Building Today’s resident troublemaker Ross Middleton says while the good old plasterboard paradise is in abeyance, there is further irony in that the present pinch will punch profit and progress for everyone. The reality check is about to bounce, but where it bounces no one knows.
I was born a boomer in the long shadow of what is euphemistically labelled as “the second world war”. My parents had lived through the depression and the war, but mine was a new type of existence, with new hope and a bright future.
Sure, there were moments of threat and gloom in that brave new world, but nothing like the confluence of events facing us today. This is a first for all of us.
I have lived through some key moments when disaster threatened. One of my early memories is of two sisters crying their hearts out on the school bus because nuclear conflagration was announced as imminent, with Khrushchev and JFK butting heads over missiles heading to Cuba.
By the time I got the cows in before school the next morning it was pretty much over.
I was in something called the Air Training Corps, but I didn’t get called up in the draft. Friends did enter the forces and some came back from Nam in body bags.
Big Norm Kirk, Prime Minister at the time, put the kybosh on the whole shit storm that was Vietnam but, for some, the damage was done.
Overall, subsequent wars, economic downturns, diseases and natural disasters had little effect on me, although when my mortgage rate hit 20% in the late eighties, I did sustain a tightening of the bowels.
Sorry, that’s just too much information, but the segue is that there is probably more than a little bit of that tightening going on at the moment.
A brimming watershed
For the first time in my life I feel we are at a watershed, a confluence about to affect and determine what type of world our progeny will experience.
Signs of that brimming watershed are everywhere. In our market specifically, construction-associated businesses across Australasia are going to the wall like never before in our lifetime.
I am sure “bankruptcy”, “receivership” and “liquidation” are going to be the words of the year. The reasons are legion, with Covid, costs, and economic and supply chain issues being at the front.
Any laying of blame on shortages of materials such as plasterboard is simply disguising the bigger picture.
Contracting in the current marketplace is a dangerously fraught activity. Any contracts signed in the two years prior to this have caught many with their pants down as the world evolved and the status quo became shaky ground.
Economic scientists (I have little faith in those headline-grabbing, short-termism warblers) are pointing to recession and, potentially, once those redundancies hit the labour markets, depression — something largely unseen since the earlier half of last century.
So; it has happened in the past and it will happen in the future. But the highwire tightrope walk is currently, here and now, today, at a tipping point.
The elephant in the room (full of banal metaphor me) is climate change. It is already affecting us in myriad small ways, but things are starting to escalate.
Australia went over that tipping point in its recent election, showing that, as one commentator said, “politicians, lobbyists, corporates and some voters can successfully hold back the tide of history for a long time, but not forever”.
A lesson from across the ditch?
Like the Commerce Commission on supermarkets, James Shaw’s limp-wristed, half-hearted actions on carbon controls seem to have come up against a desire for appeasement, market validation and electoral fear.
Is Australia the lesson our current government does not heed? Will we see green “teal” independents come out of the woodwork in next year’s election too?
Quite apart from climate, China’s political and military posturing, their self-defeating port and manufactory lockdowns, Putin’s dangerous megalomania, fossil fuel issues, lack of supply chain resilience, wealth distribution and continuing population growth (whew!) can all be listed in the Very Concerned column.
Further, if anyone thinks the virus is in the past, they are kidding themselves. New strains and variants are emerging and reinfections are on the rise. Other viruses are rearing their poxy heads.
20th Century dog-eat-dog ethic
Let’s add failing financial systems and markets operating on a 20th Century dog-eat-dog ethic under protection of the powerful to that bubbling broth.
So, there are some bigger fish to fry than any undertaking of a market study into residential building supplies. And, really, to be frank, why would you worry?
If we take the supermarket study as any sort of benchmark, it’s going to be a slap on the wrist with a wet bus ticket and back to business as usual. Until the relevant minister steps in to right the ship that is!
The Commerce Commission has already severely truncated the list of products and categories to be “studied”, almost like they already know their targets.
Then again, perhaps they are so toothless they can only chew small portions. They are, apparently, sticking with concrete (including cement), plasterboard and structural timber.
Already Fletchers and Carter Holt have been bleating to anyone who will give them column inches about this highly selective targeting.
There is little doubt that vertical integration will be a particular issue under the spotlight, an investigation the aforementioned are certainly not keen on.
CHH is pretty much over the retail end of supply anyway, and has been spruiking its Carters chain across the ditch and elsewhere for some time.
Cold day in hell
In my 40-odd years in building and retail I have heard it all, with my sources leaning on journalistic confidentiality and proven trust to give me their truths.
It will be a cold day in hell before I make any sort of submission to those bureaucratic buggers in Wellington, but I can provide a little insight.
What will come up in the submission period, and what will they be looking at?
‘Work’ trips a thing of the past?
I’ve already mentioned abuse of vertical integration networks. Customer retention activities will get a looking at; margins, rebates and preferred supplier status ditto. Those freebie rugby games, fishing trips and that dubious overseas “work” trip may well become a thing of the past.
We may not need the Commerce Commission to make those “preferential purchaser” fishing trips a thing of the past though.
New research out of Washington and Princeton universities suggests that as greenhouse gas emissions continue to warm the world’s oceans, marine biodiversity is on track to plummet to levels not seen since the extinction of the dinosaurs. Gonna miss those hapuka steaks.
Plasterboard has become, by default, the public face of this study, largely because of the high profile it is currently achieving in the wake of the so-called supply crisis; the issue being that the monopoly supplier is unable to fulfil its supply commitments in a perfect storm surmounted by a building boom.
I guess hindsight is a wonderful thing, and circumstance can catch anyone with their pants down. How was Winstone Wallboards to know one of the world’s biggest suppliers would walk away from the New Zealand market just as the construction sector was in the throes of a mad boom?
The reasons for that departure are clearly confidential, but something may come out in the submissions to the study if Knauf management can even be bothered. They too have bigger fish to fry.
Until the excreta slammed into the Goldair, Winstone had been the darling of the construction sector.
I was instrumental in starting an awards programme for the hardware sector some three decades back and, to the best of my knowledge, there has only ever been one winner in the building materials supply sector. Dave Thomas has trod the path to the dais so often they had to install new carpet.
The quality of the product is world class — for two bits of cardboard with some chalk stuffed in the middle that is.
Their inventory management to date has been described as exemplary, and the company has had the vision to build a new $400 million, 63,000sq m, manufacturing plant in Tauranga. Unfortunately it won’t open until the middle of next year and, by then, the production backlog will be breathtaking.
A monopoly can be a wonderful thing, with the caveat that if things go wrong you can be left in the spotlight of ignominy.
When the Productivity Commission recently noted that Kiwis pay between 20% to 30% more for building materials than those in Australia, and when we consider escalating costs, the arrival of a “study” now may not be the time for the bean counters in our sector to be sharpening the pencil quite as much as they would like.
• Note: The Commerce Commission is due to publish a draft report in July that sets out its preliminary findings about competition for residential building supplies.
If preliminary findings show that competition is not working well, it may develop some proposed options to improve competition. The Commission will seek feedback on the preliminary findings and any proposed options.
It is required to publish its final report by December 6, 2022. The final report may include recommendations that identify ways to improve competition in the sector for the long-term benefit of consumers.
• Commerce Commission Senior Communications Adviser Nick Laurent responds:
The Commerce Commission has not narrowed the residential building supplies market study to only focus on concrete and cement, plasterboard and timber.
The reference to “concrete (including cement), plasterboard and structural timber” above likely refers to the three case studies signalled in our residential buildings supplies market study Additional Paper.
The fact that we are looking into three key building supplies in more detail does not mean we will not be looking at other key building supplies. We will consider all key building supplies, but will pursue a greater level of detail for the case study supplies.
In sections 16-29 of the Paper, titled “The approaches we are taking to this study”, we clearly describe that the three case studies will operate in parallel with a broader examination of the factors affecting competition across the range of key building supplies used to build the major components of residential buildings, as directed by the terms of reference. For example, cladding, roofing, windows, insulation and steel products are all explicitly included in the scope of the study (see Table 1, page 3 of the Additional Paper).
In the media release for the Additional Paper’s release, we state that “Alongside our study of all key building supplies included in the scope of the study, these three detailed analyses will assist us to more closely consider the factors affecting competition through particular examples.”
