This month’s Real Issues. Real Answers. question deals with the impact of proposed and upcoming tariffs. There has been a lot of speculation around how steep tariffs and shifting timelines could affect housing and the LBM industry. What insights would you share with the LBM dealer who posed this question:
There has been a lot of news recently on higher tariffs between the U.S. and its trading partners, including Canada and Mexico. One concern that is top of mind for many LBM dealers is how these new tariffs will affect lumber and other materials sold at yards and stores across the country. How concerned should I be and what action, if any, can I take to protect my business?
Responses from lumberyards, full-line building material dealers, and specialty dealers/distributors:
“Stock up heavy now and ride the wave. Things will straighten up.”
“Two things: Buy what you can ahead of time. Second, be vocal at all town hall and other political gatherings.”
“All I can say is, ‘Roll with the punches.’ Keep a sharp eye on inventory levels and don’t make any rash moves. Steady as she goes!”
“New home building is slowing down.”
“We have ordered material before the tariffs go into effect.”
“We have been notified by several suppliers that they intend to increase their prices to us by 5% to 25% in response to tariffs on goods shipped after March 31. The amount of surcharge may vary daily, and will not be disclosed until the day the goods are shipped. This makes it difficult for us to price goods we sell to our customers. Ways to mitigate include: 1. Increase stock; 2. Contractually cap the surcharge we will accept, and cancel orders if surcharge exceeds that cap;
3. Search for alternative suppliers; 4. Increase our prices, as our competitors are also facing this increase in cost of materials.”
“We will watch the market and take advantage of offers.”
“We are keeping the builders aware of market prices to help them plan accordingly.”
“When the tariff goes on, adjust your prices that same day.”
“We have no control of tariffs that make no sense and which will increase the cost for custom home builders dramatically.”
“Don’t quote too far in the future. Quote only subject to tariffs.”
“You should be very concerned and working on diversifying your supply chain and instigating pricing for your builder customers that focuses on uncertainty.”
“The uncertainty is the challenge. Let’s make a decision and move forward.”
“Just pay attention and run a great business and stay positioned for whatever comes. This is the same advice I would have given in the past. Some things don’t change!”
“Buy ahead when you can and then follow the market up with your pricing.”
“We have no idea at this point whether they are going to implement and for how long. It’s a waiting game.”
“1. Negotiate better costs from your suppliers. 2. Source parts away from China. 3. Pass on the tariff costs to your customers. 4. Source parts to USA.”
“Be informed about what’s really going on with the tariffs.”
“We are getting alerts of 25-45% increases in price.”
“Ask every vendor every time what they know. Keep an open mind for changing prices. Quote for limited time frames.”
“Honestly, I think everyone is searching for this answer, and no one truly knows. Some quick hits: 1. Open up communication with your vendors so you can have some prediction of when things might happen. 2. If you have products that you are top sellers that might slow with an increase, do you need to make a decision to bulk up and maintain a higher inventory level to help slow down the increases? 3. Are you pricing off market or weighted average (WAVG)? If WAVG, you can stock up and slow down how quickly you need to raise your prices.
4. Decide on the message you are going to put out to your customers when it’s time (would avoid politics) but you have to get ahead of the increase and not make it a surprise.”
“Communicate with customers and suppliers regularly. Keep things transparent when possible. Listen to what they have to say about their experience and finally take action as
a partner.”
“Protect your inventory position. Buy before price increases when you can and follow market pricing to protect margins.”
“Consumer confidence is low. Demand is soft. Trim unnecessary expenses.”
“We are taking the position of building our inventories as able now to soften any future price spikes. Turning tariffs on and off inside of a 6-week contract delivery is a nightmare.”
“Watch the market and be upfront with your employees and customers.”
“The uncertainty and flip-flopping is certainly a reason for concern and will impact business.”
“The market is beholden to the whims of one person that changes his mind every week on the issue. You can’t have a stable society with these conditions.”
“This is definitely an issue that demands attention and will need to be managed moving forward. There are a number of different ways to mitigate this issue, and we will have to make use of them all. First and foremost will be timely buying. Purchasing a reasonable amount of material before the tariff increase can enable you to keep your prices down longer. Maybe just as important is the ability to space out price increases because of the tariffs and not have to make large 25% or more increases all at once. Another avenue will be to look at alternative products that may be able to replace high tariff products at a more reasonable price. Finally educating our contractors and homeowners of the true impact of the situation will be vital. Some people will look at a 25% lumber tariff increase and see a 25% increase in the price to build their house. In a lot of situations, we can show our customers where a price increase on specific product groups while having an effect on the overall price, will not have the impact they may fear it will.”
“Take it as it comes. Do the best you can. Life is a roller coaster.”
“Right size your inventory, staff, and cash on hand. We are in for a rough ride.”
“We are a single location, <$30M a year lumberyard. The biggest concern is the uncertainty. At some point, when this is called off, we will be sitting on product that is 25% higher than market. A lot of our product that will be affected get <25% GP, meaning we will have to sell at a loss to be competitive. This will hurt us greatly judging the uncertainty of how long this will last.”
“What specific actions to take are very difficult to gauge right now as this continues to be a very fluid situation where the chips get moved in different directions almost every day.”
“Currently, our intent is to just keep the holes filled in the yard and not ‘panic’ buy.”
“Raise your prices well before the increases take effect because when they come off you will have to take them off quickly based on past experience. Given the time of year as well, prices are going up to begin with so don’t let the tariffs erode your margins.”
“Buy early and average purchases into the equation.”
“I believe this will be temporary.”
“We are forced to carry more inventory and push higher margin into quotes since we will not know costs.”
“Quit freaking out, we are in this together.”
“Not a concern yet. If you turned off the political news on TV and social media, you wouldn’t even know tariffs are on.”
“Evaluate the cost increases and pass along what you have to.”
“If we get a commitment on a large project, we buy out the material at that time. Margins are protected, in most cases, as we have used replacement costs as a basis for our pricing.”
“Tariffs will cause our raw goods cost pricing to increase, domestic will also increase along with the import.”
“We are helpless to influence any of these decisions. Even if domestic producers could replace Mexican and Canadian vendors (they can’t), their prices will go up also.”
“Lumber tariffs on both sides should be abolished to increase unilateral trade.”
“This is a wait and see. A lot of noise from the mainstream media. It could shift purchasing to U.S. companies.”
Responses from wholesale distributors, manufacturers and service providers:
“Be concerned. Lumber is the lifeblood of most LBM dealers.”
“Stay as vigilant as possible. Knowledge and timing is important. Be prepared to raise prices. We don’t have enough room in our gross margins to absorb 25% tariff/increase to the products we import so we will have to pass it on.”
“Depends on the demand for housing and remodeling in your particular area as well as affordability (Texas will not have as much of an impact as New England). Buy early, and keep in inventory.”
“Nothing at this point, we will pass additional cost onto consumer. Nails are our primary business.”
“Any business should always be aware of the fact that various trade issues are possible, if not likely, in some way or another to become a concern. The most important thing you can do is to be proactive to mitigate the effects on your business when you face the next supply chain challenge.”
“Action: Build OUT your supplier base. Spread out product availability risk.”
“I have always maintained multiple strong relationships with vendors across multiple supply channels. With an emphasis on always having strong U.S. partners, as either primary or secondary. We all deal with maintaining our competitiveness and profitability, however putting all your eggs in the cheapest import basket you can find is suicide in my opinion.”
“Try to look at domestic manufacturers.”
“Stay focused on your business, and minimize political talk. Take away political banners. You don’t know how your customer votes.”
“Lobby the U.S. government to end the 40-year conflict over softwood lumber. Make lobbying illegal, not logging.”
“At some point you will lose customer confidence and business due to one of the following: poor quality from a bad container, inability to provide product period, or with the threat of tariffs losing your competitive edge and profit.”
“Procurement diversification is now more important than ever. If you are still of the opinion that you are ‘loyal’ and depend solely on a single source, wake up!”
“You don’t need to do anything except shorten your bid time.”
“Price increases are a common occurrence. I view this as just another increase. However, the uncertainty of it can wreak havoc when trying to quote/plan for upcoming larger jobs.”
“There will be price increases and you should make sure you keep up with the retails and move them up.”
“You should be concerned, yet it will ultimately be added to your cost of goods the same as everyone else.”
“Absolutely nothing you can do other than make pricing adjustments as needed. We are all going to suffer the same expenses, just position yourself to take it in stride and not lose your focus.”
“I would be very concerned as in the end prices will go up and frankly the USA can’t supply all needed products.”
“If you had a crystal ball, and ample credit or cash, buy as much materials as possible and wait?”
“The price of lumber fluctuates from season to season and from week to week. Lay in additional lumber inventory or hedge by buying lumber futures.”
“Let things play out. Trump is doing what’s best and fair for America.”
“Manufacture in the USA.”
“We have expected prices to increase with the building season and tariffs will just make those increases much larger and set back any hope for affordable housing.”
“It will cause inflation and slow demand. Brutal all around.”
“Inform your customer base, but don’t raise prices until they are actually in place for a few weeks (when you actually have higher priced goods on hand due to tariffs). When tariff relief is given to other countries, you will be the one with a better relationship than those preemptively pricing in the tariff. Good time to pick up new business while you’re working off of older costs.”
“Control what you can control and be ready to pivot as our government leadership disrupts our industry and supply chains.”
“Stay on top of costs and immediately pass onto customers.”
“There is no doubt that tariffs (depending on the level) will impact our businesses. Unfortunately, the lack of clarity in when/if/how much/with whom creates difficulty for those committed to making informed decisions. The only action I recommend is waiting until better information is available.”
“Obviously it will cause some consternation among end purchasers. Please remember though that our own Lumberman’s Association cannot supply a healthy building industry completely. Canada knows this and will just pass the increases onto the purchasers. Had we not been so narrow-minded, we might have had a new lumber agreement in place before this all happened.”
“I feel that you should invest at the possible lower prices, but not too much to hurt yourself. Let your prices be a result of the economy.”
Are you concerned that new or higher tariffs will negatively impact your company?
Comments from dealers:
“Steel and other commodities are already moving up, raising costs to make all construction higher priced. Housing will become even more expensive for those in middle class, further eroding the American dream.”
“[Existing] tariffs as well as the chaotic rollout of Trump tariffs are potentially very damaging to our business.”
“All of our manufacturers are in Canada, Italy, Switzerland, and Germany. The on-again and off-again for tariffs to Canada, which is 80% of our vendors, makes it impossible to manage our business.”
“I’ll reserve my concerns when all the tariff negotiations are done.”
“Especially with an issue that gets this much media attention, there is always going to be a concern of negative impact. The best thing we can do is educate our customers on the real and immediate issues and make sure they do not panic over the situation.”
“Our fuel cost went up 10% due to Canadian tariffs, which can lower our bottom line by $30-40k per year.”
“Tariffs will bring higher prices and fewer sources.”
“[It’s] going to raise most prices by 20% and make homes less affordable.”
“The real issue is the U.S. pays way higher tariffs to those two countries then they pay the U.S. on our products. So we’re just making it an even playing field by doing it. Also, Canada flooding our market with their lumber when there’s plenty in the U.S. to sustain the U.S. market is another issue. The tariffs will help even the playing field. The U.S. has been taken advantage of way too long at the expense of our taxpayers.”
“Volatility is a bigger issue than higher prices. I am more concerned with buying the material at the higher tariffed price, and then having it removed a week later allowing competitors that waited to have a significant price advantage.”
“Nothing has changed at this time. The competition around me (including box stores) has not raised any lumber prices since late December.”
“Ask yourself, would an artificial price increase benefit consumers?”
“The only concern is in what form are they going to take? It’s a lot of noise now, people get too wrapped up in the media.”
Comments from vendors:
“We’re a service provider. We save companies money when markets go crazy.”
“We import products from Canada, China, etc. We unfortunately imported from Canada on the two days the tariffs were in effect and got taxed the 25% on the product.”
“Impact on overall demand.”
“It will be painful for the short term but in the end will drive growth of manufacturing again in the U.S.”
“Amateurs in government are making decisions they know nothing about. The sad part is we are going to upend [businesses] and reduce inventory and every small town in America is going to feel it. Don’t panic, review your inventory mix, cross train your employees, and maybe go into installed sales. Now is the time to ask your employees for ways to improve your business. Remember, they care too.”
“All the uncertainty and constant changing is the ridiculous part, but it’s understood that it’s most likely a negotiating tool.”
“My supplier just increased the price on one item I buy in volume by nearly 20%.”
“There is a serious shortage of housing (especially in the Northeast) and added tariffs on the cost of the main building component (lumber) will make it more difficult for home building to reach the level needed to impact affordability. Additionally, if exports drop due to increased raw material cost (metals) going into products exported by U.S. it will negatively affect wood crating for these exported products.”
“We are in a global economy. This trade war is extremely unnecessary.”
