Prices and lead times on HVAC equipment are on the rise and the reason why is two-fold. The current administration’s recent tariffs almost exclusively apply to goods American companies import. These new tariffs have significantly increased the costs of production across the U.S. manufacturing sector. An estimated 20% to 30% of intermediate goods in manufacturing are imports. These are semi-finished products or goods that are used as inputs in the production of the final product. The tariffs have also increased the cost of steel 25% and aluminum 10%, forcing manufacturers to pass these higher costs on to the consumers of their products. The resulting price increases over the last few months have lead to a flood of orders to manufacturers as customers tried to get their orders in before the price increases took effect. The swell of orders directly led to longer lead times as production lines were slammed with new orders.
The second issue affecting equipment costs and lead times is low truck supply and high freight demand. One of the reasons for tightened capacity is the ongoing driver shortage. Fewer drivers means fewer trucks on the road to haul this increase in freight, which, in turn, drives up the rates because of the premium placed on securing a truck.
Another factor that is impacting shipping is increased government regulations such as the electronic logging devices (ELD) mandate which began in December of 2017. The ELD mandate essentially requires all motor carriers to install electronic devices in their trucks that will automatically track drivers’ hours of service. By law, drivers are only allowed to drive for 11 hours with a mandatory, continuous rest period of 10 hours, daily. Prior to the mandate, most drivers kept manual log books to track their hours of service. Carriers have indicated that a 15% increase for full truckloads and 20% increase for LTL shipments will be necessary to account for driver shortages and ELD implementation.
As Manufacturer’s Representatives, we are relied upon to communicate within our territory any and all issues that may affect how HVAC equipment is designed, supplied and installed in order to create a desirable experience for everyone involved. We understand that the issues described above are not unique to our manufacturers and even our industry. Longer lead times and increased costs can have a significant effect on a project’s budget and schedule. Please keep these issues in mind as you start to plan projects for the remainder of 2018 and into 2019.