I’m a forester. Please explain this to me. I’d love to hear your ideas.
It surely shows the downside of JIT but that doesn’t make it a folly. JIT allows products to be made cheaper and more efficiently which is a boon to almost everyone. Do short-term disruptions created by rare pandemics override that boon? I haven’t seen any statistics that would lead me to conclude “yes”.
Just raise lumber prices until those buying simply won’t buy.
JIT always struck me as making a lot of assumptions about how steady and reliable the supply chain will be that are probably a reasonable risk in normal times, but when extraordinary events like the pandemic roll around, may not be as reasonable as you thought. I also think it’s interesting that organizations that expect unforeseen events to happen don’t mess with JIT logistics- the military being a prime example. They stockpile stuff because airplanes get shot down, ships get sunk, etc… and they need to be able to accommodate that in their operations without running out of fuel, ammo, food, etc…
This is just a summary of the above articles.
-
Exports of sawn wood and pulp have grown 70% since 2000. The market for printing and commercial paper much decreased and has been consolidated. Many mills no longer make paper.
-
The cost for 1000 sqft of 1” wood was $200-$400 for most of the decade and is now $1400. This can make a new house up to $36000 more expensive.
-
Most mills already manufacture wood products on top of selling lumber. In modern ones, saws slice three-quarters of a tree into planks, and chop the rest into chips that can be turned into wood-based composites. Because the forest business reflects the decades-long sylvan lifecycle, this 40-year-old “chip-n-saw” technique is only now enjoying widespread adoption. Not sure I understand the bold part.
-
Byproducts such as lignin and black liquor are now finding a wide range of uses in industries like clothing and biofuels.
-
With the pandemic, everyone assumed demand would plummet. Instead, everyone wanted to renovate or move. Sawmills had been closed and workers laid off. Many sawmills had closed over the last decade of industry recession. It can take two years to get a sawmill going and costs around 100 million. Qualified staff are hard to find.
-
Construction was often permitted to proceed despite lockdowns. This led to much more demand than anticipated.
-
Trees take a long time to go back. The shutdowns affected loggers. When returning to work, Covid restrictions reduced output.
-
Some areas have lots of wood but with such demand can sell it at high prices. Bigger offers are commonplace.
-
Lumber futures, a prediction of sales, remain very high through to November. It may be a bubble, but demand will also skyrocket if billions are put into infrastructure. So prices will likely remain high?
Where I live, there is a housing construction boom. Add to that the number of people who are doing DIY projects, as well as the logistical problems of transport and supply due to the pandemic, and you got yourself high lumber prices.
Supply and demand would seem to be the reason.
The problem is, in normal times, not doing a JIT inventory makes you less competitive.
If your competition is paying less for holding onto a month of inventory, then they can outcompete you. The question is, can you hold out until an extraordinary event rolls around to disrupt their business?
So the next important question, from my standpoint, is when will prices return to a reasonable level?
Note that I didn’t say to pre-covid levels. I accept that that’s probably never going to happen, but will prices come back down? Or will suppliers keep the prices up because, “Hey, everyone is used to paying that much now.”
A lot of us have hit that point. I was looking into putting in a new deck a few weeks ago, but balked at the cost of the wood.
Another one holding off on such projects. I’m in no rush and would rather have those who need to do their roof or something critical at this time.
That’s because the military is completely unconcerned with profits/losses. But you can’t run a commercial venture that way.
JIT works fine under normal circumstances. And you can’t design a system for extraordinary times. Unknown unknowns and all that.
We had a new hospital in Sydney.Australia ~ 3 years ago, (pre COVID) where the government decided, for reasons, that it was going to be privately operated. And the private operators decided, before it was opened, that they didn’t need that large warehouse on the plans, because they, being smart private operators, would get supplies JIT.
I don’t know what the medical supply chain is like in the USA, but here in Australia, a small customer at the end of a long supply chain, when you order medical supplies there may be a 3 month lead time. AFTER they opened, they had to cancel all scheduled non-critical surgery and put all their contract doctors out of work because their medical supplies (including drugs) were NOT arriving Just In Time.
“Just in time” works very well when it works, but it’s also very fragile, as recent events have helped to demonstrate.
All of the previous points are valid, but another factor is overall structural inflation, which has been picking up dramatically this year. One of the reasons is that people are sitting on huge amounts of money from the government that hasn’t been apent. Another factor may be monetary inflation due to the unprecedented amounts of Fed injection into the money supply.
Warren Buffet just fave his annual speech to shareholders of Berkshire Hathaway. One of his keybtakeaways is thatbthey are seeng clisevto double-digit annualized inflation across numerous sectors, and that it does not look temporary.
Borrowing trillions of dollars and printing money to accommodate it is the classic recipe for inflation. And we’ve been borrowing and printing money all around the world at a record pace.
Since 2013 the Fed’s QE has doubled the M2 money supply (liquid cash in circulation, in chequing and savings accounts). They’ve added almost $3 trillion in just the past year and a half. Some of us have been predicting inflation for some time because of it, but the pandemic caused the velocity of money to fall, offsetting the increase in capital. As money now starts to move, don’t be surprised to see substantial inflation across the wider economy, with the shortage items seeing extreme price increases.
Oh, and this is a terrible time to start any sort of ‘stimulus’ or infeastructure programs. If the government starts competing with the private market for lumber, steel, industrial products and labor, it will get even more expensive for everyone and exacerbate supply chain problems.
Google thinks it was Warren Buffet. Kinda surprising for a shy Omaha guy.
You mean stimulus checks and unemployment payments?
I’'m an artist who uses a significant amount of wood in my art. The increased prices, plus the decrease in sales of my art during the epidemic, have forced me to hold off on any new projects. I have pieces that I’ve started pre-pandemic, that are just sitting unfinished until I can get the wood.
No one knows how long these inflated prices will remain. But a major infrastructure undertaking and people delaying projects will certainly drag it out. As I said above in a verbose summary no one read, lumber futures remain above $1000 per 1000 sqft (1” thick) through November.
I was talking to my brother the other night, he farms in northern Minnesota and I told him a mutual friend (who lives in LA) thought he should go into hardwood tree farming (there is a lot of oak and elm forest on the property as well as what we always called “popple” but is really aspen) and we got to talking lumber prices (he is building a garage and it’s gonna cost a lot more than it would have pre-covid). He said it’s because of milling operations slowing down, lots of wood in the pipeline. So many places where there are essential workers but sites would have to scale back or even shut down due to covid cases.
He said same thing with beef (which he raises). As he put it, “there’s a lot of cows waiting to be killed” (I said I don’t the cows would put it quite that way).
Our LA friend works for an architectural glass distributor, they were able to keep everyone in the office throughout (lots of visits from local health officials though) but she said they had several times had to shut down different warehouses.
My son has a business installing network related stuff (security camera systems, runs cable, does various commercial installation and service including installing managed switches, cutovers when companies change hands, etc) and he saw the slowdown beginning in February last year (January is usually slow with a big push in Nov-Dec, but Feb things usually pick up). Although he actually had revenues 50% higher than his previous year (which had been his highest), although 20% of that was due to a Native American tribe that received federal money they had to spend in 2020 so they went ahead with what had been a 5 year plan for tribal schools and community college. Last year the sense was that supply chains were already affected well before the US was officially affected by the pandemic. (My employer is a multinational and we were seeing travel restrictions announced by early January, not that I ever get to leave my humble IT call center [now virtual] desk).
I think part if it is all the UMC people whose jobs simply went remote and who without European and Disney vacations and daycare expenses found themselves with too much money lying around so of course they had to remodel.
Exactly. And when enough people stop buying, prices may start to come down. My son was planning to redo his deck this year and now he’s putting that off. However, two neighbours across the street from us (35ish year old residential area) are redoing decks and fences.