Construction industry hammered by material shortages

The con­struc­tion indus­try has expe­ri­enced a trou­bled recov­ery from the pan­dem­ic.  Trade tar­iffs, con­gest­ed logis­tics routes, labour short­ages, and even cli­mate change are hin­der­ing recov­ery in the con­struc­tion sec­tor. But the most obvi­ous lega­cies of lock­down are the short­ages of con­struc­tion mate­ri­als and unprece­dent­ed price hikes.  

“The volatil­i­ty in con­struc­tion mate­r­i­al prices expe­ri­enced this year is unprece­dent­ed,” said Hen­ry D’Esposito, JLL Research Man­ag­er, Con­struc­tion in the exec­u­tive sum­ma­ry to the firm’s Con­struc­tion Out­look 2021 report.

“The increas­es in lum­ber and steel prices are by far the largest record­ed through avail­able gov­ern­ment data back to 1949. For oth­er com­modi­ties the records are some­what more recent: alu­minum prices have not increased this fast since 1995, plas­tic since 1976, cop­per since 2010. The inaus­pi­cious dis­tinc­tion this year is that all those records are being bro­ken at the same time. Aver­age mate­r­i­al prices for a com­mer­cial project increased an astound­ing 23% in the 12 months pri­or to August 2021,” said D’Esposito.

It’s tempt­ing to explain away such stark sta­tis­tics as Covid-relat­ed. But there are long-term issues at play, there is no sign of imme­di­ate bounce-back. 

“The speed of recov­ery from the pan­dem­ic is slow­er than hoped for as the Pur­chas­ing Man­agers’ Indices indi­cate,” says Dun­can Brock, group direc­tor of the Char­tered Insti­tute of Pro­cure­ment and Sup­ply (CIPS). He believes that the scarci­ty of sup­plies is unlike­ly to abate any time soon.

“The Bank of Eng­land gov­er­nor has warned that the UK is like­ly to go into reces­sion towards the end of the year… This is wor­ry­ing and sup­ply chain man­agers will have to draw on their cre­ativ­i­ty in the sec­tor as afford­abil­i­ty rates for hous­ing, for instance, are like­ly to be affect­ed.

Covid is an obvi­ous rea­son for the short­ages in con­struc­tion mate­ri­als. World­wide lock­downs shut down build­ing sites and fac­to­ries alike. But while con­struc­tion has reopened, the process­es that facil­i­tate the trade are still fal­ter­ing. Ongo­ing lock­downs in Chi­na mean that much of its man­u­fac­tur­ing is stalled. Of equal, if not more impor­tance, the logis­tics and sup­ply routes that run through the coun­try have been hit hard. Ports are con­gest­ed and many urgent sup­plies are stuck in the stacks. The labour required to ensure the smooth run­ning of the world’s sup­ply chains is unavail­able.

But not all of this is due to Covid. The lack of avail­able labour, and the cost of it, are long-term issues that Covid exac­er­bat­ed.

Geopo­lit­i­cal events are also long-term and dif­fi­cult to fore­cast or mit­i­gate. The con­flict in Ukraine may have been pre­dict­ed by polit­i­cal experts but many con­struc­tion firms were tak­en by sur­prise. Brex­it bureau­cra­cy jammed ware­hous­es and the Trump administration’s trad­ing tar­iffs con­tributed to price fluc­tu­a­tions, such as restric­tions on Cana­di­an tim­ber. The effects of these are still play­ing out and there will sure­ly be more to come.

The short­age of lum­ber is anoth­er ongo­ing chal­lenge, linked to a tan­gen­tial cause: cli­mate change. Plan­ning for freak weath­er events has always been a fea­ture of sup­ply chain man­age­ment but it’s dif­fi­cult to tack­le such a broad sub­ject as cli­mate change when it is one fac­tor among many.

“What’s chal­leng­ing is the cas­cade of dis­rup­tions we have right now. It’s not just one,” says Abe Eshke­nazi, CEO of the Asso­ci­a­tion of Sup­ply Chain Man­age­ment. “You’re not just talk­ing about rerout­ing around an ash cloud, which is tem­po­rary and maybe in a few weeks will dis­si­pate. We’re deal­ing with sys­temic issues as well as acute issues right now.”

Address­ing sys­temic issues is a com­plex task. As gift­ed as project man­agers are, revers­ing the labour short­fall, unclog­ging ports, rescind­ing tar­iffs and solv­ing cli­mate change is a lot to ask. But there are strate­gies that can address some of the worst effects of mate­ri­als short­ages and even have a pos­i­tive impact on long-term con­cerns such as sus­tain­abil­i­ty.

“It’s tough to take our eye off the ball in terms of the acute issues to focus on the sys­temic,” says Eshke­nazi, but he says they shouldn’t take a back­seat. “We are not mit­i­gat­ing or min­imis­ing the chal­lenges but cli­mate change and the impact on our envi­ron­ment need to be addressed as we deal with the short-term issues.”

It’s easy to leave big change to large firms. They have the resources to research and invest in new meth­ods and mate­ri­als. But larg­er busi­ness­es can use quick fix­es that address sys­temic flaws but don’t tack­le the causative issues. Even if the big oper­a­tors recov­er faster, busi­ness­es that have tak­en the oppor­tu­ni­ty to adapt their long-term process­es may recov­er stronger.

A longer-term approach includes explor­ing sources or types of mate­ri­als. Brock says that CIPS research from late 2021 showed that sup­ply chain man­agers were look­ing at local sourc­ing, which would speed deliv­ery times while viable alter­na­tive mate­ri­als could improve sus­tain­abil­i­ty and reduce car­bon emis­sions.

Data and vis­i­bil­i­ty are essen­tial tools to man­age sup­ply chains. “If you haven’t devel­oped your risk pro­file on key com­modi­ties and sup­plies, do it now and use data to find addi­tion­al risks poten­tial­ly by geog­ra­phy and sec­tor. Hire peo­ple who know how to build resilience into your sup­ply chain,” says Brock.

Sol­id, prac­ti­cal advice. But data itself is in short sup­ply. With­out know­ing when the peo­ple of Chi­na will return to work, we can­not know when sup­plies will become avail­able or where they will go. “The cur­rent unpre­dictabil­i­ty is cre­at­ing sig­nif­i­cant chal­lenges,” says Eshke­nazi. With­out data, there is no end in sight to mate­ri­als short­ages.

But, the cheap­est and arguably the most effec­tive tool for mit­i­gat­ing the cri­sis of mate­ri­als sup­ply is avail­able to all lev­els of builders: com­mu­ni­ca­tion. Eshke­nazi favours talk­ing to tier 1, 2 and even tier 3 sup­pli­ers to antic­i­pate and iron out bumps in the sup­ply chain. Like­wise, com­mu­ni­ca­tion with clients goes a long way. It is always dif­fi­cult to go back on time­lines and set prices, but pro­vid­ing time­ly infor­ma­tion to clients may fos­ter the respect that can keep the con­tract alive despite delays.

Short­ages of mate­ri­als have been some­thing of a wake-up call for the con­struc­tion indus­try. The costs of ignor­ing long-term issues have been made clear and per­haps unprece­dent­ed price hikes will prove to be an impe­tus for sys­temic change.