There are three fundamental lumber market components that will likely combine to make 2018 the most volatile year for prices on record.
- LABOR: ICE gave notice last week that it intends to crack down on undocumented workers in the construction industry...on the jobsites. We already have a shortage of skilled laborers and young American children are not growing up with aspirations of wearing a tool belt for a living. Putting the pinch on undocumented workers, removing them from the jobsite has one devastating result. Jobs under construction will be disrupted/halted by those raids, and undocumented workers will not come to work fearing deportation. This could happen immediately. That disruption would freeze the flow of lumber, creating a bottle neck, and result in a massive over supplied condition. Plus, it would create a housing panic. In short, a crackdown on undocumented workers on construction jobsites would crash the U.S. economy. I’m not supporting illegal immigration, however, we created this economic dependency and should need to find a less disruptive solution.
- INTEREST RATES: The new Fed Chairman Powell is dangling four rate increases. Four 0.25% hikes in 12 months would put mortgage rates up 25%. That alone will knock out thousands of prospective home buyers, assuming there are enough framers left to build them.
- LOGISTICS: Rail traffic can resolve its issues by recalling equipment and experienced crew. Trucking, not so simple. The lumber industry is just as dependent on owner/operators as it is on undocumented construction workers. The issue with trucking is low pay for drivers. One solution for future logistics bottlenecks is mill-owned fleets...in-house trucking. Pay drivers better and give benefits.
To expedite turn around time, consider eliminating backhauls. Yes, that is correct...let the rigs dead head home. They get back same day or in one day and are ready to go again. Lumber prices confirm that freight costs are not a deal breaker Pick a truck freight anywhere and double it. The increase will likely by something between $10–$25. Lumber market volatility will cover that 7 to 10 times over a year. The market will absorb the freight increase in exchange for service.
Or, better yet...just raise rates to attract more owner operators. If you cannot get your lumber delivered on time due to equipment availability, start a file of the carriers that deliver to you. Call the dispatcher and offer to pay the driver an extra $0.50 per mile. 200 miles = $100 / 22mbft = $4.50/mbt.
Looking Forward ...ml
A veteran lumberman, Matt Layman publishes Layman's Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.info. Recent copies of Layman’s Lumber Guide / FORECAST/ BRIEFING / BLUEPRINT available at www.laymansguide.info.