you can’t lose if you try something different.”
Epstein advised doing the following:
- Stay on top of customers struggling to pay.
- Try to make payment plans until they get back to normal.
- Use cash on delivery until they catch up.
Pressing for payment when a customer is struggling can pose an uncomfortable situation. However, Gammage offers suggestions on how to approach these situations. If you typically take a hardline approach without success, then try a softer approach or vice a versa, she said. “If you are used to sending letters, try making some phone calls.”
Gammage advises asking customers about their current situation. For example, she proposes starting the conversation with, “How have the last two years been treating you? I know they have been a bit unnerving for me” and then see where it takes you. “Eventually people will know you mean business,” she said. “If neither way gets the results you need, then at least you know you’ve tried and it’s probably a customer that wasn’t going to pay no matter the approach. So, brush that one off, try again, be fair and be consistent.”
The 3 Stay Conversations: The Best Way to Improve Employee Retention
Claire Lew, CEO, Know Your Team
We all want to improve employee retention. The question is how?
Our knee-jerk answers to this question can feel opaque. Pay, perks, and promotion opportunities could matter… but to what degree? Employee recognition programs or more social activities could be helpful aspects… or will those efforts feel superficial? Training for new managers could also be beneficial… but who needs to be trained, and on what skillset areas?
The fog begins to lift when we have a conversation with our team members themselves. We must talk one-on-one with our team members to best understand what their current experience of work is like, and how it can be better.
Sure, a survey or two can be helpful for giving data points of general sentiments – but when we sit down in-person or in front of a video call, face-to-face with our team members, we capture the nuance for what is encouraging that specific person to stay. Rather than broad generalizations of our own projected assumptions, a conversation shines a light on what we can do for each particular person we want to stay. Only then can we understand exactly what steps to take.
What conversations should you be having to improve employee retention?
I’ve identified 3 conversations in particular that you as a leader can be having with your direct reports to improve the likelihood of employee retention. I call them “The Three Stay Conversations,” as they focus on identifying the aspects of the work itself that encourage someone to stay.
Stay Conversation #1: Work Clarifying Questions
Ask these 3 questions around work motivation to understand what might encourage your employee to stay:
- In the past few months, when have you felt most motivated or energized in your work (if at all)?
- Is it clear why the work you do matters to the organization?
- Which of your skills do you feel is not being used in your current role?
From the answers of these questions, you’ll learn how to better adjust projects and areas that an employee is working on, along with what the employee’s role is, so their work is aligned with what your employee might be most motivated by.
Stay Conversation #2: Dynamics Questions
Ask these 3 questions around team dynamics to understand what might encourage your employee to stay:
- Is there any part of the team you wish you got to interact with more?
- How do you feel about the current level of social interaction across the team?
- How do you prefer to be recognized for work well done?
These questions help reveal the degree of social interaction, team closeness and positive recognition that an employee desires. From this, you can then consider how to craft opportunities for rapport and connection to be fostered throughout the organization.
Stay Conversation #3: Context Questions
Ask these 3 questions around organizational context to understand what might encourage your employee to stay:
- Is there any aspect of the organization that you wish you knew more about?
- What has felt confusing or frustrating for you lately?
- To what degree would you say the vision of the organization is clear?
The answers to these questions can give you an accurate picture of how informed an employee feels in their current work environment and how that might be affecting their work experience. From this, you can then change how and what context you’re sharing (or not sharing) in the workplace.
? All three of these stay conversations can be found in our one-on-one template in our One-on-Ones Tool in Know Your Team.
Try holding these Three Stay Conversations in your one-on-one meetings once a month, or at the very least, once a quarter. Alternatively, you can try interweaving these questions into your weekly one-on-one meetings, in whatever order feels right to you.
However you might look to implement the Three Stay Conversations, know that it’s the quality of these conversations that will help you improve employee retention in a meaningful way.
Reprinted with permission by Know Your Team.
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