Your HVAC Equipment is Still Backordered

Since the summer is over, we wanted to take a second look at the HVAC/R supply chain. After two years of chaos, we all thought the supply chain was going to be fixed by now. But in many industries, namely ours, things are only getting worse. Now, many common parts even have a 45-day lead time. The biggest impact has been on heavy equipment replacement and on what we call unique or outdated equipment. In the commercial and industrial sector, equipment is typically not sitting in a distributor’s warehouse, and consequently must be independently manufactured. From what we are seeing, unique equipment with very long lead times (up to or exceeding 52 weeks) includes chillers, large rooftop units (30 tons), high SEER units, variable frequency drives (VFD), generators and out-of-date or large compressors. The disruption is exasperating for the clients and embarrassing for the HVAC companies. The reasons for this are complicated.

Labor Shortage

One of the biggest factors contributing to delays is the shortage of labor in the manufacturing process. The pandemic is responsible for not only the Great Resignation phenomenon, but also for sidelining millions of workers as they battle long Covid, and for workers across all industries having no choice but the stay home to care for sick family members.¹ The labor shortage means that it takes far longer to make the same number of units.

New Efficiency Standards

Manufacturers say that specialized equipment production is delayed because the new efficiency standards for heat pumps and air conditioners are taking priority. The DOE updated efficiency standards back in 2008, with a deadline to institute the second phase of the rollout by January 2023. The change requires manufacturers to run new tests to determine SEER2 ratings while also making all new equipment 15% more efficient.( The SEER2 rating will give a more accurate picture of system efficiency, but changing a company’s testing methods isn’t something that happens quickly.

Increasing Demand for HVAC

A global construction boom has increased demand in the HVAC market as more varied temperature extremes require HVAC systems to keep indoor temperature comfortable. The more buildings we build, the more HVAC systems the world needs, and the more trouble manufacturers will have fulfilling those orders. Demand for HVAC is reportedly growing at a compound rate of 6.5% per year. This means by 2030, demand will have increased by $90 billion annually.(3)

Overseas Manufacturing

We know you’re tired of hearing about the pandemic, but it set the ball in motion for where we stand now. Here’s the Cliffs Notes version—the world shut down, then re-opened at reduced capacity. Companies didn’t expect demand to increase so much, which caused backups both at the factory and at the ports. Then a trucker shortage made the delays even worse. These things wouldn’t be such a serious problem if all manufacturing was happening in the U.S.

Raw Materials Shortage

There is also a shortage of raw materials like copper, steel, aluminum and plastic. Copper is non-reactive, which means it’s the perfect material to carry refrigerant through air conditioners for years, without causing corrosion that could damage the system. It also has excellent heat transfer properties. Unfortunately, it is also crucial in many new green initiatives—electric cars, wind and solar energy, and battery storage. This means that the shortage will probably only get worse. Steel is also in short supply. This shortage was caused by the same issues that have affected everyone else— pandemic mine shutdowns, increased demand for steel and staffing shortages overseas.

Semiconductor Chip Shortage

Even if the raw materials arrive at the factory, there is still a shortage of semiconductor chips. The HVAC industry is competing with smartphone manufacturers, auto companies, and appliance makers to get these essential components. A Ford Focus uses 300 chips; the electric Mustang Mach-e uses almost 3,000 semiconductor chips.(4) With so few companies making them, a fire at one plant and a severe winter storm that hit another caused noticeable delays. The president recently signed the CHIPS and Science Act (Creating Helpful Incentives for Producing Semiconductors) into law. It allocates over 50 billion dollars to bring semiconductor chip manufacturing to the United States, away from its current hub in East Asia.(5) Unfortunately, this is a long-term solution to the problem and will likely do nothing to ease the chip shortage in the short term.

Trucker Shortage

The availability of raw materials and semiconductor chips doesn’t really matter if there aren’t enough truckers to take them where they need to go. Trucks are involved in nearly every phase of the process—they take the raw material to the manufacturer to turn into copper piping, steel, or the hundreds of tiny bits that make up a commercial HVAC system; they take the parts to the air conditioner manufacturer to turn into units; they deliver the completed units to the port to cross the ocean; they take the shipping containers all over the country to be delivered to customers. Any delay in this system throws the whole thing out of balance and can mean extended wait times.

What You Can Do

The key to surviving delays while keeping your customers and employees comfortable is to catch little problems before they become big problems. Keep up on preventive maintenance. If you plan to replace your HVAC equipment next summer, the time to order it is now. Especially if it is a large or unique system. And finally, critical sites such as data centers, labs, medical facilities, food distribution warehouses, and even retail outlets need to have redundancy. Engineering for redundancy is now critical, especially if you can’t buy a unit off the shelf.

The Future

It seems so obvious that a system that depends on so many moving parts is vulnerable to disruption. The failure isn’t necessarily that supply chain chaos has happened. The failure is that no one listened to the people who said it could. Suddenly, “Made in the USA” has a new meaning.

Sources

1) First Citizens Bank. firstcitizens.org. Skilled Trades blog. “HVAC Equipment Shortage: How Will Ongoing Supply Chain Issues Affect Techs?” August 11, 2022. www.firstcitizens.com/small-business/insights/skilled-trades/hvac-equipment-shortage. Accessed Oct 7, 2022. 2) National Association of Home Builders. nahb.org. “Upcoming Changes to Efficiency Standards for AC Units and Heat Pumps.” https://www.nahb.org/blog/2022/05/upcoming-changes-efficiency-standards-ac-units-heat-pumps. Accessed October 22, 2022./ 3Grandviewresearch.com. “Global HVAC Systems Market Size Report.” www.grandviewresearch.com/industry-analysis/hvac-equipment-industry. Accessed October 17, 2022. 4) Tomorrow’s World Today. tomorrowsworldtoday.com. “The Microchip Shortage Continues to Hurt the Electric Car Industry.” tomorrowsworldtoday.com/2022/02/14/the-microchip-shortage-continues-to-hurt-the-electric-car-industry. Accessed October 1, 2022 5) American Institute of Physics. aip.org. “Chips Act Funding Sets Semiconductor Initiatives into Motion.” August 24, 2022.www.aip.org/fyi/2022/chips-act-funding-sets-semiconductor-initiatives-motion. Accessed October 17, 2022.