SUPPLY CHAIN SQUEEZE

Builders scrounge for materials

By Isaac Stone Simonelli

Alaska’s contractors, architects, and hardware suppliers are scrambling and adapting to keep projects moving forward as a choked supply chain forces them to do what they do best: make it work in the Last Frontier. Alaska contractors are used to dealing with the delays that come with being at the end of a very long supply chain for construction materials. “Alaska always had a challenge of getting stuff here,” says Jonathan Hornak, a senior project manager for Cornerstone General Contractors. “Between the pandemic and the staffing shortages and everything else, it's just made it worse.” Choke points have resulted in price spikes for everything from groceries to household goods and construction materials—or, in some cases, have resulted in no availability at all. “The supply chain issues are real, they're happening, and they are highly unpredictable,” says Terry Shurtleff, the president of Alaska Industrial Hardware.

“For example, everything can be going perfectly, but then you have an Omicron outbreak, say in a port in Taiwan. So that's going to change the landscape for all freight coming out of there,” Shurtleff says. “And then all of a sudden, what wasn't a problem fifteen minutes ago is now mission critical.”

The first major shortage was lumber in 2020. Futures prices for lumber quintupled from March 2020 to May 2021. “We all knew lumber skyrocketed. It's back down. Pretty close to what it used to be,” Hornak says. “Following the wood, the structural steel skyrocketed.”

By January 2022, structural steel prices were starting to trend downward, but Hornak doesn't anticipate them reaching normal levels until about June. Even with the increased prices, the lead time— the amount of time between when a product is ordered and when it arrives—for structural steel can be as much as six months in some cases, Hornak says.

Doors and hardware are also requiring longer lead times, as are finishes and glass. Custom materials, such as doors over eight feet, which have always taken longer to arrive in Alaska, now can take up to sixteen weeks, when they’re available at all.

“It's going to cycle through and trickle through the whole project, the material world,” Hornak says.

Alaskan contractors are no strangers to needing to plan well ahead of time for ordering supplies, but the current situation is forcing them to push those timelines out even further. “We're definitely in a better spot than other states, because we are used to this with lead times and planning so far ahead,” Hornak says. “Other states don't have that issue normally, so they don't have to try to pre-plan stuff four to six months in advance in order to get materials there—so they are definitely impacted more.”

The projects in Alaska that are most severely affected are those relying on custom materials and those with short project timeframes, Hornak says. This is especially the case for projects that are only three months long but need materials with a four month lead time.

“We're recommending to our customers, if they can forecast a need, they should be buying it or finding ways to line it up and buy it now versus waiting until closer to their job’s start,” says Shurtleff.

The materials, parts, and supplies that are unavailable or on delayed shipping schedules have changed over the course of the pandemic and continue to do so. Local experts recommend ordering any necessary materials far in advance of a project's start date.

mscornelius | iStock pushed its own buyers to go heavy on holding inventory in an attempt to meet the demands of the market and recognition of the challenges being faced due to supply chain issues. The company is now sitting on 20 percent more inventory than it’s ever had before, Shurtleff says.

“We believe that that's what we need to do in order to make sure that we can support our customer base,” Shurtleff says. “We're fortunate here at Alaska Industrial Hardware that we have not only the holding power, but the financial resources.”

Shurtleff explains that there is no increased risk to the company by stocking the extra inventory. “It's inventory we're going to sell. We're not taking a risk on products that we don't know about,” Shurtleff says. “We're just going heavy to make sure that we can meet demand.”

Shurtleff explains that nearly every variable in the supply chain for construction materials is in flux in one way or another. The potential for disruption starts with production of raw materials, includes the manufacturing processes that turn

those materials into the goods needed for construction, and ends with lastmile delivery.

“This is Economics 101, right? Demand is relatively high and supply chains are choked off,” Shurtleff says. “Anytime you have that inversion, prices go up, and that's what we're experiencing.”

Alaska Industrial Hardware’s acquisitions team is doing their best to get ahead of some of the price increases, which are further compounded by inflation. However, price increases are going into immediate effect in some cases, Shurtleff explains.

He says that sometimes he gets no lead time at all when it comes to price increases. He’ll get a call and be told that prices from that moment forward have jumped. “It's crazy, what we're seeing. Well, we've never seen that kind of thing happen before,” Shurtleff says.

Not for Sale at Any Price

While prices for some materials are skyrocketing and others are starting to settle back down, other materials are nearly impossible to get ahold of, explains Michael Repasky, the president of Summit Logistics.

Even shipping containers themselves are in short supply, which has forced some modular construction companies reliant on them, such as Summit Logistics, to quickly pivot. “The shipping containers, for example, that we sell are just flat out not available,” Repasky says, before confiding that the company has squirreled away a few of them for some of their legacy clients.

The lack of shipping containers, which are mostly constructed in China and shipped to the United States, are directly connected to global supply chain issues. Instead of being left in the United States, as has previously been the case, the containers are being put back on ships and returned to Asia, Repasky explains. “With the lack of shipping containers, we've actually been building more traditional stickframed buildings,” Repasky says.

One project Summit Logistics had lined up in 2020 called for eight shipping containers, but the company was unable to get the right kind of container needed in the necessary timeframe. “So, we just built eight traditional stick-frame units on skids,” Repasky says.

The units were dragged across more than 100 miles of frozen tundra on skis. The following summer, a team took a private charter out to the remote village to secure the buildings. That, however, was early in the pandemic.

“At this point, knowing what we know, we're able to get ahead of the problem with customers,” Repasky says. “Unless they really need a shipping container, we're trying to encourage them to evaluate other alternatives.”

While alternatives can help a project meet its deadline, there are also cases where customers know exactly what they want, Repasky says. “They may already have ten of those freezer doors in their compound, so they don't want to add a new type of freezer door because now they have to carry new spare parts and teach their maintenance guys how to work on this new door,” Repasky says.

Extensive Inventory, Statewide Delivery

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CONSTRUCTION “We're definitely in a better spot than other states, because we are used to this with lead times and planning so far ahead… Other states don't have that issue normally, so they don't have to try to pre-plan stuff four to six months in advance in order to get materials there— so they are definitely impacted more.”

Jonathan Hornak Senior Project Manager Cornerstone General Contractors

Repasky says that Summit Logistics is fortunate in that it keeps fairly robust stocks of the majority of the materials they need. “We're a small private business; I don't have to report to anybody else,” he explains.

Substitute Ingredients

For the time being, clients must be amenable to alternative materials.

“We will make sure that it can comply with all of the specs that are needed for the owners, and then we'll try to switch to a product with a shorter lead time,” Hornak says. “We've done that with our hardware. We've done that with some glazing products. We've done that with flooring products.”

Mostly, though, Hornak’s team is trying to get out ahead of the lead times. “We'll get the long-lead materials submitted and approved by them [the client] prior to even really starting any work,” Hornak says. “We’re doing all the prep work ahead of time and then basically putting the project on hold until stuff gets there.”

The two primary issues with tackling the problem this way is the need to keep staff busy during the delays and working with clients who have unmovable deadlines. “That kind of impacts us as far as we need to go from 40-hour work weeks to 60-hour work weeks in order to still open the building when necessary,” Hornak says. Nonetheless, design teams and project owners have been very flexible, Hornak says.

“They're all putting in extra efforts to make it work, too, because we all know that this is not normal times. They all understand and are helping out as well. It's definitely not just the contractors doing all the work,” Hornak says. “It's just a matter of shifting things to try to ease the pain all the way around.”

He points out that construction is never simple or straightforward, and contractors are used to needing to think on their feet and adjust. “So it's not out of the norm, but it's definitely a lot more of it, which can add a lot of time and a lot of stress on our people to try to figure things out,” Hornak says. “And architects and designers, as well, because Accept Reality

Local suppliers in Alaska have also been stepping up to help contractors meet client targets, Hornak says. Companies have been staying in contact with contractors during the bidding process for projects to see what supplies they’ll need and start building up inventory accordingly. “They've been doing a really good job of keeping their shelves stocked with what we need,” Hornak says, noting that contractors do run into issues when it comes to specialty materials.

Shurtleff says that once manufacturers are down to dividing up their products based on allocations, Alaska is in a tight spot.

“We get allocated a much smaller slice than anybody else because we're a much smaller market,” Shurtleff says, adding that most major manufacturers characterize Alaska as a foreign destination.

Shurtleff reiterated the need for contractors to put in orders for supplies as soon as they know they might need them. “If you have a forecasted need, buy it,” Shurtleff says. “Go find it right now. Do not wait.” He points out that it's a lot more expensive having tradespeople standing around with their hands in their pockets waiting for supplies to arrive than it is to carry the costs of the inventory. “What we're told by our vendors and manufacturers across the country, across the world, is that we're probably another year or so away from normality,” Shurtleff says.

In line with Shurtleff’s advice, Summit Logistics stocks what materials it can and just sits on them. Repasky jokingly compares not being able to get the materials he needs in a timely fashion to going through the stages of grief. First, there’s anger, then denial and resignation. Finally, there’s acceptance.

“You get to acceptance, and then life can proceed. You accept your suppliers are dealing with what they've got and you're doing the best with what you've got,” Repasky says. “We're all kind of struggling.”