Navigating the Supply Chain Storm

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(Attendees hear from panel members at the Redmond Economic Development Inc. 2022 Annual Luncheon at Deschutes County Fair and Expo Center | Photo by Simon Mather)

Redmond Economic Development Annual Event Outlines Impacts and Insights

Redmond Economic Development Inc. (REDI’s) Annual Luncheon for 2022 featured an exploration of the challenges, opportunities and silver linings of the pandemic-related supply chain issues that have jolted the globally connected economy.

The event, attended by business and community leaders and hosted by Central Oregon Daily’s Julia Kelleher and Allen Schauffler at the Deschutes County Fair and Expo, this year brought a regional lens to the issue with a panel of experts discussing impacts, ideas and insights on the road to recovery.

Guests heard from three industry specialists about navigating the supply chain storm in their individual fields, including Joe Anzaldo, COO of locally owned Rudy’s Markets Inc./Oliver Lemons, Jana Jarvis President of Oregon Trucking Association and Jim Sansburn, CFO of leading private homebuilder Hayden Homes.

Anzaldo touched on the trials the grocery business has faced including being out of a range of stock supplies, challenges related to staffing, and the new normal of “unpredictable loads” with delivery trucks potentially showing up any time of day or night, subject to availability.

Jarvis, who has over 20 years of public policy and management experience in both the corporate and trade association environment, observed, “It’s important to note in the last couple of years that people have seen how critical the supply chain and trucking within that sphere is, both to the nation and consumers. Some 72 percent of freight is moved by truck.

“After the shutdown in March 2020, there were extreme highs and lows, with great demand for essential goods while manufacturing closures meant there was a shortage of raw materials, wood products and many other commodities such as those supplying the housing industry.

“That summer (of 2020) during the early onset of the pandemic, consumers shifted buying power to things like home improvements and supply chain issues came in fits and bursts, Impacted by the offshoring of so many consumer goods. Trucking demand was up significantly, and that continued to the first quarter of 2022.

“Large container ships were stranded, at one time creating a bottleneck of over 100 vessels at the port of Los Angeles. Some switched to transporting to East Coast ports but that added to costs and timeframes.

“China is now back in a relative lockdown situation and one upshot is that companies are looking at more domestic manufacturing or nearshoring in places like Canada and Mexico, which will increase trucking demand further and see long-term changes.”

Sansburn, of homegrown company Hayden Homes — now the Pacific North West’s largest private homebuilder, constructing in excess of 2000 homes a year — said cycle times were lengthened as jurisdictions worked remotely, with consequent extended permit times adding delays at the beginning of the entitlement process.

He added, “Direct costs were up 40 percent, equivalent on average to an additional $80,000 per home, due to increases in land development materials such as pipe and so forth.

“We had supply interruptions in everything from appliances to paint, garage doors, hinges, switches and pretty much every component in a house faced shortages and delays, with our purchasing department constantly figuratively putting out fires.

“One consequence was it created the need for increased communication regarding addressing issues, including, for example, explaining longer lead times for cabinets, or limited options for buyers in terms of appliance packages.

“We had to eliminate washer/dryer and refrigerator options and bought six months-worth of supplies like lighting fixtures. Customers were obviously impacted, and we substituted materials if needed where possible.”

On how his organization overcame various obstacles, Anzaldo said, “As an independent market we are not tied to a single distribution center. We work with three or four major distributors and were able to move between one or another to optimize inventories.

“We also got creative to some extent in purchasing from restaurant supplies, for instance — when restaurants shuttered, we bought in bulk from their sources and repackaged.”

Jarvis added, “As the pandemic started there were huge demands in freight moving goods, and the first quarter of this year is the first time since that spot market prices for freight started to decrease.

“Drivers became owner-operators, and we struggled to meet demand, but there are signs of drivers coming back to help with capacity.

“It was tight for drivers even before the pandemic — in 2019 the industry had a shortfall of over 60,000 — and during the worst of the crisis there was a lot of strain on the job. In many cases, drivers couldn’t use restrooms, or get food on the road as a lot of truck stops closed.”

She highlighted the initiative announced by President Biden of the creation of a federal apprenticeship program designed to accelerate Commercial Driver License (CDL) training as a “key ingredient” to boosting recruitment efforts in trucking, with Walmart, for one, offering $100,000 salaries for CDL drivers and trucking in general not being “all long haul.”

Sansburn reiterated the most pressing challenges facing the housing industry included the supply chain fluctuations, rising inflation, increased land acquisition costs, permitting delays and a continuing skilled labor shortage.

He said one advantage of Hayden Homes having multiple developments across the North West was that they could shift materials between regions to mitigate supply demands. The company also adapted by stocking up on fixtures and appliances, but he said the switch to more remote working was “hard on our culture.”

On addressing the challenges on the grocery front, Anzaldo said, “We have had to morph and change to figure out the best way to maneuver through, which has included being more nimble and flexible and adjusting quickly, which is more feasible as an independent entity. But I don’t see us going back to the way things were.”

Jarvis said, “There are two big issues in the trucking industry — labor and fuel. Labor costs are going up, fuel costs in terms of diesel continue to rise and we have inflation running at over eight percent.

“Until we resolve these issues, the cost of goods will continue to be far more expensive. Operators have even had problems getting parts for trucks and used trucks are selling for the same as new vehicles three or four years ago.

“Oregon is also pushing moving out of diesel trucks into electric vehicles, which cost three to four times more. We are on the cusp of change and we will see more change in the trucking industry in the next ten years than the last 100.”

Sansburn said that along with the dramatic rise in direct costs, land development expenses were up by an average of $20,000 per home, and land prices continued to rise.

The situation was exacerbated by a rising interest rate environment. As of May this year, the average interest rate for a 30-year fixed-rate mortgage was around 5.55 percent, the highest since 2009, and up more than two full percentage points from 3.11 percent at the end of December 2021.

On a $300,000 loan, with a 30-year, fixed-rate mortgage this would represent a payment of about $1,283 a month at a 3.11 percent rate. If you paid over five percent instead, that would cost an extra $346 a month or $4,152 more a year and something like another $124,560 over the lifetime of the loan.

And Oregon is about to become even more expensive if new housing and transportation rules are adopted by the state, with such mandates and regulations regarding required density particularly impacting Hayden Homes’ primary target market of first-time homebuyers.

Sansburn said, “Increasing minimum density to 25 units per acre effectively kills single-family detached housing. It removes options and limits choice to more high rises.”

He encouraged those interested in the subject to research the grassroots group People for an Affordable Oregon, made up of community members and organizations who believe that addressing climate change is valuable, but solutions must be reasonable and not set Oregon back on overcoming its housing crisis and achieving economic recovery post-pandemic (see website: peopleforanaffordableoregon.com).

Regarding any silver linings in the aftermath of the supply chain disruptions, Jarvis said amid the uncertainty people should remember this is an election year and become more involved in policy discussion shaping the future of Oregon.

She commented, “Environmental mandates are going to make it harder to live in the state. This is a very challenging election year and people need to be involved and study candidates.

“We need people who want to help us. I don’t care if Republican or Democrat, they have to care about Oregon.”

Sansburn said supply chain fluctuations meant Hayden Homes had to be nimbler as a company and had forced a deep dive into processes and systems and engagement in new supplier relationships, and ways to communicate with buyers.

He added, “We learned how to do things differently and are a better company for it.”

Anzaldo said, “We realized there was actually a lot of passion regarding essentials. People appreciated getting the basics such as food and there was a genuine admiration for what we do, seeing that it matters and giving us a genuine sense of pride as a kind of first responder.”

Jarvis lamented the increasing costs of diesel — preferred in trucking as a more energy-efficient fuel. The situation in Russia was complicating matters, with world demand shifting and a glut of goods still on container ships, but a move toward more nearshoring facilities would make a difference in terms of trucking.

On the affordable housing front, Sansburn said his company was doing everything it could to address the issue, including offering more housing in the 600-1,000-square-foot range as part of a drive toward smaller homes.

He added, “The housing industry is looking at different methods, including technical changes such as 3-D printing and different modular homes that can be assembled quickly on site — as the old saying goes: time is money.

“Land prices in Central Oregon are as high as we have ever seen but if demand goes down in the face of factors such as rising interest rates, maybe prices will trend lower?

“Once we get past some of the remaining supply chain issues hopefully pandemic-related costs will ease and relieve some of the pressure.

“Labor shortages were strained by losing a generation of tradespeople in the great global financial crisis that did not come back, but we still strive to be affordable for homebuyers relative to the average median income.”

REDI’s Annual Luncheon focuses on presenting information relating to economic development for Central Oregon’s community and business leaders.

Earlier in the REDI luncheon, Central Oregon Community College (COCC) President Dr. Laurie Chesley highlighted the institution’s efforts regarding workforce training, and the commitment of its Center for Industry and Professional Development in helping REDI’s cause in business retention and development.

REDI Director for EDCO Steve Curley pointed to “exciting times” for economic development in Redmond with a post-pandemic rebound including a growing and “robust pipeline” of new projects representing 1823new jobs and approximately $250 million in capital investment.

Plaudits were also given to the Youth Career Connect (YCC) regional initiative that provides Internship opportunities for high school and college-age students where local employers provide “real-world” work experience and experiential learning for students to improve the readiness and employability of Central Oregon’s future workforce.

Board member Steve Bettis praised the contribution of REDI to the retention and expansion of his company Medline Industries Inc.’s based in Redmond.

Bettis, who is vice president of Operations for the ReNewal Division of Medline (a multi-billion dollar Illinois-based global manufacturer and distributor of essential medical supplies) recollected, “Back in 2001 our parent company decided to acquire surgical instrument reprocessor Medisiss, which had originated in Central Oregon as we were interested in gaining a place in that market.

“We kept local management in place and took over the existing space in a medical-related leased building.

“When it came time to look at creating a new facility, we got to work with REDI. Medline has plants all over the country, but an entitlement package was prepared, and local representatives met with Chicago executives and showed it was not all about incentives, it was as much about the local commitment.

“We met with city and state officials and asked does the community want Medline? The answer was a resounding yes and Redmond showed the genuine will of the community to have us here, which resulted in the building of a new $12 million plant, with a further expansion totaling $16 million representing a major investment in our business retention and growth.

“EDCO led by CEO Jon Stark, the City leadership, and REDI including the Board — an outstanding group of people, from whom I learn something every meeting — did a first-class job.”

Gary O’Connell Central Oregon Market Region president at title sponsors Summit concurred that REDI was “a shining example of private-public partnership” and “a tireless advocate for business vitality and growth.”

rediinfo.com

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Simon Mather — CBN Feature Writer

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