Raw Material Cost and Shortages

While raw material supply has increased significantly, some areas of our business remain challenged:

• In September, the Consumer Price Index increased 0.4 percent, seasonally adjusted, and rose 8.2 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.6 percent in September– up 6.6 percent for the year.
  
  
• Commodities such as copper and PVC are experiencing the most relief in demand which has led to shortened lead times, removal of supply allocations, and thus healthier inventory positions.
  
  
• Materials used in manufactured hardscape products remain at record high prices even though supply has increased significantly in the past 6 months.
  
  
• There has been some improvement, but semiconductor shortages will continue to affect a limited number of irrigation controllers and lighting components in 2023.
  
  
• Steel, zinc, aluminum, and brass scrap used in irrigation and lighting products have stabilized but remain elevated.
  
  
• Raw material input costs for urea, phosphates and potash required for fertilizer production are at record high levels.
  
  
• The Russia-Ukraine war has affected global markets. As a result, the cost of natural gas, a raw material in urea-based fertilizers and PVC production, continues to rise as many countries have chosen alternative supply options to Russia.
  
  

Labor Shortages

While supply has improved, manufacturers continue to face similar labor shortages as they did in the first half of 2022:

• More than 30 percent of manufacturers report that it's more difficult to find talent now than before the COVID-19 pandemic, and nearly 80 percent expect to have trouble attracting talent going forward.
  
  
• COVID supply chain disruptions are still impacting the Green Industry, with companies struggling to find qualified labor even while paying higher wages.
  
  

Freight

Freight volumes and pricing are beginning to soften while lead times improve for many products. Challenges in certain markets still exist– especially freight intensive products such as hardscapes, fertilizer and plant material:

• Congestion in major U.S. ports is beginning to subside and is expected to remain at lower levels compared to the peak as we head into 2023.
  
  
• Container shipping costs from Asia have decreased from the peak in 2021 but are still elevated 20-25 percent compared to pre-2020 rates.
  
  
• U.S. freight shipments are up more than 10% and U.S. freight expenditures are up more than 29%.
  
  
• U.S. diesel retail fuel prices are up nearly 48 percent YoY and up 85 percent from the beginning of 2021.
  
  

Landscape Materials Outlook

Based on our assessment of the current situation and industry conditions, we expect some product categories to stabilize or improve slightly, but shortages and/or price inflation will persist across other product segments:

• Hardscapes / Plants / Mulch / Soil / Fertilizer: Many of our manufacturers and vendors are adding transportation surcharges due to rising fuel prices. This is impacting all our product lines– especially those most freight intensive such as hardscape and nursery products.
  
  
• Irrigation - PVC Pipe: Global resin supplies have stabilized, therefore further inflation for PVC based products such as pipe and fittings is not expected.
  
  
• Irrigation / Lighting: Semiconductor chip shortages will continue to be a challenge for controllers and lighting components for the foreseeable future. Copper prices will also likely remain elevated due to electric vehicle production and other renewable initiatives.
  
  
• Turf Seed: We expect a minor reduction in inflation in Q1 2023, and dependent on spring sales and harvest conditions, potential further cost reductions in July 2023.
  
  
• Combination Fertilizer Products We expect cost increases of active ingredients to drive prices higher for all combination fertilizer products, with insecticide combination products seeing the largest increase.
  
  
• Nursery Products: Plant material in larger than 7-gallon sizes is expected to remain in tight supply through 2022. Items such as large upright evergreen screening material, commodity items and other specialty intrinsic items likely will remain in short supply for several years.
  
  

Things you can do to protect your business:

• Coordinate with your SiteOne branch for all upcoming projects. We will do everything possible to secure your materials ahead of manufacturer price increases. In situations where there may be extreme product shortages our team can work with you to identify potential alternative product recommendations to fit your needs.
  
  
• Limit project quote windows for your customers to 15-30 days while we remain in this unprecedented and dynamic period.
  
  
• Use our Early Order Programs to buy ahead of future price increases and take advantage of extended payment terms.
  
  
• With materials and labor cost rising, pass these onto your customers in a timely manner.
  
  
• Leverage SiteOne.com for your current pricing and product availability.
  
  
• Share this information with your customers.
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As new information becomes available, we will continue to keep you informed. Thank you for allowing us to be your partner. We look forward to supporting your success during these challenging times.