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Business Observer Wednesday, Nov. 4, 2020 1 year ago

Amid supply shortage, air conditioning industry maintains focus on serving customers

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Overcoming the AC equipment shortage, an ongoing process, requires an agile approach.
by: Grier Ferguson Sarasota-Manatee Editor

The list of problems COVID-19 has caused is long. Here's one more: An air conditioning equipment shortage with far-reaching implications for contractors, suppliers, businesses, builders and homeowners.

“The equipment shortage is real, and it’s been going on for three months,” CoolToday/PlumbingToday President Jaime DiDomenico says.

The list of issues the shortage has caused is also real, from delayed closings on new home sales to deep waiting lists for customers. It's impacted both new machine installation and repair calls.  

With a trio of potential causes, the shortages have led contractors to find clever solutions to keep serving customers, among them cannibalizing in-stock AC units. If a customer needs a replacement part, contractors are doing what they have to do to make it happen. “There’s always a workaround,” Badger Bob co-Owner Keith Martin says. Like CoolToday, Sarasota-based Badger Bob’s is one of multiple companies in the region grappling with the shortage.

The crisis began in the summer, and for many, the shortages are not totally resolved yet. DiDomenico says Sarasota-based CoolToday, with $42.3 million in revenue in 2019, started experiencing it in early July, when, he says, local distributors saw inventories depleted. “I don’t think the customer really knows how much of an effort it is to get equipment for them,” DiDomenico says. “Our main objective is to make sure the customer is cooling and make sure we live up to our previous obligations. It’s not the customers’ problem.”

Although customers might not be aware of the issues, players throughout the industry are — and they’re working to catch up with the demand.

“The end user is the one that doesn’t understand supply chain,” says Daniel Jeffs, the south regional supply manager for Tampa Bay Trane and Trane Supply, which provides Trane parts and supplies to air conditioning contractors in the area. “They want their AC, and they want it now. A lot of contractors, they get it. They can’t do anything without parts, and we can’t give them parts if we don’t have them.”

Causes of concern

The genesis of the shortage starts with the supply chain.

Some air conditioning supply factories closed due to the pandemic, and that slowed manufacturers’ ability to keep up with demand. For factories usually running 24 hours a day, seven days a week, closing for any length of time can have a big impact. And even with factories open, Martin envisions some loss of productivity because cleaning processes are added between shift changes. “These manufacturing companies are probably losing quite a bit of time these days,” he says. 

Courtesy. Badger Bob’s Co-owner Keith Martin says components of air conditioning equipment made overseas being delayed has contributed to some of the shortages.

Although some air conditioning manufacturing facilities are in the U.S., some parts are made elsewhere. “It’s such a global market now,” Martin says. Even if factories in the U.S. are doing well, parts from other countries could be delayed, such as circuitry from Japan, Korea or Mexico. “You have other components — little pieces that you don’t think about — a screw or a piece of plastic,” he says. “It could be a 25-cent part that’s holding it up. This is one heck of a learning experience. As a business owner, we learn every day, ‘Never put all your eggs in one basket.’”

Businesses across industries are cautious about relying too much on big accounts, and Martin says it’s the same with global suppliers. “Just because you can buy something cheap in China, do you really want to buy everything in China?”

Badger Bob’s takes a diversified approach to its air conditioning manufacturers. The company is a Carrier, Trane and York dealer. CoolToday takes a similar approach, working with Carrier, Lennox and Ruud. Because of recent supply issues, Martin thinks other companies will consider sourcing from additional suppliers in multiple countries.

In recent months, shortages have combined with increased demands, spelling an even more difficult situation for the HVAC industry. Martin says summer months were especially tricky because of the hot Florida weather. “Around August it was pretty bad because August is so warm here,” he says. Plus, more people were working from home, and people used to cool office temperatures wanted their homes to be cooler.

Beyond Florida, the rest of the country had a hot summer, too, further elevating AC demand. DiDomenico says industry chat boards reflected supply issues moving west to east, almost like a cold front. California and Arizona, for instance, started to see issues prior to Florida. “I didn’t know if it was going to hit us or not, and it hit us,” he says. “We’re fortunate in that we carry more than one line, and the second thing is we have some buying power. We have some preferential treatment.”

DiDomenico has one more theory about the cause of the shortage: Manufacturers forecasted low on inventory needs. “Being publicly traded entities, having too much money tied up in inventory isn’t good,” he says. “I think they got conservative with upcoming needs.”

Supply slide

Jeffs, with Tampa Bay Trane and Trane Supply, has experienced supply shortages firsthand, too. “Our coffers are starting to fill again finally,” Jeffs says. “Over the last two months, it’s been a little trying on contractors and manufacturer groups because of stressed supply chains.”

Shortages became evident in early July, but the worst months, Jeffs says, were August and September. Until parts shipments arrived, assembly plants were twiddling their thumbs at times. Shutdowns at Trane plants, he says, were minimal and not due to the presence of the coronavirus but a lack of parts.

‘Our main objective is to make sure the customer is cooling and make sure we live up to our previous obligations. It’s not the customers’ problem.’ — Jaime DiDomenico, CoolToday/PlumbingToday

“Prior to that, we had inventory,” he says. “We had warehouses in Lakeland full of equipment. We had places in Georgia and all over the U.S. We had stacked boxes of air handlers and condensers. As manufacturing went away because of the availability to make them, those coffers got empty. We’re starting to see availability get better.”

Manufacturing has increased in recent weeks because companies have parts to build products again. Like Martin and DiDomenico, Jeffs points to global supply issues and challenges getting some components from overseas. Manufacturers in the U.S. have also had to deal with shipment quarantines. “For a long time, Chinese-made products, they’d come over on a boat and had to sit and quarantine for 14 days,” he says. “I think that’s tapered off.”

During the summer, Jeffs says Trane had backorders, and there are still backorders on certain models and aftermarket parts. But with the heat starting to let up in Florida, he sees demand falling in the months ahead and supplies getting back to normal. “I think by the end of year, we’ll be back in good status as far as equipment — not full coffers but able to sell a unit and deliver it,” Jeffs says. “As long as things get better with COVID-19 or with the flu season, if it doesn’t get worse, say end of Q1 we’d be back to normal.”

Parts patrol

Meanwhile, during the summer and into the fall, area contractors have done what it takes to help customers with AC needs.

“In order for us to be able to provide the service, the parts and the equipment for our customers, we have to be able to have something available to install,” Martin says. “At one point, we actually had 50 people on a waiting list.” Their AC was running, but they needed or wanted new units. This summer, some customers were on the list two or three weeks, with the longest about 30 days. Now, he says, things are headed toward normal, with no one on the waiting list. 

DiDomenico says CoolToday experienced a similar situation. It still has some customers waiting for specific models. “It’s starting to alleviate a little bit, but not much,” he says. “Certain models are unavailable. Customers who want that specific model are either waiting or taking a different model or brand.” For those who are deferring their purchases, they could be looking at later in the fall or early next year, DiDomenico says.

Courtesy. Badger Bob’s had some customers on a waiting list for two or three weeks this summer, with the longest about 30 days.

If a customer’s air conditioning broke, on the other hand, CoolToday had to get it up and running again. “What is more concerning is the nonexistence of factory warranty parts,” DiDomenico says. “That’s more critical. You buy a brand new system a year ago, and a component goes bad, it’s nowhere to be found.”

His team scavenged new units for needed parts, and now he has units sitting around with missing coils, electronics and other parts. But despite cannibalization concerns, DiDomenico says CoolToday’s ability to carry that inventory was key to making sure customers got what they need.

The issue isn’t over, though. Factories are increasing production, he says, but they’re more interested in putting together entire systems than parts. Parts could also be impacted from the embargo with China. “We have really the trifecta of issues — the trade war with China, the pandemic and the misforecasting,” DiDomenico says.

Trickle down

Air conditioning equipment shortages have impacted residential replacement and repairs as well as new construction homes.

Martin, for example, says homebuilders often specify certain air conditioning manufacturers for homes, and shortages led to delays. Without the right equipment, Martin says new construction projects were running two to three weeks behind. It even led to some closings being held up.

Martin says the issue was primarily in July and August, and equipment is moving along more. “It’s better now,” he says. “It’s a little bit of a trickle down now, but it’s not as bad.”

Although the months ahead are hard to predict, Martin says his team will stay focused on end users. “We just try to take care of our customers,” he says. “We’re just trying to keep doing business as always.”

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