The Shocking Truth Behind Soaring HVAC Prices

Shutdowns Have Been Tough…

Like most family-owned small businesses, the last two years have been tough on all of us. There have been various shutdowns, shortages on parts or materials, and a labor crunch. But we’re grateful to our customers – you’ve been patient with us as we’ve done our best to meet your HVAC needs.

We want you to understand what’s causing HVAC prices to increase. The cost of parts and materials are rising. Everything is taking longer to arrive. It’s getting more expensive to get installation, service, and maintenance done to your heating and AC.

In the past at Casey Services it wouldn’t be surprising to see the cost of metals like copper go up a little, usually around March. But this past year, the first round of price increases all took effect in January, and rose 3-6%. Then there was another increase, 6-12%. That’s TWICE in the first quarter. Plus, these are compounding. Some materials had three 15% price increases – this comes out to 52% total increase!
Every single month something went up.

– Freon Price Increase

410a, a common refrigerant, had 2 price jumps in 1 day. R-22 used to be one of the more common refrigerants. But it was bad for the environment, so the government passed laws, banned it, and HVAC companies moved to 410a. But now 410a is being phased out because of environmental concerns. Some manufacturers are going to 454B. But not everyone has decided on what their next refrigerant is going to be. That kind of uncertainty causes price increases of Freon.

In March of this year, Casey Services purchased 3 pallets of refrigerant at $124/can (a can is 25 pounds.) Now that same can is OVER $400!
They had 2 price changes in 1 day!!! During a conversation we had in the morning, it was $338. By that afternoon it was over $400.

– Part Delays and Wait Times

Several of our customers are experiencing very long wait times for parts. We have some people waiting 10 weeks for a blower motor.
We know this can be frustrating, and we acknowledge this is a sensitive subject, often politicized and polarizing. But we’re not here to do either, and if you bear with us we hope to explain what we’ve experienced. So let’s explore why rising HVAC prices are happening.

What Does “Supply Chain” Mean?

A “supply chain” is all the steps involved in getting a product made and delivered to you. From getting raw materials in nature, to using those materials to make a product, to shipping those products to you, that supply chain is a complex process. Oreos, iPhones, toilet paper, cars, Nikes – everything has to go through a supply chain, or a step-by-step process, to get to you, a store, or an HVAC company.

– Steps in a Supply Chain

So how do you get a final product like a phone, coffee table, or heat pump?
The entire supply chain is quite vast and complex. But let’s outline a simple process to show how raw materials become a finished product in your home.

1. Raw materials have to be gathered (trees, rocks, crude oil, etc)
2. Those raw materials need to be transported and refined (wood, metal, plastic, etc)
3. Refined materials need to be transported and manufactured into small components (lumber, circuit boards, tubing, electrical components, etc)
4. Those small components have to be transported and manufactured into final products (furniture, capacitors, compressors, smartphones, etc)
5. Those final products have to be quality-checked, packed, and shipped
6. The final product has to be transported to you, a store, or a service company like us

There are a lot of parts in an AC unit: evaporator coil, fan, motor, contactor, capacitor, microchips, etc. And each one has several steps to go through to get to you.

HVAC Supply Chain Issues

If one of those steps gets interrupted, it can cause a delay all the way down the chain. For you, the homeowner, this will usually result in longer wait times for parts, and higher prices for those parts.
Here’s what has been causing disruptions in supply chains:

– HVAC Manufacturing Problems

You need workers to manufacture a product like an air conditioner, and parts or supplies that go into the manufacturing process. We currently have issues with all of these.

Labor Shortage

In the wake of the COVID-19 pandemic, many countries around the world enacted lockdowns, from the US to China. This caused a lack of workers at nearly every step of the supply chain:

• Mining raw materials: Lockdowns mean that mining sites can’t operate at full capacity, if at all, so not as many materials will be extracted, such as copper, aluminum, iron, etc. And many of the world’s biggest mines are outside the US. So even those mining shutdowns in other countries can create shortages here in Raleigh, North Carolina.
• Labor shortage in manufacturing: Some manufacturers refine things – they take raw materials and turn them into useful materials (plastic, lumber, metal). Other manufacturers just make parts or components – they take refined materials and turn them into parts (chips, screens, capacitors). Some manufacturers go a step further and use parts or materials that are ready to be assembled, and then make finished products (iPhones, Smart TVs, HVAC units). With the shutdowns, there have been labor shortages across all types of manufacturing throughout the world. That means that raw materials, parts or components, or finished products stopped or slowed down for over a year in some places!
• Assembly line & Quality Control issues: Once parts or components are manufactured, many times they need to be transported to an assembly line. Assembly lines in factories take manufactured parts and put them together to make furniture, computers, HVAC units, and more. You can see a great example in this video of a BMW factory. When there’s a labor shortage, these things don’t get made. And after the finished product is assembled, it often goes to a Quality Control facility, where workers inspect the product. Again, for many countries, these facilities were closed for months!
• Transportation issues: The process of moving materials, parts, components, and products has been interrupted. We’ll get into this particular issue in the “supply chain transportation problems” and “truck driver shortages” sections below. But in short, all parts of transportation have been disrupted – trucking containers to shipyards, shipping in cargo ships, unloading cargo, shipping containers, transportation depots, logistics, you name it.
• Warehouse labor shortage: In distribution centers and warehouses, workers take products from in-coming trucks and store them. They can store products long term, or just load them into local delivery trucks going out. This is how you move toilet paper into grocery stores across the US. And this is how HVAC companies like Casey Services get our parts and supplies. Ultimately, there just aren’t enough workers to move goods where they need to go.
• Unnaturally Long Shutdowns: Keep in mind, this wasn’t a normal shutdown from natural causes. We’ve had small supply disruptions before.
  • When a hurricane hit a major oil refinery in Texas, there was gas shortages throughout North Carolina for a few days.
  • When a tsunami hit Japan, there was a shortage of harddrives for a few months.
  • When a Typhoon hit Hong Kong, China, and the Philippines, it disrupted airfreight of many IT parts.

Each of those shutdowns was natural. And as soon as businesses could open, people were cleaning and repairing so that workers could go back to work. But this recent shutdown wasn’t based on natural circumstances that could be worked through – like clean-up and repair after a storm. But for many countries, this recent shutdown was based on the possibility that a worker might later contract Covid-19. Meaning, the reason that many workers were home for months wasn’t because they were actually sick or exposed. In many countries workers were sent home for months because of the possibility that they might get sick. And how do you get back to work if that’s the main reason for shutdowns? Well, you don’t. And every time a variant popped up, many countries went back into shutdowns.

• Volatility: So, the world is going in and out of shutdowns. One day a manufacturer can open, another day it can’t. One day a worker has a job, the next they don’t. One day a business has parts, the next it doesn’t. This is called Volatility – when things are likely to quickly and unpredictable change, especially for the worse. Let’s think about volatility in manufacturing:
  • How can a manufacturer keep its workers when no one knows when or if they’ll be allowed to work?
  • How can manufacturers know when to order raw materials or components when they don’t know when they’ll be needed?
  • How can workers stay with a manufacturer without reliable work & income?
  • How can they get work done if they don’t know when they’ll have raw materials or components?
  • And how can stores, supply houses, or online retailers know what quantity of products they’ll have in store, or when?

This creates volatility, which only further hurts the supply chain. For manufacturers to run smoothly, they need reliability – they need to know that raw materials, components, parts, and workers will be reliably available. Without that reliability, everything takes a lot more time to make, which means it costs more.

This Results in a Parts Shortage for HVAC Supplies

The repeated delays in all parts of manufacturing has resulted in shortages of many goods and services. This includes various parts of heating and air conditioning units right here in Raleigh.

Shortages mean both delays in getting parts delivered, and higher costs of those parts.
For example, one of the most important parts in the heating and air conditioning world is semiconductors, which are used in variable-speed HVAC units, mini-splits, and heat pumps, as well as most electronics. Today, around the world, there is a semiconductor shortage: “As the pandemic unfolded, early signs of fluctuating demand led to stockpiling and advance ordering of chips by some tech firms, which left others struggling to acquire the components.”
And that’s just one part! Imagine all the people and materials involved in making an HVAC system. All the miners, refiners, manufacturers, shipyards, truckers, warehouses – all of those people being told to stay home for months. Now you’re starting to see just how complex the supply chain is, and how the shutdowns affected it.

HVAC Price Increases

So now you know how disruptions in manufacturing causes a shortage of raw materials, parts, components, and finished products. But how does that cause rising HVAC prices?

Two Things: economy-of-scale, and supply-&-demand.

– Economy of Scale

Economy-of-scale sounds complicated, but it’s not. It just means that as you scale up your manufacturing, you can make the manufacturing cheaper. An example would be automobiles. Cars were originally so expensive that only the wealthiest could afford them. But that was because most cars were built one at a time for days in a small shop. When Henry Ford started building cars on a large assembly line, the cost of cars dropped so much that most Americans could then afford one. Ford could buy steel in bulk, reducing the cost of raw materials. And he could simplify and divide-up the work across more workers. Eventually Ford could build a car every 93 minutes!

So, large-scale manufacturing normally equals more of a product and at a cheaper price.

– Supply and Demand

Supply-and-demand is just as simple to understand. It means that pricing and availability of a product is affected by how much supply or demand there is, and that they affect each other. An example would be smartphones. When the iPhone was released, there wasn’t a huge supply since it was the first real smartphone with no competitors. But also, the demand became huge. So there was a limited amount of iPhones, while at the same time there was a huge demand for iPhones. So the price of iPhones kept going up. That was until other cell phone companies started making smartphones. Now, you can get a smartphone for less than $200.

– But How Does That Cause Rising HVAC Prices?

1. When manufacturers are shut down, there is no large-scale manufacturing. This causes a lower quantity of products to be made, which makes manufacturing the individual products more expensive.
2. At the same time, there’s the same demand for those products. Even though many people in Raleigh stayed home during the shutdowns, they still needed products like toothpaste, phone chargers, new curtains, etc.
3. Also, many countries have serious transportation issues for raw materials, parts, and finished products.
4. On top of that, many manufacturers and warehouses start rationing parts. So even if they have the parts, they limit how many you can buy. This makes it even harder to get parts.
5. Oh, and this is happening all over the world.

This is basic supply and demand: when people are still trying to buy products while there aren’t as many available, the price goes up. At Casey Services, we’ve seen prices go up on nearly all of our materials and parts.

– HVAC Capacitor Price

Let’s look at two common AC components, a capacitor and a contactor, and their price increases over the past couple of years:

• Capacitor price
  • Last year the cost of a capacitor was $11.75.
  • This year the price hit a high of $51.82.

– HVAC Contactor Price

• Contactor price
  • In 2017, a contactor cost about $7.10.
  • We saw the price double to $14.77 at one point in 2021.

– HVAC Installation Cost Increases

Labor shortages, part shortages, and delays all add up to increase costs of repair and installation in the HVAC industry.
As just one example, you can see the cost of a furnace installation from 2020:

And how much the price has increased in 2021:

*Cost reflects the average national cost for installing a particular unit or system.
Notice how the cost has increased about 75%!

Supply Chain Transportation Problems

After goods and products are made, they need to be transported. Since products are made around the world, getting them from the assembly line to the US usually involves huge cargo ships on the open sea. So what are some examples of transportation problems?

– Trade Wars

We all know Trade Wars are a really sensitive topic. But whether we want to or not, we have to think about how they affect the supply chain. As discussed earlier, the modern supply chain is global. So a part might be manufactured in China, then quality checked in the Philippines, then packaged in Singapore. If these three countries decided to have a trade war, how would parts be transported between them?
A recent example is China and Australia. China imports a lot of coal from Australia in order to manufacture things. But because of recent comments from the Australian PM, China started a trade war with tariffs and bans. And many Australian coal tankers couldn’t deliver energy for months. So that trade war caused shortages of energy in China – sometimes so bad that China had blackouts or brownouts!
Yes, the shutdowns were the main contributor to supply chain issues. But trade wars have hurt shipping, importing of materials and parts, and thus manufacturing.

– Shipping Containers

Around 80% of all goods are shipped by sea. Most items that are shipped go in containers, and those shipping containers are drastically increasing in price.
With a standard 20-foot container, it used to cost $1,500 to ship from Asia, as this article from early 2020 shows.
If we order parts from China, 40-foot shipping containers that used to cost $2,500, now cost over $20,000! Some of that cost has to be applied to each item in that container. It’s over $20,000 regardless of what’s in it.
Since 2 manufacturers that build Casey Services’ heat pump capacitors are in China, the rising cost of shipping from overseas means that heat pumps will be more expensive.

– Shipping Ports in California

As you may have heard, cargo ships are waiting out in the Pacific Ocean outside California (as you can see in the satellite image of Longbeach, CA, curtesy of NASA. Yep, all those tiny slivers are cargo ships waiting to be unloaded!) This is due to delays in port entrances:

• Two ports account for 40% of all US imports. And they haven’t been operating on weekends during the biggest supply chain crisis in generations because of a union contract.
• From the Washington Post:
  • “On Sept. 1, 40 container ships belonging to companies such as Hyundai, NYK Line and Evergreen were anchored off California, waiting for a berth. (Less than three weeks later, the number reached 73.) Some vessels sit for two weeks or more, effectively cutting capacity on trans-Pacific shipping lanes and driving up costs.”
• Truckers transport cargo from ships to places throughout the US. Many truck drivers are owner-operators, meaning they are self-employed drivers and don’t work for a particular company. About 9% of all truck drivers don’t own their truck, but instead lease their truck.
  • California makes it difficult for leased trucker owner-operators to work in that state. That means there’s a lot fewer truckers who can load products onto their trucks from these California ports. This just creates more delays.

– Current High Gas Prices

Gas & diesel power the majority of vehicles in the US. And fuel costs are going up.

• NC Gas prices are more than double what they were last year
  • NC – $3.25/gallon
  • 1 year ago – $1.98/gallon
  • This is the highest price in at least 7 years
• Multiple states have very high fuel costs
• Since truck drivers have to use fuel to drive across the country, rising gas prices make it more expensive to transport goods by truck. That cost gets passed on to consumers, making products more expensive.

– Truck Driver Shortage

Truck drivers carry at least 70% of the freight across the open roads of America. That’s more than trains, boats, and airplanes. When there’s a shortage of truckers, that creates a problem for American businesses that rely on goods and products being driven hundreds or thousands of miles around the country.

• The US is short 80,000 truck drivers
• It’s gotten so bad that high schoolers are training to drive 18-wheelers amid a shortage of truck drivers

– Rationing Supplies

When there’s a shortage of goods, stores and warehouses will often have to ration their supplies. You’ve seen it in grocery stores when they limit how many items you can buy. Rationing also happens with HVAC parts supplies when warehouses tell us we can only have so many parts. That means it will take longer to get the parts needed to fix your HVAC system.

• At Casey Services, our managers say that our supply houses are rationing parts
• It’s not just us. Customers are put on waiting lists as HVAC companies struggle to get parts
  • From the article: “They say because of a worker shortage, supply chain issues and some factories shutting down, manufacturers are not able to keep up with the demand of equipment and parts needed to fix HVAC systems.”
• Remember the toilet paper shortage last year? Several stores started limiting how many items each customer could buy. The same thing is happening in the HVAC business now, driving high HVAC prices.
• Name Brand AC companies around the country are experiencing shortages:
  • Goodman
  • Trane
  • Compressors & other components are also in low supply

How Does This Affect You?

With all these lockdowns, labor shortages, supply chain disruptions, part delays, etc., what does that mean for you, the homeowner?

– Higher HVAC Prices

• You pay a higher HVAC prices for repairs and replacements.
• Please understand, we don’t want to charge our customers more for the same parts or service. But in order to get the parts, we have to pay for them – no matter how high the price. And we can’t charge less for the part, or else we can’t pay our employees. We want what’s best for our customers and employees.
• It’s a global problem caused by shutdowns that we cannot control, so please be patient.

– Longer Wait Times

• As we’ve seen, labor shortages affect the availability of parts. So there’s a much longer wait time than there used to be.
• Everyone wants their unit fixed, but with part shortages, it takes longer to get to everybody’s house.
• Again, we don’t want HVAC repairs and replacements to take longer. We love helping our customers quickly. And we’re working as fast as we can.

What Should You Do?

Now that you know delays and price increases are happening in the HVAC industry and why, what should you do now? How do you avoid being stuck with a broken heater for days or weeks?

– Repair Sooner

When an HVAC system starts having problems, it’s normally cheaper to repair now than later when the problem is worse. An example would be a bad capacitor, which left unrepaired could eventually damage your condenser fan or compressor.
So get a maintenance checkup on your system and catch repairs while they are smaller and cheaper. This not only saves money, but it also gives your HVAC company more time to get the part.

– Focus on Maintenance

With parts shortages, repairs and replacements will be limited as well as more expensive.
We saw over the summer how delays and shortages affected AC repair:

• “We’ve never had an inventory shortage like this. And maybe it’s a tidal wave from last year just finally hitting the shores,”
• “…suppliers are putting orders in for parts but manufacturers are telling them there’s a wait of up to 6 to 8 weeks. This is causing difficulties in getting repair work done and building new A/C units or systems.”
• “…be prepared to pay more as demand is driving up the cost for these parts.”
• “Huffman said businesses are trying to stock up on supplies but are being limited on how much they can buy.”

If you want to be better prepared for the summer and winter, go ahead and schedule maintenance for heating, even if nothing is wrong right now:

• We can possibly prevent repairs before they’re needed.
• We can find potential problems before they become an issue, giving you more time for one of our HVAC technicians to find parts and plan for repairs.

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