Made in the USA: Hard Surface—U.S.-based hard surface flooring production is growing amid tariff and supply chain challenges - Aug/Sept 2021
By Jessica Chevalier
Domestic manufacturing has long appealed to the patriotism of the American consumer, but not necessarily the pocketbook. While the flooring industry has its roots in U.S. soil with regard to broadloom carpet (which remains the largest flooring category), carpet tile and hardwood, that hasn’t always been the case for porcelain or vinyl products-particularly LVT, the fastest growing flooring category today, which originated from and is largely produced in China. Over the past decade or so, the industry has seen both porcelain and vinyl players onshore some of their production, and, since 2018, a series of events prior to and wrought by the Covid-related economic disruption have proven that move to be a good bet for both the manufacturers and the consumers ultimately purchasing their flooring products.
Still, U.S. based manufacturers-new or veteran-face challenges. “The China tariff burden drove investment in the U.S., and that could change if the tariff went away, though it doesn’t look like it will anytime soon,” says John Wu, CEO of Novalis. “Those of us who decided to invest made the right decision, but other factors play a role as well. The majority of domestic LVT manufacturers still import some raw material components from China. Our supply chains are connected. Business is so much more complex today. We haven’t seen all of these challenges we face now in 100 years. And here they are all at once. It’s a perfect storm. All you can do is stay positive.”
LVT: SHIFTING PRODUCTION
Over the course of the last three years, a good deal has been written about the impacts of the tariffs on Chinese-made goods, put in place by the former administration and kept in place by the current one. These tariffs effectively increased the appeal of onshoring flooring production to the U.S. (though much of the production that left China also went to other Asian countries) because the hefty 25% tariff decreased the financial benefits of producing in China.
Then Covid hit, crippling the supply chain and driving up transportation costs dramatically-atop that 25% tariff. Supply chain challenges include a shortage of containers, a shortage of space on ocean vessels, delays in unloading containers due to labor shortages at ports, and a shortage of truck drivers resulting in a lack of trucking capacity.
Craig Fuller of Freightwaves explained the nature of the current supply chain challenges in a mid-July FloorDaily interview, “In January 2020, China effectively shut down its economy. It was offline for 45 days. Then Europe took its economy off in February, followed by the U.S. in March and April.…What we’re seeing now is the reverberation of the economy restarting. Supply chains are very fragmented, and they are also interdependent. So if you have one disruption of a very small component that goes into final good, it will delay that product being delivered. What’s happening now is that we’ve had this massive surge of demand of backorders, very light inventory, at a time when governments have stimulated economies with trillions upon trillions of dollars, which has enabled customers to buy goods at levels we’ve never seen, so it’s a matter of restarting the economy as well as excess consumption. If you look at freight specifically, freight is a capacity-constrained market, which means there is only a finite number of trucks or boats or airplanes in the market, and they typically develop enough capacity for the economy they’re handling. [We] just don’t see the type of surges that we’re seeing right now, so [we] just have too much demand versus the supply.”
All of this pushes costs to a premium. “The cost to ship a boxload of goods to the U.S. from China edged close to $10,000 as the world’s biggest economy [the U.S.] keeps vacuuming up imports amid slower recoveries from the pandemic from Europe to Asia,” reported Bloomberg in a July 2021 article. “The prospect of $10,000-a-box charges for the busy Asia-to-U.S. route would have been unthinkable to most shipping analysts before the pandemic. The average rate for shipping from Shanghai to Los Angeles was less than $1,800 per container from 2011 to March 2020, Drewry data show.”
Shipping timelines subsequently also slowed to a crawl. “Shipping executives say the greatest delays have been at Southern California’s neighboring ports of Los Angeles and Long Beach,” according to the Wall Street Journal in a July 11 article titled “Shipping Delays and Higher Rates Get Small Businesses Jammed Up.” “Heavy demand by U.S. importers to restock inventories depleted during the past year’s Covid-19 restrictions has swamped the largest U.S. trade gateway and triggered heavy logjams of ships off the coast.”
The article continues, “‘It [normally] takes 14 days to sail from Shanghai to Los Angeles; today it takes 33 days,” said Vincent Clerc, chief executive of ocean and logistics at Denmark’s A.P. Moller Maersk A/S, the world’s biggest container operator in terms of capacity. “The sailing time is the same, but you spend twice the time waiting to unload at San Pedro Bay.”
For those who had already committed to onshoring production, the effects of Covid reinforced the advantages of producing on U.S. soil to serve the U.S. market.
Novalis is another newcomer to U.S. production. The company announced its $30 million rigid core facility, located in Dalton, Georgia, in January 2020 and began production later that year. Wu notes that production on U.S. soil enables the company to “satisfy demand much more quickly. The ocean freight and logistic challenges in the last six months with a shortage of containers and vessels and labor challenges at the ports made it harder and more expensive to move product into the U.S. As a result, many customers have had problems keeping inventory levels up.”
Creative Flooring Solutions (CFL) USA is led by Thomas Baert, who spent his early career with Beaulieu. The parent company was founded in 2004 in Shanghai and has manufacturing facilities in Vietnam, China and Taiwan-with over half of its worldwide production consumed within the U.S.
By the end of August, the company will have its new 700,000-square-foot rigid LVT factory up and running in Adairsville, Georgia. The facility is set on 63 acres, leaving room for the company to expand to 1.4 million square feet as needed. With the exception of foils, all raw materials will be sourced from U.S. partners. CFL has a focus on innovation and is currently working on products with high sound-absorption qualities.
As the first Asian-owned LVT production facility in the U.S., Nox has been in the States a bit longer. The company cut the ribbon on its Fostoria, Ohio facility in early 2016 and has since opened a second Ohio facility. Nox produces dryback, loose lay, click LVT and rigid core click products domestically.
Another major China-based LVT producer, Huali, is currently building a factory just east of Dalton in Chatsworth, Georgia, with production expected to commence any day. Huali USA will launch as an OEM manufacturer of SPC flooring, likely moving into additional product constructions later. “In the market, we are seeing a number of challenges to the supply chain-everything from availability of raw materials to logistics, ocean freight, space on shipping lines, congestion at ports. All this is giving a better light to the investment here,” notes Julian Dossche, president.
Wellmade is a U.S.-based vinyl producer wholly owned by a manufacturer in China. While the company has had sales and other operations in the U.S. for decades, it wasn’t until 2019 that it decided to add domestic production. The new plant, in Cartersville, Georgia, was announced last June. Says Dick Quinlan, senior vice president of sales for Wellmade, “The fact that the tariffs have gone on for such a long time has influenced several companies, including us, to build plants outside China. And freight costs have skyrocketed 200% to 300% rather suddenly over the past six months, so, in this moment, the benefits of establishing U.S. production are more than we originally anticipated.” Wellmade’s U.S. plant will produce high-density plastic composite flooring with a vinyl face initially, adding a magnesium oxide core product later.
Long-established U.S. manufacturers are also producing LVT in the U.S., including Shaw, Mohawk, Armstrong, Mannington and Tarkett. Many of these have increased production of LVT over the course of the last handful of years.
Shaw Industries is currently expanding its LVT production footprint. “We are embarking on our fourth expansion of LVT manufacturing at plant RP in Ringgold, Georgia,” reports Herb Upton, vice president of hard surface flooring. “We recently announced a $20 million investment to complete a fourth phase in LVT and a second in SPC.” Shaw produces a wide range of products in the U.S., including hardwood, carpet, sheet vinyl, and flexible and rigid LVT.
“What you make in the U.S. comes down to where you have intellectual property in design or manufacturing process capabilities,” says Curt Hutchins, president of residential carpet for Mohawk Industries. Mohawk, the world’s largest flooring manufacturer, makes carpet products, rugs and mats, resilient, laminate, ceramic tile and hardwood domestically, with the percent varying from category to category.
It is important to note, however, that in spite of all the investment in U.S. production, domestically made resilient still accounts for less than 20% of U.S. consumption, so while some LVT products are avoiding the worst of the importing pressures, over 80% of U.S.-consumed LVT is still subject to them.
LVT: USA-MADE ADVANTAGES
Well-rooted domestic players benefit from bypassing the challenges of importing in servicing their customers, as well as the opportunity to be closer to the market they serve. This enables them to be better partners in a number of ways.
First and foremost, being embedded in the market they serve puts them in close proximity to styling trends, allowing them to develop trend-responsive products and move these to their customers more quickly and effectively. Says Upton, “The ability to service customer and innovate product platforms for the needs of the customer are key. In addition, fashion is an important part of the home décor business. We have more ability to develop and launch new styles with a domestic operation.”
In addition, shorter lead times enable distributor and retailer customers more freedom with ordering, which can mean more liquidity with less investment-not to mention warehouse space-tied up in inventory. This is especially key in today’s market where demand far exceeds supply, with distributors and retailers having to invest in technologies and operations that accommodate the changing market and customer.
Lastly, should something go wrong with a batch of product, a U.S.-based manufacturer has the ability to right the problem and provide replacement much more quickly.
Quinlan reports that the snail’s pace of product coming from China has created something of a void in the marketplace, and Wellmade is eager to begin production to play a part in filling that vacuum. “Customers are coming to us and asking, ‘When can you get started?’” he reports.
Another upside for domestic manufacturers is the fact that, as costs to import has risen, the premium cost of U.S. manufacturing has narrowed. “Certainly logistics can become a great equalizer,” says Hutchins. “In some cases, it has made U.S. products cheaper or closed the gap.”
Reports Armstrong’s Patrick Bargiel, vice president, supply chain, “Historically, there’s been a cost advantage from sourcing overseas. However, transportation costs are outpacing the advantaged costs we saw a couple years ago, and the gap has narrowed between sourced material and onshoring production.”
Adds David Thoresen, Armstrong’s senior vice president of product and innovation, “We have picked up some business due to the supply chain issues, primarily through our LVT, VCT and sheet vinyl. These are great products that perform well, and because they’re manufactured domestically, they were readily available.” Several other domestic manufacturers report that they, too, have added business as a result of being well-positioned due to domestic production.
There are, however, concerns that some less-qualified players could jump in to fill that void as well. “My biggest fear in this market is that we have companies showing up just to take advantage of current market conditions,” says Dossche. “We want companies that are building something that will last. That’s key. I admire companies like Shaw, Mohawk, Mannington, Interface, Milliken-they built organizations to be generational, and that drives how they invest in technology and people and care for the consumer.”
LVT: USA-MADE CHALLENGES
Those producing in the U.S. or in the process of establishing production were not immune to the challenges caused by the Covid shutdown. The supply chain congestion “drives our challenges as well,” reports Dossche, “because we bring in a number of raw materials, though U.S. production allows us to take a good bit of noise out of the supply chain.”
Upton reports that, in addition, there has been a transition within the supply chain, “We have seen some of our contract manufacturing partners onshore production-not only flooring providers but key supply partners too.” Some supply partners are also diversifying to provide domestically based materials or services that they have not provided previously.
In addition to material constraints, the driver and truck shortage adds headaches to shipping even within U.S. borders. And winter weather episodes in the Southwest complicated sourcing. “If a domestic producer could source the raw materials, there was a distinct advantage in cutting the lead time of products,” reports Armstrong’s Bargiel. “However, different recent natural disasters throughout the southern U.S. have made it more difficult to source for domestic products. If a manufacturer could make what was in demand, there was certainly an advantage.” Armstrong makes LVT, VCT, sheet vinyl and bio-based tile at plants in Lancaster and Beech Creek, Pennsylvania; Kankakee, Illinois; Jackson, Mississippi; and Stillwater, Oklahoma.
Dan Koh, president and CEO of Nox Corporation, expects that the challenges will continue for a time. “In the aspects of raw material acquisition, prices and logistics, we expect at least a year before things return to normal or pre-Covid levels” he says.
Other manufacturers report that they don’t think the market will ever return to what was before considered normal.
“Early in the pandemic, when all of us were fearful, we cut a lot of costs,” says Dave Kitts, vice president of environmental for Mannington. “Once we realized we would make it, we discovered a nightmare within the supply chain. A lot has changed in the supply chain; what we had come to count on was flipped upside down.” Kitts points to the fact that many companies’ transparency documents, for example, may need to be reworked, as their supply chains have mutated.
Those who were in the process of establishing their plants amid the pandemic faced additional challenges. “Many competitors were building or had plans to build in place before the pandemic,” says Wu. “Some tried to move faster, but that became more challenging without travel. Support engineers and machinery suppliers couldn’t come over. The same happened with us; we could not get our engineers to the U.S. to install equipment. I don’t think anyone who tried to speed up succeeded.”
The flooring industry has long asserted that consumers will choose U.S.-made-or, for that matter, sustainably made-only if all other factors, including price, are equal. However, they are generally unwilling to pay a premium for them.
Has that changed amid Covid? Only at the upper end, say the experts with whom we spoke. But for the everyday American, the fact is that while they know that buying American supports the U.S. economy and provides jobs for their fellow countrymen, their bank account generally wins out.
The big change amid the Covid-induced supply chain challenges, however, is that the price delta between U.S.-made and China-made is narrowing, which may make the choice to buy American a simpler equation.
Asked whether Americans believe that American-made products are safer from a health and safety perspective-with the Lumber Liquidators’ laminate formaldehyde scandal less than a decade in the rearview-the manufacturers with whom we spoke (all of whom complement their American-made selections with products from abroad) report that consumers don’t really think on those lines, trusting that standards are in place to prevent hazardous products from making their way in the supply chain.
CERAMIC & HARDWOOD
At this point in time, the ceramic and hardwood categories both have well-established domestic production. Just over 40% of U.S.-consumed ceramic is produced in the U.S., while just under 50% of U.S.-consumed hardwood is made here.
Imports in both categories have been impacted by the tariffs on Chinese-made goods. China, which had previously accounted for around one third of the U.S. tile market, saw its share drop an estimated 98.1%, leaving a significant gap in the market that countries like Mexico, Spain, Turkey, Brazil and India stepped in to fill.
As for the hardwood category, which included substantial Chinese engineered wood exports to the U.S. prior to the tariffs, that production has largely shifted to Vietnam and Cambodia.
As top U.S. hardwood and ceramic producers source their raw materials from within U.S. borders as well as sell their products here, U.S. production reaps benefits at both ends of the spectrum-especially for ceramic, which is cumbersome to ship due to its weight.
“Now more than ever, manufacturing closer to jobsites ensures material availability, time savings and transportation savings for the customer,” says Lindsey Waldrep, vice president of marketing for Crossville. “Most of what is needed to make tile in the U.S. is available stateside, so there really isn’t a compelling reason to search far for quality.” Crossville makes roughly 80% of the products it sells at its Crossville, Tennessee facility.
Waldrep believes that the pandemic highlighted the value of domestic production. She adds, “In light of the challenges over the last year and a half with shipping and pandemic-related delays, we’ve found customers are prioritizing this factor in making specification decisions more than ever. They want to minimize delays and be assured their materials will arrive to jobsites on time with no hassles.”
AHF’s Bruce hardwood brand has been producing in the U.S. since 1884, and today, the company produces around 70% of products for its portfolio of brands-which includes Bruce, Hartco, Robbins, HomerWood and Capella-on U.S. soil.
AHF chief commercial officer Mike Bell explains why buying U.S. hardwood is so valuable for the domestic economy. “Many people choose to purchase domestic hardwood floors because they believe this to be better for the economy,” he says. “Trees for domestic hardwood floors and the products made from them are local, which means the purchase of these products helps to support American jobs. Our domestic wood flooring is grown, harvested, milled and finished in the U.S.”
Mullican also prioritizes domestic sourcing. “We source all lumber from the Appalachian region; this ensures we have the highest quality lumber from safe and legal origins here in the USA,” says Pat Oakley, vice president of marketing, who adds, “Demand for domestically produced engineered is very strong, which indicates we have closed the gap with imports.”
TALENT & LABOR
At this point, we’ve all heard of how far some manufacturers have gone in North Georgia to attract and retain workers: substantial signing bonuses, car raffle incentive programs. Finding and keeping workers is a challenge for all businesses right now, but it’s especially stressful for those opening new ventures. A manufacturer can have the most state-of-the-art operation in the world, but without a trained and ready labor force, it amounts to nothing.
Says Dossche of efforts to staff Huali’s new Chatsworth plant, “I have a couple of grey hairs due to the labor market. It has been a challenge. We are not fully staffed, and that is a concern as we get to the ramp-up stage. If the machines are ready but there are no operators to fully execute, that will be a challenge.”
He continues, “The biggest challenge is that we have put ourselves in a manufacturing area with a good, strong blue-collar workforce, but the workers don’t necessarily have the right skill sets for certain jobs. We can easily fill a forklift driver position, for instance, but fewer have expertise in the equipment we are using, so we are having to put in training protocols. Carpet production skills still dominate the labor pool here.”
Dossche notes that it isn’t just the flooring industry seeking workers in North Georgia; GE recently opened a new distribution facility in the area too. And he notes that while some established businesses have the capital to offer alluring incentives, as a start-up in the U.S., Huali simply doesn’t have that in the budget.
According to Dossche, one impediment to pulling new workers to the North Georgia area is a lack of affordable housing for those who might be willing to make the move. This is something local, city and county officials are discussing.
Wellmade is also looking to hire a full labor staff. Says Quinlan, “Labor will be a challenge. We have had a number of job fairs. At the first ones, we had 150 applicants show up. I won’t say it’s simple to get people, but so far we have gotten who we needed at the more senior level and hope we will be able to hire quality team members who can come in and build out our staff.”
Nox also notes that it has had some difficulty securing new labor, but expects the situation to improve shortly.
As an industry, one thing to be avoided, cautions Wu, “is mutual poaching that raises the price of the labor force.”
Mohawk’s Hutchins points out that job satisfaction isn’t only a financial issue. “Today, it’s not just about the wage,” he says. “Do we, as a company, care for our employees and create an environment that makes them want to come to work every day? It’s about understanding how they are feeling and what improvements we can make to be the preferred employer.”
Some newer employers express concern that, with so many jobs open, potential employees will be attracted to established organizations, which are viewed as more stable. Shaw is, of course, one of those deeply rooted companies and leans fully into this ethos in hiring. “We are really focused on culture and being an employer of choice,” says Upton. “We leverage our culture to get the best talent.” Shaw seeks to get that message out both through traditional mediums and word of mouth, encouraging its satisfied associates to invite their family and friends to apply for positions in the company.
Mullican, another well-established producer with manufacturing in Johnson City, Tennessee, has utilized “marketing campaigns, wage increases and bonuses to attract more employees,” reports Oakley.
Crossville took the lessons of Covid to reconsider some of its employee policies. Waldrep says, “We had challenges with labor access prior to the pandemic. For our office employees, we have had to rethink our position on working from home to retain top talent and also review our compensation packages to be competitive.”
AHF also reports that it worked hard to retain employees through the Covid downturn, which put it in a better position for the rebound.
Mohawk: carpet, area rugs, ceramic, resilient,
Shaw: carpet, resilient, hardwood
Engineered Floors: carpet, resilient
Mannington: resilient, carpet, laminate, rubber
Tarkett: resilient, carpet, rubber
The Dixie Group: carpet, area rugs
AHF Products: hardwood
Maples: area rugs
Copyright 2021 Floor Focus
Related Topics:HomerWood, Novalis Innovative Flooring, Armstrong Flooring, Shaw Industries Group, Inc., Crossville, The International Surface Event (TISE), Mannington Mills, Lumber Liquidators, Engineered Floors, LLC, Beaulieu International Group, Mohawk Industries, The Dixie Group, Tarkett, Interface, AHF Products