In this podcast, John Maher talks with Mike Cappuccio about how supply chain issues affect the cost of ductless. Mike explains how global supply shortages have affected ductless systems. Then, he outlines how NETR has dealt with these challenges and how they’ve changed scheduling for ductless installations.
John Maher: Hi, I’m John Maher. I’m here today with Mike Cappuccio, founder of N.E.T.R. Inc. a heating and cooling company in Massachusetts with a focus on Mitsubishi ductless heating and cooling products. Today, we’re talking about the cost of ductless and current availability issues. Welcome, Mike.
Mike Cappuccio: Good afternoon, John. How are you today?
John: Good, thanks. So Mike, we’ve seen in the wake of COVID and everything, we’ve seen some global supply chain issues. The heating and cooling industry is not immune to that. How have these global supply chain issues affected the availability of ductless air conditioning and heat pump systems?
Mike: That is a great question, John. There’s been a lot of things going on over the past year, I’m going to say, but in the last four months, we’ve really started to feel the impact of it. When we were looking back a while ago and you’re looking at those ports out in California and everything, and what’s happening, and things getting shipped and things coming off of boats, and the shortages of chips and everything, well, every printed circuit board that’s in a ductless heat pump has a chip in it. A lot of the wireless controls have chips in them. So what we’re seeing are major problems with multi-zone heat pumps, and high efficiency heat pumps from Mitsubishi Electric. Just can’t get them right now.
John: Because those require those more advanced chips and things like that they can’t get?
Mike: Yeah. I mean, we’ve pretty much not had any three zone hyper heat systems for the past three months, I’m going to say. I mean, today’s the end of May, we’ve been pretty much since the 1st of April, mid-March waiting for those systems. Some of the bigger hyper heat four zone, five zone, six zone, seven zone, eight zone’s have had very limited availability. You might find one or two here and there.
Supply chain issues have also affected the Kumo Clouds in the indoor units. Those have been in very, very high demand. We’re being told that the supply chains are going to start loosening up right now, but it’s really had a lot of effect. We’ve actually been going out and installing indoor units, getting those parts of the jobs completed, and waiting for outdoor units to arrive. Which, we’re hoping by next week, or the next couple of weeks, we’re supposed to see some three zones coming in.
John: Yeah. I was going to ask what it means for consumers right now. Right now, like you said, you’ve actually been partially installing some systems. Where you’re getting the indoor systems ready, just waiting for those outdoor units. What are some of the other immediate effects on consumers?
Mike: Well, I mean, right now we’ve had a few hot days. The main effect is that you don’t have air conditioning in your home right now. We’re hoping that they’re going to loosen up. I mean, we’ve looked at different ways to try to do things to speed things up. I mean, we’ve tried to go out of state and get products and do things like that.
Just pretty much, I’ve never seen how much time our staff is spending on the phone right now. Trying to find equipment, whether it’s anywhere in the United States. If it can be put on a truck and get shipped, you’ll try and get it. But it’s very, very difficult because there is a huge, huge shortage of heating and cooling equipment in the United States right now. Even on the unitary side, not just the ductless side. I was talking to Carrier the other day, just trying to get some basic air conditioning unitary products. They couldn’t even give me a date on when they would maybe even see them. So there’s going to be a lot of issues this summer.
John: What are some other ways that N.E.T.R. has been adjusting to the current availability issues?
Mike: Well, you’ve got to look at different brands and you have to look at alternatives of what you could put in someone’s home. I mean, if you’re looking for a 12,000, 18,000 or 24,000 BTU system, I mean, Mitsubishi’s not the only manufacturer who makes that size ductless system, or heating and cooling system, there are other manufacturers that do make these units.
That’s what I’m saying, you’re spending multiple hours on the phone, maybe calling Lennox, calling Daikin, calling LG. Whoever it is, “Hey, what do you have in stock?” When you find out that there might be 20 of these units in stock at the time, just go buy the 20 of them. Get the 20 of them. We’ve brought in a lot of inventory. We do have inventory. A lot of it is … it’s spotty. It’s different spots and things, but when you see it and there’s multiple units that are there, you have to buy that inventory because it’ll be gone the next day.
I mean, we’ve had instances where we’ve talked to a distributor and said, “Hey, do you have this? ‘Yes, I have it.'” And then two days later you go to give them the purchase order to get it. Now it’s gone. Because there’s just such limited amounts of it. We were used to distributors having, a hundred of these, a hundred of those. There would be no supply chain problem. Now they might only have five or 10, and that might be for a whole Northeast region. You know what I’m saying?
John: Right. Absolutely. Is there any way to install one product now and then swap it out for another product later down the road? Or would that just be too expensive for a consumer to do that?
Mike: It’s kind of expensive for them to do it now. I mean, I’m seeing that most of the consumers that we’re working with and trying to do the best we can with them, I think everyone is pretty much aware of the supply chain issues, I mean, of what’s going on. I was talking to someone the other day. They were talking about patio furniture. Took them a year to get patio furniture that they ordered. It’s just, there are issues. Anything that comes from overseas or goes on a boat.
To throw into the mix of it, I mean, I know Mitsubishi Electric had some SAP problems with their computer system for about a month. That even delayed the limited shipping that they had. It got limited by their computer problems that they had. I mean, I’m hearing now… I spoke to corporate the other day and they said there’s hundreds of containers sitting in a yard in Atlanta, in New Jersey, ready to get unloaded.
They’re working 18 hours a day, seven days a week putting product on the road and getting it shipped out. They’re moving it as fast as they can over the last two or three weeks. So we’re hoping that that supply chain is going to start to loosen up in the next two to three months, but that’s only going to get us through the summer. They’re telling us right now, there is going to be another wave of this in the fall, too.
John: Wow. Do you think it’s only supply chain issues? Or do you think that part of it is also that ductless heating and cooling systems are just becoming more and more popular, so there’s just more and more people that are interested in getting these installed and are placing orders, so there’s just kind of a limited supply because of just the demand?
Mike: It’s the perfect storm, John, of what’s going on right now. I mean, you look at what’s going on in Massachusetts with the heat pump rebate programs and the Whole Home programs, the New Green Deal about ready to come down the pike. Everyone’s pushing energy efficiency. Look at the price of oil to date. If you have any type of oil or propane to heat your home, you’re paying exorbitant costs to do that.
I think people, even right now in the summertime, are looking at possibly replacing their heating system in the summertime with ductless heat pumps and ducted heat pumps because of what’s going to happen in the fall, too. And then throw the SAP problems of Mitsubishi into it too, as well, and we’re seeing … just the growth is tremendous. I mean, the lead generation of people that want these systems is double where we were last year. So yeah, I think that definitely does have something to do with it, too, because of the demand. You got a supply problem and you’ve got a demand problem, too. Everyone wants it.
John: Like you said, perfect storm. Yeah.
Mike: Yeah. Everything is just coming together. I mean, we are trying as hard as we can to get systems installed when they come in. I mean, even from a scheduling perspective right now, I’ve never seen scheduling as spotty. You can’t plan out. We would usually plan out at least two weeks of installations ahead of time. You can’t do that now. Sometimes you’re planning out one week, maybe even three or four days, because you just don’t know what you’re going to have for equipment that you can go actually put in next week.
Mike: You know? So it’s been a very, very, very challenging year for installations.
John: So how are the supply chain issues that you’re seeing right now affecting costs of ductless heating and cooling systems?
Mike: Well, John, it’s definitely affecting the cost of the outdoor and indoor units. I mean, I’m seeing prices of upwards of 20, 25% more than what they were in the past, from last year. The big thing is the accessories. The line hide is plastic, so that’s got petroleum products in it. That’s pretty much tripled from where it was last year. Copper line sets have gone through the roof. I mean, those are up probably 200% from last year.
I did some quick price analysis on copper yesterday and I was just blown away at what I saw, with the costs of copper. If you’re doing any type of a ducted system that has metal in it, metal ductwork, metal registers, down to foil tape. I mean, a roll of foil tape that used to be $5, $6 is now $30.
So I mean, when you start looking at some of these costs of just what’s happening. It’s just driving up the costs of all of the systems now. Obviously, labor costs are going up. I mean, inflation is inflation. People are being paid more today than what they were being paid last year. Finding help. If you want good help, you have to pay for it. For quality help, you have to be able to pay the people a very fair wage, if not, maybe even overpay for them a little bit to keep them on the payroll, to keep them working.
So all of these costs have just … System costs have gone up probably about 30% from last year over last year. And they’re going to continue to rise. I don’t see the cost of things coming down. I’ll be honest with you there.
John: So it’s not something that a consumer should wait on and say, “Oh, well, I’ll just wait till next spring and install it then.” It’s probably not going to be better.
Mike: No, I don’t think it’s going to be better. And you might not even have the equipment at that time, too. You know? I mean, I went out on a job site the other day and a customer said, “I think I’m just going to wait. I’m going to hold off till next year.” I said, “That’s all good.” I’m not trying to use a sales tactic in any means or try to talk them into doing anything, but it is going to cost more money next year. It’s just inevitable. It’s the way things are.
I mean, look at the price of lumber. I was out with one of our builders the other day that we work with. He was telling me, he had given an estimate on a home, an addition on a home, where it might have been $100 a square foot at that point in time and the addition was maybe $100,000. He told me the lumber alone was $100,000 now without any labor. His addition costs have doubled. It’s $200 a square foot now. It’s just really crazy with what’s going on out there. All of these … Fuel costs. When fuel costs are up so high, I mean, you have to think about it. Everything that we touch revolves around fuel. It’s put on a truck.
John: Right. Even if it’s lumber, it’s wood, but it has to be delivered from somewhere.
Mike: Exactly. It’s got to be delivered from somewhere. It’s got to be milled through a machine that’s probably running on some type of fuel. Everything that we do. From down to the fork truck that moves it around. And then we look at our trucks that go out on the road, that have to go install things and drive to people’s houses. Gas is … it’s going to be … The fuel is going to be … is a driving factor on this, too. Not just chips and supply chain issues, the fuel costs are driving everything up as well.
John: So again, do you see things improving anytime soon? You said you’re expecting things to get a little better this summer, and then maybe in the fall have some additional issues, but where do you see this going long term?
Mike: I see … Right now, what I’m telling our staff to do, and what we’re going to be doing is, we’re going to get through the summer. You’re going to see the supply chain loosen up. In the next three to four weeks, you’re going to start seeing products come in. I know from Mitsubishi. I know LG has a pretty good amount of stock that’s come into the United States.
But it’s always like, okay, one manufacturer has the product now, and then they’re going to run out. And then Mitsubishi’s now going to get caught up and then they’re going to run out. And then maybe Daikin might have enough stuff to get through at that point in time. But truly, from the Mitsubishi side, what we are going to be doing at the end of July and August is ordering our equipment stock or inventory for next spring, this summer. So you have to be thinking out a year right now, a year to 10 months ahead of time. So we’re going to be purchasing our containers of equipment this summer for next spring.
John: Just get it in your warehouse, have it available, and then just be able to install it when you can.
Mike: If you’ve got it and someone else doesn’t have it, now you can go get the work done for the consumer and get it done for the customer, because you have the product.
John: All right. Well, that’s really great information, Mike. Thanks again for speaking with me today.
Mike: Thanks, John.
John: For more information, you can visit the N.E.T.R. website at netrinc.com or call 781-933-NETR. That’s 781-933-6387.