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president's letter
The impact of a changing economy on our industry
Martin Brookes, NTCA President
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Recently, I came across a social media post by my friend Ron Nash, which offered a link to a YouTube video that simply said “Watch this; We are on track to relive the 1970s.” The video featured the Berkshire Hathaway leadership on the topic of inflation. It was an informative video with Warren Buffet discussing his concerns about rising building costs. The COVID pandemic has created a scarcity of some raw materials, which creates challenges for some businesses. Mr. Buffet discussed that small business owners are at risk if they do not adapt to changes in the economy. You may have noticed an increase in the cost of building materials. These recent increases are likely due to a combination of factors including the supply chain in the petrochemical industry, which our industry relies on for the manufacture of some materials such as epoxy mortars, latex, and polymer additives.
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We also use a wood byproduct in many of our thin-set additives. The additive methylcellulose is used as a performance additive, so we are not immune from the increases in timber prices. The COVID pandemic has also caused disruptions in the supply chain and manufacture of building products across the world. Many ports in the USA have cargo ships in the water that are unable to get offloaded as businesses replenish inventory and the demand from American consumers is still at unprecedented levels. Manufacturers who have downstream suppliers from different geographical locations and temperature-sensitive cargo may have consequences from these events as we move into the warmer months. These disruptions in manufacturing and logistics may last much longer in developing nations than in the U.S.A. because of the limited availability of COVID-19 vaccines in these parts of the world.
How can we protect ourselves from unforeseen costs? You may want to put a time limit on estimates that you provide to prospective clients for tile installation projects, limiting these to 30 days or whatever your comfort level may be. In addition, to protect yourself from price increases, you may want to invoice for materials early, and pre-order any materials as soon as possible to lock in prices. Contractors can also address risk by including price escalation clauses in their upstream contracts. You should always discuss the concern of material price escalation while in the negotiation stage with the owner. Be proactive in revising contract language to reflect this as soon as possible.
These are some things that you can do today to help protect your bottom line. These are extraordinary times that call for extraordinary measures. I hope you can remain profitable by putting the appropriate measures in place.