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Run Aground

How the global supply chain breakdown impacts Utah's economic shores.
By Emma Penrod

For better or worse, economic trends in Utah have always lagged a few months or even years behind the U.S. as a whole. The supply chain disruptions triggered by Covid-19 and perpetuated by one global calamity after another have been no exception. Utah’s response to the virus may have been relatively lenient, but like the coming of the Transcontinental Railroad, we all watched and waited as the aftermath of the virus approached from both coasts.

The bulk of the supply chain disruptions finally arrived in Utah about halfway through last year, Josh Van Orden, President of VO Brothers Mechanical, recalled. Everything from natural materials to parts and equipment such as chillers, boilers, and pumps suddenly cost more, and shipping times multiplied—if those materials could be had at all.

“Items that have multiple components have enormous lead times, and sometimes come with an undefined delivery time,” Van Orden said. “We’ve had equipment come with a 24-week scheduled delivery. Stainless pipe vendors have indicated a 98% price increase mid-March due to nickel sourcing out of Russia stressing other suppliers.”

Even with a second wave of shortages on its way, Utah is likely positioned to fare better than other states when it comes to access to construction materials, according to Tim White, Director of Marketing for Utah-based wholesaler Mountainland Supply. But it won’t necessarily be immune, he said.

“There are logistical issues in terms of being landlocked—in one way that’s what has protected Utah for years and years and years,” White said. “But as we are entering into a global economy as a state, as Silicon Slopes is happening … getting product here that you need just takes a while.”

Waves at the Ports

Associated Builders and Contractors (ABC) estimates that total construction input costs rose 23.6% over the last year. But the rate of increase depends on the product. This past January—which saw overall prices increase about 3.5% compared to January 2021—softwood lumber, plumbing fixtures, concrete, and crude petroleum had the fastest-growing price increases, according to Chris DeHerrera, ABC Utah president and CEO, while metals including iron and steel finally experienced some price relief.

Metals including copper, aluminum, platinum, and especially palladium and nickel are expected to rise again on account of the Ukrainian-Russian conflict, DeHerrera said. About 10% of the world’s nickel, a key component of stainless steel, is produced in Russia, as is 40% of the world’s palladium, which is used to make catalytic converters and microchips.

A year before this latest crisis began, White said, the lack of available resin to make pipes and other products represented the major pain point. Severe storms in early 2021 hit the three largest resin plants in the U.S—all located in Texas—and for the better part of the year, it was difficult to even find available resin pipe, no matter the price.

The impact of these unrelated catastrophes may seem outsized, but it all began in 2020 with Covid-19’s global outbreak, according to Tom Berry, CEO of the Institute for Supply Management, a nonprofit dedicated to professional education.

While there was a span in late 2020 and early 2021 where manufacturing in nearly every economic sector ground to a halt, production has, for the most part, returned to pre-Covid levels, Berry said. The problem now is resolving the wave-like activity that has developed in global shipping chains.

Ports, like factories, shut down during the initial Covid-19 outbreak. Shipments already in transit couldn’t just freeze where they were, so products began to back up at the ports. When the ports opened again, they moved the backlogged products all at once.

The release of this backlog created that wave-like effect in global supply chains, Berry explains, because of the imbalanced distribution of manufacturing versus consumption around the globe—in general, wealthy countries consume more than they produce compared with other countries with lower labor costs that often produce more than they consume. As the first waves of ships arrived at, say, European ports, there wasn’t enough product to fill them up and send them back. This resulted in a shortage of shipping containers when the empty ships backed up at one set of ports and product once again backed up at the others. Similar dynamics have impacted overland shipping, whether by rail or truck.

The world has been trying to break the cycle ever since, but every time a crisis disrupts the production side of the equation, the cycle starts anew. Meanwhile, ongoing labor shortages and generally good business policies—it doesn’t make sense to build a bunch of expensive new ships in response to a temporary problem—have further entrenched the wave-like shipping trend.

Inland Insulation

Utah’s landlocked nature kept it relatively insulated when the first shipping waves hit the ports. But that isn’t the only reason why Utah was spared the initial impacts of global shortages—the state’s vibrant construction industry can also take some of the credit, White said.

When manufacturers realized they faced production and shipping backlogs that could take years to resolve, they started to prioritize, White said. As a business, if you have two orders and the ability to fill one of them, you’re going to go with the customer you believe has the greatest potential to place orders in the future. In the case of the last few years, suppliers have been betting on Utah, White said.

“That’s a roundabout way of saying our economy is so good that manufacturers have made allocations to us appropriate to the growth we are having,” White explained.

However, being landlocked isn’t always an asset—even with supply chains running smoothly, it takes longer to get materials to Utah than it does to coastal areas. As we know, the shipping waves eventually hit Utah, too.

Some products were spared the supply shocks entirely. Mountainland was able to continue providing certain bathtubs, for example, without significant delays because it just so happens that the company that makes them is located in Utah, White said. But manufacturing in Utah is generally limited. This means that even though Utah produces sizable quantities of natural materials such as copper and gas, the state was still subject to shortages of copper pipe and wire because it lacks the facilities to take these homegrown materials and turn them into products. As in many other cases, copper mined in Utah is shipped elsewhere for fabrication, which subjects it to the wave-like action of current shipping lines on the way out and on the way back.

“The more [manufacturing] capability we have, the less we will be impacted by these supply chain issues,” White said. And disruptions, he said, happen every year, if on a smaller scale than in the recent past. “If we’re going to continue to have these hurricanes and weather conditions that shut these places down, it might be a good idea to diversify where these things are located.”

Building Local Supplies

Utah, like most of the U.S., has lost much of its manufacturing since the 1970s, and the current trajectory doesn’t seem likely to make locating industrial operations here any easier, White said. Geography counts against the state twice—Utah’s location not only means lengthier supply lines for anything fabricated in the state, but the mountainous terrain means homes and businesses are squeezed together. And as the population grows and increases in wealth, the acceptability of industry has declined.

“Our cities are getting to the point where they don’t want a huge manufacturing plant in their backyard,” White said. 

It’s unlikely that a state like Utah—or any state in today’s global economy—can stand up to all the manufacturing capacity required to support itself. What the state really needs to ensure more resilient supply chains in the future, White said, is innovation to find new solutions for modern problems, and for builders and contractors to get more involved in government processes to ensure the conversation about the state’s future growth includes support for the trades, manufacturing, and entrepreneurship. 

“It’s just recognizing the fact that maybe what was good for us was like candy—cheap prices from China taste good for a while, until they start giving you diabetes,” White said. “It’s great and everybody is making money until they’re not. You have to look at the whole chain and say, ‘Maybe this doesn’t work anymore.’”

Because if the last four years have a lesson for the state, he said, it’s that growth must be balanced—you can’t concentrate all your growth and wealth on one side of the planet and expect all the supplies and labor to come from the other.

By LADD MARSHALL January 1, 2025
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By By Brad Fullmer October 4, 2024
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