Q & A Episode 37 - Surviving the Supply Chain Squeeze: Real Talk for Builders
Episode #37 | Q&A with Mark D. Williams | Surviving the Supply Chain Squeeze: Real Talk for Builders
In this quick and candid conversation, Mark and Sunny break down the real-world impact of tariffs on Canadian lumber, aluminum, and steel—and how those costs trickle into every part of a build. If you haven’t updated your contract language lately, this one’s for you.
Listen to the full episode:
About The Curious Builder
The host of the Curious Builder Podcast is Mark D. Williams, the founder of Mark D. Williams Custom Homes Inc. They are an award-winning Twin Cities-based home builder, creating quality custom homes and remodels — one-of-a-kind dream homes of all styles and scopes. Whether you’re looking to reimagine your current space or start fresh with a new construction, we build homes that reflect how you live your everyday life.
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Sunny Bowman 00:04
The metaphor that we often use is like that the property ladder. It's like that ladder that, like, you pull down from the fire escape, right? And you got to pull the ladder down to be able to, like, get up to the fire escape. And everything that we're doing, from a policy standpoint, from an input standpoint, is just making that bottom rung a little bit further out, that's a good analogy, right? And so you're just like, we have these homeowners that want to get into the market, and they're just jumping and jumping and trying to reach to get to that ladder so they can get on it, and they they can't get there. So, and the tariffs are gonna gonna push that up as well. Welcome.
Mark D. Williams 00:42
Curious. Careers builder Podcast. I'm Mark willing, your host. Today, we have a special in guest studio. Sonny Bowman from Dakota County lumber. We are talking for 20 minutes about tariffs. Yes, you mentioned so we actually were just finishing recording your episode, which is going to come out in a few weeks from now. And I we you just mentioned tariffs. I thought this would be a great topic for a 20 minute Q and A, because so many of my clients right now are asking me about tariffs. Because obviously they're all in the news about everything, and I have not seen personally anything hit. I know a lot of builders that I network with across the country are saying, make sure, kind of back to the COVID times of having contingency lines, having in your contract saying like, hey, anything beyond pick a number, 5% variable is subject to a future charge, because ultimately, we're gonna have to pass these on to our clients, and we can't absorb these anyway. That's about all I know about it. You are a lumber yard down in Farmington, Minnesota. We just had our interview. What are you hearing on tariffs, and how are tariffs impacting the world of lumber right now? Yeah,
Sunny Bowman 01:43
so it has been an evolution over the last few months, and the issue I feel like in the industry right now, the reason why you don't feel like you're getting good information is because nobody has it. So I'm gonna tell you what we've been hearing from our vendors and that sort of thing. But all of this could change, and even by a couple days from now, and this comes out, like, you never know what's going to happen. We weren't really concerned early on. Like, I know that, like during the presidential campaign, there was some talk of tariffs and that sort of thing, we weren't super concerned about what was going to happen, because there was a lot of kind of knowledge out there that was like, Oh, this isn't a negotiating tactic, right? We are going to use tariffs as a negotiating tactics tactic to sort of force other countries to do what they need to, or what's expected of them, and that sort of thing. So we were pretty Zen about it. Early months. So were the economists that we were listening to. We're pretty zoned about it. And then February and March happened. So we saw promises of tariffs going on and didn't. There wasn't much movement in pricing up until the point in March when the 25% Canada and Mexico tariffs actually went on for a day. And then there, there was a reprieve for most goods, and timber was included in that so technically, there are no tariffs on Canadian timber right now, which is kind of the big one that our builders are asking about. And by no no additional tariffs. There have always been some tariffs involved so, but there's the promise that in early April they'll go on again, if things aren't sorted out. In the month since that happened, the tariff went on and then came off. It feels like the market woke up and was like, oh, man, this might actually happen, and we're not going to get a whole lot of notice.
Speaker 1 03:29
So they're pricing it in already. Yes, yeah. So commodities wise,
Sunny Bowman 03:33
there's a little bit of pricing in. It seems like what we're seeing more is that the manufactured products, so not straight timber, but the things that like timber would come into there's already some. There's some, like
Mark D. Williams 03:45
micro lambs, lsls, like structural beams, yes, trusses, everything, yeah, just keep naming them, and I'll just keep
Sunny Bowman 03:52
windows with wood, interiors, all that kind of stuff. There. There are people that are starting to take price adjustments early in anticipation that this might go up, I think that they're doing that. So the optimist in me says that they're doing that out of the goodness of their hearts to help smooth the transition for the builders as things go up. The pessimist realist in Me thinks that like we see a lot of price increases that happen, very rarely do we see price decreases. So potentially we so we have a few things going on. Input costs are going up like there's already tariffs on aluminum and steel, right? That's already happening, and those are inputs into products. So we've got attacking brands that their aluminum railing has gone up 25% due to tariffs, and they adjusted their decking up 3% while they were at it because ambiguous input costs, and it's just a surcharge, it's going to go away if the tariffs go away, but they don't, but it's worked into their pricing. Yep. So I'm not naming any brands. You know who you are, but yeah. And so we're seeing that kind of across the board, where we I would say that it is, it does sort of feel like COVID times, not with the wild swings income. Commodities that was a supply side issue that we're not running into yet, like we couldn't, well, actually a supply side and a demand side issue. Demand was huge. Supply couldn't expand, and speculation went went crazy. We don't have huge demand right now. We don't have COVID demand, and right now the supply is steady, so it's just kind of adding pricing in. So we're not seeing the wild swings, but we are seeing price increases every day. I mean, like, literally multiple price increases a day from different vendors. We're getting multiple price increases a day from No, from different Oh,
Mark D. Williams 05:37
okay, yeah. He's like, wow. It's like, hey, we sent you out a LSL quote. And, yeah, no, I'm sorry. Two hours ago, we were wrong. It's actually gone up.
Sunny Bowman 05:45
But what I haven't seen is any guarantee that. So these price increases that are going in often ahead of tariffs, I haven't seen any guarantee that they won't then adjust up again, up again. So so what you're hearing from your builder partner or builder cohorts and that sort of thing around the country is absolutely what we've been communicating to our contractors. It's because there's so much uncertainty. I don't think any of us wants to sort of play the market and make a guess here, right? Like what, ultimately, what needs to happen is there needs to be language in your contract saying that the end user, the homeowner, is going to pay.
Mark D. Williams 06:24
I mean, we do cost, plus on almost all of our so we're sort of insulated with that. I don't I should have to look at it again to see if there's some sort of escalator clause on top of that. What percentage of your builders would you even know if they're fixed bid or not? Yeah, we're
Sunny Bowman 06:38
probably about half and half. I mean, that's the real risk. There is the
Mark D. Williams 06:42
fixed bid, right? They get a bid for you, let's just say 100,000 and correct me if I'm wrong. But most lumber bids are a estimate at the time. They're not actually a locked bid. Is that correct? That's
Sunny Bowman 06:52
correct. And we are seeing people shorten their pricing Windows already in the market, where your bid was good for 30 days, and now it's good for 14 or seven, which was a COVID move that they made. I remember that yes, and some of them extended back out, and now they're shortening again. So the people that have fixed bids like it's just not I understand, to an extent, everybody, every builder, can run their business the way that they want to. And there it makes sense what works for them. I think cost, plus, requires a lot of trust and like the relationship that the sort of thing that you build, where they you're willing to open your books to them, and that sort of thing. And not everybody is equipped to have those conversations. However, if you are in a fixed bid situation, for sure, a price escalator clause needs to get inserted.
Mark D. Williams 07:36
What would be? Any idea, what a normal number for those listening that do fix bid? I actually don't know. It'd be a good question. I should ask for future guests, what would be a number that says, hey, if I have a bid for sheetrock at 25,000 if that bid changes by 5% 10% 15% at what point is it considered an escalated clause?
Sunny Bowman 07:58
Yeah, I think that I would probably write in anything over five, but I'm not a contract lawyer, but from what what we've seen is things can, things can swing sort of wildly. You have to look at your own business and understand what you're able to absorb as a business. But essentially, if you're if you're paying people's tariffs for them, like you're paying the tariff on their on their deck, because you were trying to win that business by holding that price like it's just coming out of your pocket. I think
Mark D. Williams 08:25
the problem with that statement right there because you're right as a sophisticated business that you are running on Eos, and as we've already talked about in your in your previous podcast, about how you run your business. But, and this isn't any shade on any particular builder, because I did this at one time, but like most builders are not sophisticated enough to know it's getting better and better. I mean, with systems like adaptive, with builder trends, with software out there that helps us manage everything, and bigger companies, obviously you've got controllers, obviously they do, but I would imagine across the United States, you have a lot of companies that are five or less people that are you mentioned earlier about white knuckling it. You know that aren't really sophisticated. They don't probably know exactly. They probably don't even have a whip report. They probably don't know where they're at at 30 days, they just know they have to keep getting sales in to feed the meter, and they'll find out at the end of the year when the tax man cometh, what if they made money or not? I mean, it's depressing, but it's true, and that's honestly one of the reasons why this podcast is to help elevate the awareness and education for people to be, oh, I need to look into that. I need help. Because no one expects everyone to be the master at every one of these things. That's why you build a team. But the reason I'm bringing it up is you're mentioning like, Oh, if it goes up 5% or you're taking a risk, a lot of people are not aware of the risk that they're taking, and frankly, as a builder, if you were aware of the risks that you actually were taking as a builder, I'm not sure, I'm not sure anyone would be a builder. So this, this podcast, might be the shortest career move in my life, because you just, like everyone's just mass exodus, because it is, it is risky in the state of Minnesota. You. Is we have very strong homeowner rights here, and we have to warranty house for 10 years. A lot of people in other states, when I talk to other builders, are like, Excuse me, we have our one two warranty, one year craftsmanship, two years parts of mechanical and 10 year structural. I don't know exact one my lawyer friends would probably kick me under the table right now. But I think, like Wisconsin, it's like, called the red light. I mean, when the truck disappears, like you can kind of write whatever you want into the contract, it's much more open to that party and the negotiating. Hey, I'll take a price deck in our state, a builder couldn't say, Hey, if you charge me 20,000 or 100,000 less, can you write your contract differently? And I'll absolve you of all warranties. That's illegal. You can't do that. Right? Anyway, going back to just the risk that we're taking, yeah, oh
Sunny Bowman 10:40
no. And it's incredible. And I think going back to like we we serve a ton of small business customers, almost, almost exclusively, small business customers at Dakota County lumber. And whether they be maybe a bigger operation, a luxury builder, all the way down to a one or two person remodeler, deck building business. And, yeah, I think it's a matter of, where are you going to use your resources? And oftentimes, if you're a one or two person business, you got to be out there selling and you got to be out there performing the work and looking at the financials. That's the working on the business, instead of in the business is come secondary. And so that's the biggest thing, is, like, I don't want anybody out there listening to be surprised by the fact that they didn't make money at the end of this year because of the geopolitical environment. Right? Nobody your your supplier, doesn't have control over what the government is going to do and how these tariffs are going to go on, because there isn't like the market runs on on speculation, and we as lumber dealers sometimes will will buy to try and get ahead of things based on expected patterns and that sort of thing. There is not enough capital out there for your lumber yard to buy to get ahead of the Trump tariffs like there. It just doesn't. There isn't really a way. I mean, we're doing what we can and have I think we're playing it pretty smart on our decking and our railing and some different things. But like, you're they're not going to be able to smooth this out for you and help you ride it out to the like, just like during COVID, it's like, there, there was nothing we could do about that. When OSB went up to 90 bucks if she hit like, we just had to pass that price on, because it was 12 at the beginning of the year, and then it was 90 in July. So like, we're facing not that extreme of an environment, but something like that, something sort of similar to that, where there isn't enough information to be able to really play it right. So as a builder, like, I care about our customers making money, you got to protect yourself with your homeowners. Ian,
Mark D. Williams 12:46
awesome. This episode is brought to you by Alpine hardwood flooring. They've been our partner now for over a decade installing all our wood floors on all our new homes, as well as our remodels. And on a personal level, Adam and Anthony, the owners are just absolutely amazing people. They've been so supportive of my career, as well as doing anything we need to make sure that our clients are happy, and they work so well with our other vendors and trade partners at not only protecting their product, but also ensuring everyone else's looks great. So if you're looking for a wood floor or for a refinish, I highly recommend Alpine hardwood flooring. My homeowner owns a business that asked me this question. He called me and said, Hey, I'm seeing a lot of tariff chatter within my business, and they're a much bigger company, a conglomerate, and I don't know if to do multinational stuff or not, and so obviously they're talking about it. I guess where it led to me, I said a lot of I mean, from a labor standpoint, at least in Minnesota, our labor is here, and so the tariffs are really gonna affect products that are coming from overseas. And I, I know it affects things that I'm sure I'm not even aware of, like obviously, but I think of like lumber, for instance, because that's what you are an expert in, what percentage of your lumber would come from outside the United States. Number one. And then two, with that chatter, can you redirect that and then just buy only from? Is there a way around it where you would only source from the United States? Yeah. And what are the pros and cons of that?
Sunny Bowman 14:10
Yeah, so unfortunately for for the current situation, there is not enough timber production in the United States to compensate for how much we get from Canada. So as a whole,
Mark D. Williams 14:22
are you specifically as a whole, as a whole, any idea what the lumber industry at whole is, like, percent wise? I don't want
Sunny Bowman 14:29
to, I want to put it wrong, but I can send you them in the Yeah, because I have, I have a great contact that has the specifics. I want to say, like, 60 or 70% but I don't remember which way comes. Oh, that goes, yeah. So I mean, it's a lot that's that's produced foreign, or that source foreign, like the OSB and Southern Yellow pine, and that sort of thing often comes from southern United States. So that's a little bit better, but it still is some supplemented by Canada. The hope, I think, would be that eventually, domestic product. Could get ramped up, and we could be self sufficient. I That's but that's a that's a multi year game. You can't just just, yeah, flip a switch and have logging infrastructure and timber and mills and that kind of thing. I mean, we have great timber, but it's not accessible and all of that kind of stuff. So this is gonna there. There isn't an easy fix of like, oh, we'll just shift production domestic. And I think, like the hope often was that some of the domestically manufactured products, because a lot of building materials are manufactured domestically, the deckings, the some of the railings, the window brands, like a lot of that stuff is produced here that we would be insulated from it. But unfortunately, a lot of their sources come from overseas. And then again, we're seeing people taking moves, because if you know you're competing against a European window brand, for example, and there's a x tariff on European goods, well you just all of a sudden have more runway for pricing in the market as a domestic manufacturer, like we're so you could increase your margin. You can increase your margin and not leave the dollars on the table that maybe you feel like you've been leaving on the table the last couple of years with increased wages and inflation and all of that kind of stuff. So, yeah, I would love for everybody to be altruistic and be like, Oh no. Like, it's domestically manufactured. Our inputs haven't gone up. We're gonna stay exactly where we are. But that's just not it's not reality. I think that I wouldn't, as a builder, worry that my costs were gonna go up 25% because your basket of goods is mixed, and so it will be lower than even if a 25% tariff is on what actually affects you will be lower than that, but what percentage, like the economists are trying to figure out right now, like, what a typical percentage of tariff impact would be. I think they're looking at the big national home builders and analyzing their inputs, and you kind of seeing, but everybody makes different choices as a builder, so it's really hard to say, but definitely protect yourself well. And
Mark D. Williams 16:56
it's unfortunately, not only in Minnesota, but across the country. I mean, we are in a housing shortage, and we are in a price increase, and so it's really difficult. How do you make up? Like, I know it was just mentioned here recently when we went to meet with the senators and the House of Representatives through Housing First, they kind of put on a Day at the Capitol, and it was 110,000 units short of what our population needs six years ago is 50,000 so we've more than doubled in six years, and we're going the wrong way. And, yeah, I mean, every builder out there like, we need more building, we need more creation. We need more more homes built. I mean, everyone's in favor of it. The problem is, of course, is we have a lot of money sitting on the sidelines, right? I think they call them the golden handcuffs. I think in Minnesota at least, I think it was 75% of people are at 4% or less for mortgage rates. I know I'm not a big believer that mortgage rates solve everything, because there's a lot of other things that go into play there, but all these costs add up. And I know commodities prices fluctuate. They go up and they go down. And you mentioned that some of these little small fees, though, they don't really, they get added, they don't really come off later. I mean, they definitely keep this going up. But for sure, labor, I think when labor adjusts, like, labor stays like the going rate of a trimmer or a framer or an electrician, like, once those and they've been slow to adjust. I think really through COVID, they didn't adjust much, but they really adjusted pretty hard. In my experience, I think was like 23 seems specifically like they finally leg and they kind of bumped up. And you look back at what we could build a home just three, four years ago for compared to now, and you're like, sort of blown
Sunny Bowman 18:32
away. It's crazy. And like, sometimes when I am doing advocacy stuff and talking with people at the Capitol, the metaphor that we often use is like that the property ladder. It's like, the that ladder that, like, you pull down from the fire escape, right? And you got to pull the ladder down to be able to, like, get up to the fire escape. And everything that we're doing, from a policy standpoint, from an input standpoint, is just making that bottom rung a little bit further out. That's a good analogy, right? And so you're just like, we have these homeowners that want to get into the market, and they're just jumping and jumping and trying to reach to get to that ladder so they can get on it, and they they can't get there. So and the tariffs are going to kind of push that up as well. Interest rates are interesting, because I think that we want them to come down so that home building comes back online. But when they do come down, if a bunch of existing homes come on the market, that's going to put some downward price pressure on the market, and as builders inputs are going it's just going to squeeze New Home Builders squeeze their margins even more. So there's that I've heard some things that that remodeling meant bigger remodels will come back online at a higher interest rate before people are willing to move. People might not be willing to move, but they might be willing to remodel. To remodel. So like that is on the near horizon, but I do think that all of the all of the kind of uncertainty around tariffs, it's almost like we scooted back to last year during the election, where everybody was like, I'm just going to wait and see what happens, and then I'm going to move. We're starting to hear a little bit of that anecdote. Totally from our builders and our remodelers that, you know, like, we're okay, but people are starting to say, like, Oh, do you think I should wait until all this tariff stuff irons out? Yeah, and
Mark D. Williams 20:08
it's interesting. I just had a call yesterday with a friend of mine, and it could be just be spring in Minnesota. It's March, it's sunny out and it's nice and warm. Everybody's thinking about their home project totally. And it happens every year. I would say it happened about two weeks ago. We had a really warm day. It was like, what, 60 or 70. It was like crazy warm for Minnesota that time of year. And really ever since then, and I'm getting a lot of calls, a lot of interest, a lot of emails, I just see a lot of movement. I can't say that specifically, I've had a meeting with a client here in a couple hours that is for a new build of our strata. But a lot of it have been remodels that are we won't take on, or new homes. That's not it doesn't relate to what I can do. But I'm still excited to see that kind of movement. And I love the ocean. So I think about the ecosystem of the ocean, you need everything from the plankton all the way up to the great wells, big sharks and whales. I mean, you need a healthy system. And right now, I'm seeing a ton of activity just in general, and so that has me actually pretty optimistic about what I think this year can hold. But obviously there's a lot of uncertainty. So if there was just some stability, I mean, markets in general don't like instability. So if there was any stability, which we might not have for several years, it would be my guess. But anyway, that's
Sunny Bowman 21:21
true. Yeah, it's wild. And no matter where you fall on the on the political spectrum, I think that everybody watching this like, maybe there's a plan at play. Maybe there's not, depending on which side you fall on, but the administration isn't telegraphing the plan, because that wouldn't be good negotiation and that sort of thing. So the markets, and specifically our market, our industry, are going to be left kind of hanging on by our fingernails here for a little while, and we're just like, what, what we're doing at Dakota County lumber, for us, for our business personally, is just, we're just executing on our own game plan where it's just head down one foot in front of the other. We're going to keep doing customer acquisition and doing the right thing and serving our builders well. And I think as builders definitely it's like, well, just keep putting one foot in front of the other. And my dad used to say all the time, we're a big sports family. And like, if we're I was playing tennis and the court was wet, or, like, I'm playing lacrosse and the fields muddy. He's like, Ian, the fields muddy for everyone. Like, the fields muddy for the other team too. So like, as builders out there, it's like the tariff, nobody's escaping this tariff environment. What you can do is you can execute on your game plan while communicate well with your customers, so they're not feeling surprised. Partner with them. Be an advocate for them. But you know, the fields muddy for everyone, nobody's escaping it? Yep. No. 100%
Mark D. Williams 22:40
my family motto was, it's funny, because we weren't like a big family of sailors, but my dad used to always say, study at the helm. Yeah, some days it's sunny, some days it's windy, some days it's a hurricane, some days the winds in front of you, but just study up and down. Thanks for coming on if you're tuning into the curse builder podcast. On Thursdays, we have our 20 minute Q and A's, and Monday's, we have our hour episodes with builders around the country. Thanks again for tuning in the curious builder podcast. Thanks for tuning in to curious builder podcast. If you liked this episode, do us a favor. Share it with three other business owners. The best way that we can spread what we're doing is by word of mouth, and with your help, we can continue to help other curious builders expand their business. Please share it with your friends. Like and review online, and thanks again for tuning in. You.
