September 21st, 2017
Shortages: How Will They Impact Your Business?
I keep hearing concerns about shortages. Shortages in labor have continuously been a concern. Now we get to add glass shortages, vinyl shortages and even equipment shortages to the list. Have you checked the lead time on a new machine lately?
One thing there wasn’t a shortage of was Chinese attendees at the recent GlassBuild show in Atlanta. You know when you travel as much as I do, sometimes you wake up in the morning and forget what city you are in? While in Atlanta I woke up Wednesday morning and hustled onto the show floor and for a minute I thought I was at The China Glass Show! Indeed, there seemed to be an abundance of not only Chinese exhibitors but Chinese attendees as well!
So, what is fueling the increasing attendance of the Chinese? The answer, of course, is opportunity. They are here to sell equipment but also to sell glass, hardware, and even to pitch vinyl extrusions. Yes, they are here to sell everything.
So, is there really a glass shortage? I keep hearing from my glass supplier friends that there is one. Three plants operated by three different suppliers are down — one due to a tornado, one had an explosion and one a molten glass vessel leak. However, when I ask my customers what they are seeing, most are reporting no major problems. But we are just now entering the busiest 90 days in the window industry, and demand will continue to grow, especially with the preponderance of natural disasters that are occurring — windows will need to be replaced.
So, what exactly does this mean? Will some window companies be forced to shut down because they don’t have any glass to make windows?
And now on top of this, add in a possible shortage of key ingredients needed to supply vinyl compounds that feed the vinyl extrusion segment of the window industry. When I first started in the window industry, vinyl windows represented only 25 percent of the residential market. Now, it is nearly triple that figure. Hurricane Harvey hit the Gulf Coast of Texas hard in August, and flooding caused a blow to the region’s production of key ingredients used to make vinyl windows.
So, does this mean that we are going to face a severe shortage of vinyl extrusions, and will some window companies have to close their doors? Well, not if the Chinese have anything to say about it. They are making their presence here known and are ready to supply us with whatever we may find in short supply, especially as it relates to equipment.
Indeed, shorter lead times were once one of the key advantages in ordering equipment domestically. However, given the severe labor shortages in this country, equipment lead times have been extended dramatically, giving offshore equipment suppliers from China and Europe a boost.
So how will this all resolve itself, and what will the landscape look like a year or two from now? I suspect that a significant portion of the clear glass supply will transition to offshore suppliers. Many of our domestic suppliers already have partnerships with offshore suppliers and can get clear glass brought in as needed. Also, the Chinese glass suppliers are very aggressive and want to establish a foothold in America as key glass suppliers. They will seize this opportunity to increase their customer base here. This will allow our domestic suppliers to focus more on coated glass products, and they certainly don’t seem to mind. They are not too upset about it because they make higher profit margins on coated glass products vs. the clear float products.
Still, everyone likes to have a single source of supply if possible. Therefore, our domestic suppliers will work feverishly to bring the crippled plants back into production. But necessity is the mother of invention, and if window fabricators have difficulty getting clear glass from their domestic suppliers, they will be forced to buy it from abroad. They will just have to adjust their ordering processes to the longer lead times for clear float or invest in storage facilities to stock up on it. Also, the window fabricators who have trouble paying their bills on time will likely to be the first ones to see an interruption in supply. Situations such as this have a habit of weeding out the financially weak as no one likes to wait for their money.
So, in the short term there will be some bumps to get over, but several years from now we will see that the net effect will be a greater percentage of offshore suppliers, at least for clear glass, allowing the domestic suppliers to focus more on coated products. That may lead to more innovation and even a greater variety of coated glass products.
Now, as it relates to the vinyl shortage, I feel that this will be a short-term concern. I was once a polymer chemist, and I formulated both rubber and plastics compounds for several major companies, one of which was a key supplier to the OEM tire market. We were always taught to come up with backup formulas made with different ingredients that would get us to similar results. For example, we had investments in natural rubber plantations located in areas with unstable political environments, so we always had to have a back-up formula made with synthetic polymers. With the type of investments that our vinyl suppliers have in the fenestration industry, I can’t imagine them not having backup formulations that rely on alternate ingredients coming from other parts of the country or offshore if needed.
So, the bottom line is that there may be some short-term shortages, but given the fact that we have a global economy, the fenestration industry will adjust and be just fine. We will likely be exposed to some new products made offshore or made here domestically that we would not normally consider, but life will go on.