It's safe to say that the supply channels for a wide range of building materials have long extended well beyond our nation's borders. No one bats an eye at Italian marble, Mexican floor and roofing tile, or Canadian lumber.
But what about sanded hardwood plywood from Russia, molded door skins from Thailand, or kitchen cabinets from China? "There are definitely customers leery of value-added products coming from overseas, especially from China," says Dave Wilcoxson, owner of Home Central Imports in Phoenix, "but not after we show them the quality of the products."
Once the low-cost bastion of commodity products, such as nails, sheet metal, and raw logs for use or remanufacture in the U.S., many of the world's emerging industrial economies in Asia, South America, Europe, the Middle East, and Africa are improving the quality and efficiency of their operations to export value-added finish goods into the States while also increasing the amount of commodities coming over.
That's certainly the case with wood windows. Though Canada still dominates the import market with more than 8 million units shipped across the border last year, according to the U.S. International Trade Commission (USITC), shipments from China, Chile, and Brazil have increased from about 3.4 million units combined in 2001 to more than 10 million windows in 2006, primarily at the expense of Canadian-made windows. China alone has boosted its wood window exports to the U.S. by an astounding 1,900% since 2001, to nearly 2.8 million last year. Plumbing fixtures, lighting, and asphalt shingles tell a similar story, according to USITC data.
In the cement market, China is now the world's leading exporter and is the largest overseas supplier to the U.S. As recently as 2001, that country shipped a third less than what Canada sent stateside in cement products; in 2006, it nearly doubled Canada's shipments of those products to this country. China also exported 218 million kilograms of gypsum products (mostly drywall) last year to the U.S., third-most behind Canada and Mexico.
Why the shift? In a word, labor, or more specifically, the cost of it. "It's a difference sometimes of $20 versus 50 cents an hour," says Wilcoxson, regarding domestic union labor rates versus wages paid in China. The result, he says, is a comparable product that costs him perhaps 30% less; even with shipping costs added, it's a savings he can pass along almost entirely to his builder-customers.
Actually, the shift to overseas manufacturing is common, at least historically among low-tech commodities such as bulk nails, sheet metal, and raw logs. Garry Tabor, CEO of Building Material Distributors (BMD) in Galt, Calif., recalls how since the 1980s the production of bulk nails has traveled from domestic manufacturers to those in Japan, Korea, and now China ... with India perhaps the next stop.
Domestic brands and distributors, he says, "can choose to follow labor or technology [to reduce costs and improve efficiency], or perhaps both, but it's usually the former," in their constant quest to find–or perhaps facilitate–the lowest-cost labor market from which to make or import building products or raw materials for fabrication.
While labor costs are the primary issue, other factors are driving an increase in imports to some extent, as well. "Some products simply aren't available in the U.S.," says Jim Kaiser, president of Sol Building Materials, a plywood and door skin importer in El Paso, Texas. The list ranges from low-grade 1/8-inch hardwood panels from Indonesia and Malaysia to superior-quality, 100% birch plywood from Russia. Or, Kaiser adds, "they are available in the States, but the imported product provides a better balance of cost and quality."
Those factors are driving the latest importing trend for value-added finish products, creating arguably a more profitable option for small and start-up importers.
When Nick Damalas launched United Pacific Imports in St. Charles, Mo., a year ago, for example, he initially brought in high-volume, low-margin drywall and steel studs from China, doling out the goods to builders and contractors anxious to find reliable sources when both of those products became scarce and price spikes resulted a few years ago–even if doing so meant paying a premium.
Even under such favorable conditions, however, Damalas' margins on those imported commodities did not permit him to sell through dealers instead of direct to builders and subs, limiting the amount of inventory he could manage. Within a few months, the housing market slowed and domestic supply shortages and prices eased for those categories, reducing his profitability from thin to none.
At that point, Damalas made a quick, 180-degree shift to importing value-added finish goods, chiefly cabinets, from China. Despite what might be perceived as a risky venture, Damalas views it as a more stable moneymaker. "What's risky is a small importer trying to compete in commodity products," he says, especially in categories with existing domestic manufacturing and supply channels, such as drywall. "We saw high-quality cabinets being made in China, but not being imported to the Midwest," he says. The suppliers' good track record among distributors along the West Coast boosted his confidence to try them in his region. So far, it's been a success.
Similarly, after a previous stint importing building materials from China, the Middle East, and South America, Wilcoxson narrowed his focus to a pair of Chinese cabinetmakers, though he also has his eye on products coming out of Taiwan and the Philippines. "There are lots of [importers] buying lower-end stuff in excess and then warehousing it, but the real opportunity is in high-end products," he says. "The factories over there are becoming more sophisticated and want to upgrade their quality."
So far, BMD–which derives about 20% of its nearly $400 million annual revenue from imported products, including nails and fasteners, rebar, concrete accessories, and, more recently, plywood–has steered clear of that trend. "There are low obstacles [for U.S. companies] to enter at the manufacturing level [of an overseas company], but those and other supply chain processes need to be perfected," says Tabor. "It's a patient process of teaching them how to build to a high quality" that will pass muster with American codes and contractors. To date, BMD is content to let others make that investment and assume the risk.