In Depth: Lumber and structural panels

For these unsung heroes of construction, staying flexible is the key for distributor success.

Lumber. It’s easy to not give it much mind, but it’s the underpinning of nearly everything your customers create. Whether you’re talking dimensional studs or structural panels, these products have major roles to play in today’s construction. They need to meet energy codes, resist moisture, save labor costs and be easy to work with—no small shoes to fill.

To help contractors achieve the most success, distributors need to be ready to serve as a true resource to their customers no matter what pricing or supply turmoil the market may bring.

Understanding the market

The coming year for the lumber and structural panel market can be best defined by an equation that consists of two somewhat opposing terms: stability and fluctuation. The stability side of the equation can be found in the housing market, which many experts see as remaining stable for 2019. The National Association of Home Builders (NAHB) is forecasting 1.268 million housing starts for 2019. Of that number, 897,000 are predicted to be single-family starts, while 371,000 are multifamily. Fannie Mae’s numbers mirror those of NAHB, although its mix is slightly different. Of the 1.265 million housing starts it forecasts for 2019, 903,000 are predicted to be single-family, while 362,000 are multifamily. When compared against 2018 numbers from the U.S. Census Bureau that show a seasonally adjusted rate of 1.256 million as of November 2018, it appears on the surface that the market is poised to maintain—if not slightly increase— its rate of housing starts.

“We believe that the overall housing market will continue to expand in 2019 at a similar growth rate to 2018, with the single-family segment outperforming multifamily,” says Doug Asano, vice president of sales and marketing for Huber. “However, in recent conversations with our customers and builders, more of them are approaching 2019 with increased caution and uncertainty as compared to even six months ago. Recent economic and housing market measures seem to be pointing to a stall in momentum and, while none of us know why or whether it’s an inconsequential blip or a real trend, it has caught everyone’s attention.”

Others, however, see a potentially more positive future over the next 12 months. “The housing market for next year looks very strong,” says Tim Debelius, division marketing director, wood products for Boise Cascade. “By historic standards, interest rates are still low, which is an incentive for new buyers to enter the housing market. In addition to this, there are market segments in residential construction that are under-built, primarily in entry and first move-up homes. Many economists are taking a pessimistic view of the housing market, but everything we’re seeing tells us that 2019 will have higher housing starts than 2018.”

As to fluctuation, it’s all about price. That’s not necessarily a bad thing, as 2019 promises to be a friendlier environment than the previous 12 months (or the last few years for that matter).

Prices that rose steadily over the past few years have finally begun to dip south once again. Lumber prices, which according to Zacks Equity Research went as high as $639 per 1,000 board feet in May 2018, are more reasonably now trading in the neighborhood of $330 per 1,000 board feet.

For example, according to Random Lengths (part of Fastmarkets FISI), as of January 11, 2019, random lengths framing lumber composite price was $327 per 1,000 board feet, compared to $445 last year. For structural panels, it was $366 per 1,000 board feet, compared to $444 last year.

A major factor that has contributed to the increase in lumber prices in the past year is the imposition of U.S. import duties on Canadian lumber. However, the recent decline in lumber prices can be primarily attributed to a sharp increase in supply. Still, experts hesitate to make predictions.

“Both [lumber and panel markets] have experienced record price volatility in 2018 that surprised the entire industry,” says Huber’s Asano. “We believe that demand for lumber and panels generally tracks the growth of new housing stock, as consumption is primarily driven by new construction and less by the repair and remodel segment.

But, with so much uncertainty about important factors such as U.S. trade policy, the economy, interest rates, home affordability, transportation and so many other factors affecting commodity building supplies, we are hesitant on any projections for 2019.”

Responding to challenges

Many issues have caused uncertainty in the LBM markets overall, and lumber and structural panels are no exception. And it’s only through being able to respond to these market challenges that distributors can succeed.

For example, the collapse of U.S. housing construction during the 2008 recession resulted in significant losses for wood product prices and production. Jobs were lost, prices dropped, and some distributors did not weather the storm. The ones that did learned to do more with less, and in order to move lumber, it meant developing new connections.

“For decades, the building materials industry has relied on relationships between individuals to get things done,” says Boise Cascade’s Debelius. “When the 2008 recession hit, there was massive turnover and people with decades of experience retired or entered other fields of work, taking years of established relationships with them. The operations that survived are doing more with fewer hands, so developing, maintaining and nurturing relationships is more important than ever. It’s incumbent upon suppliers, dealers and distributors to find new ways to establish not just business connections with each other, but human connections. That creates trust, which makes it possible for everyone in the supply chain to succeed.”

Another issue that requires distributors to be as flexible as possible is the ongoing softwood lumber dispute between the U.S. and Canada. While it’s been a thorny issue for better than three decades, the dispute has intensified over the past few years.

At the core of the argument is the claim that, because most timber in Canada is owned by the provincial governments which, rather than through a free-market system, set the harvest prices administratively, the Canadian lumber industry is  basically an unfairly subsidized government industry. U.S. industry interests argue that the Canadian system should be subject to U.S. trade remedy laws in the form of countervailing duties to offset the subsidy.

Some experts point out that the prices of softwood lumber from north of the border drive up home costs. The U.S. accounts for roughly two-thirds of Canada’s softwood lumber exports, and Canadian lumber imports are the largest supplier to the U.S. softwood lumber market. According to the NAHB, tariffs on imported Canadian lumber are adding approximately $9,000 to the cost of single-family homes and as much as $3,000 to the average price of a multifamily unit.

One factor that may help mitigate Canadian prices is the fact that many Canadian mills are striving to diversify their markets, not just by expanding into European and Asian markets but though U.S. lumber mill acquisition. In 2010, the Random Lengths Big Book listed 19 southern U.S. sawmills that were owned by Canadian companies; by 2019, that number has risen to 44.

But it’s not just Canada that is cause for concern. Trade tensions with China and the debacle of the United Kingdom’s Brexit strategy are poised to cause instability in lumber prices, and dealers will need to stay as informed on these issues as possible so that they can be prepared to respond and meet their customers’ needs. “There continues to be a lot of uncertainty about relations between China and the U.S.,” explains Debelius. “China is now the world’s second biggest economy, so tariffs and retaliatory trade between our two countries could negatively impact the U.S. economy. Additionally, a hard Brexit, one in which the United Kingdom leaves the European Union without some kind of trade agreement, could also disrupt international trade in Europe. The U.S. is experiencing a healthy economy at the moment, but increasing tension with China and the actions of the U.K. could impact consumer confidence and potentially reduce the demand for new homes.”

In the midst of these issues, it’s important for lumber distributors to not become so focused on potentially negative details that they lose sight of the bigger picture of being a resource for their customers. As Huber’s Asano explains, “Our industry can be myopic and focused on the short-term problems. Those manufacturers, distributors and dealers who can nimbly manage the short-term fluctuations of our industry while staying focused on providing the best in customer service and product knowledge and code education will continue to win in the market.”

Working smarter and faster

According to the U.S. Chamber of  Commerce, more than 90% of contractors are concerned about labor shortages. To combat the reality of this shortfall in trade labor, manufacturers are developing products specifically aimed toward being both easier and  faster to install. And distributors need to be ready to provide these product-based solutions to their customers.

For example, Boise Cascade’s SawTek system allows dealers to automate the most repetitive and dangerous parts of the job pack cutting process, as it optimizes cuts for multiple jobs, resulting in better waste management and a safer, more controlled manufacturing process. These automation features allow big jobs to be processed more efficiently—an especially important factor for dealers operating with a limited staff. And anything that saves time—whether it’s at the lumberyard or on the jobsite—is a strong marketable benefit.

“Panelization of components (e.g., roof trusses, wall panels and floor systems) is a growing trend that reduces job site labor and speeds the construction cycle” says Allan Burk, supply chain manager of OSB/EWP for LP Building Products. “For example, our OSB sheathing for wall panels is available in various lengths, reducing the need for splices. For townhome applications, our LP FlameBlock Fire-Rated OSB Sheathing can be used on prebuilt wall panels to provide a two-hour separation wall that eliminates the need for gypsum shaft liner. For the builder, this speeds construction and reduces air infiltration. For the dealer, it provides them a margin opportunity and way to differentiate their product offering.”

Huber’s Asano agrees that saving time and simplifying installation is key to dealing with labor shortage issues—and to saving money. “Our ZIP System building enclosure products eliminate the need for loose-applied water-and air-barriers such as housewrap in wall assemblies and felt in roof assemblies,” he says. “Ultimately, our panel-and-tape systems reduce installation steps and the risk of repairing layers that may get damaged on the jobsite and compromise water-or air-control.”

Embracing codes

Despite the fact that fewer than 13 states have adopted the 2015 International Energy Conservation Code (IECC), the 2018 IECC Residential Code continues to make energy efficiency a priority. As more builders strive to achieve energy efficiency, distributors need to serve as a resource by providing products that meet builders’ energy efficiency demands. And while it may seem a little odd to be thinking of lumber and structural panels as being impacted by these codes, they play an important part in enabling builders to meet these energy efficiency demands. “Energy codes are changing the way the building envelope is conceived,” says Georgia Pacific’s Jeff Key. “Fewer air exchanges means spending more time on details around windows, material changes and connections between floors and from walls to roofs.

“Many builders are moving toward more energy-efficient and passive-energy homes, or homes that capture and utilize natural energy such as solar and geothermal energy,” explains Boise Cascade’s Debelius. “Double-paned windows, well-insulated attics, radiant barrier and LED lighting all go into the mix of making a home energy efficient. Framing materials also come into play. The deeper insulation required to meet energy efficiency standards sometimes requires thicker walls and roofs. As more builders seek to build passive energy homes, suppliers may need to consider optimizing the framing to accommodate stricter energy codes.”

LP Building Products’ Burk sees energy codes as a main driving force for product innovation and development in the coming years. “There are more stringent air infiltration requirements which are driving an increase in the need for sealing products,” he says. “We are also seeing trends for encapsulated crawl spaces and attics. These can make sense, but builders must be careful not to create systems that trap moisture and ultimately lead to premature failure of the home. We believe radiant barrier roof sheathing, combined with proper attic insulation, is a more cost-effective way to meet energy requirements and mitigate potential moisture problems.”

Staying ahead of the competition

It should come as no surprise that, in order to stay successful, it is vital for dealers to stay as informed as possible about the product lines they are carrying. Whether it’s technical specs, application, or installation benefits, dealers should avail themselves of the many resources at their disposal from the manufacturers. Says Georgia Pacific’s Jeff Key, “Take advantage of any and all education opportunities. Stay educated through continuing education classes, product knowledge training, and self-study through websites, home builder associations, industry publications and other avenues. There is no shortage of opportunities to keep up with the latest trends that can keep you ahead.”

“Technology is at everyone’s fingertips,” adds LP Building Products’ Burk, “and I think it is easy to take product knowledge, building code and construction practices for granted. I think dealers with an educated sales force earn builders’ confidence and ultimately their business.”

When it comes to training, each manufacturer has its unique programs. In the case of Georgia Pacific, it offers training on air and water barriers to distributors, dealers, builders and subcontractors as well as an AIA-accredited continuing education course for architects on air and water barriers. Boise Cascade offers its dealer partners several in-person and online training programs for our software suite and SawTek system as well as offering product-based training at both dealer locations and jobsites. And along with weekly “Tech Tip Tuesday” episodes offered on its Instagram feed by members of its marketing and product engineering teams, Huber Engineered Woods offers an educational incentive program to channel partners who complete periodic online training.

And speaking of Instagram, in today’s connected marketplace where builders utilize social media to showcase their work, it’s just as important for distributors to embrace these same social platforms. “Whether it’s through YouTube, Facebook or Instagram, more and more builders and their customers are using social media to conduct business, and they expect manufacturers, distributors and dealers to have a strong presence online,” says Huber’s Asano. “If you are not already using these tools, we would strongly encourage you to do so”

In the end, it’s all about being able to not simply deal with lumber market upheavals but to be able to thrive in them. All indications point towards a stable selling environment here in the U.S. for 2019. While issues such as trade spats with our cousins to the north or price fluctuations from a bungled Brexit may cause the pricing pendulum to swing, if you’re prepared to be a true resource to your customers, then you’re looking at a rosy future. “Because the industry is evolving at a rapid pace,” says Debelius, “it is essential for dealers to be proactive in their acceptance and incorporation of new tech advancements to avoid being left behind by the competition. Even small improvements can have a major impact when amplified over time.”