Construction in supply crisis

The old joke of sending the apprentice to ask for “a long weight” is falling flat in the UK, as firms across the country face a very long wait for essential supplies. Almost every product, from roof tiles and timber to steel and insulation, is scarce and increasingly expensive.

Timber prices are up 80% since November, soft wood by almost 100%, and plastics up 60%. In addition to shortages and price hikes, delays are increasing, with cold-rolled steel joists taking almost five months to arrive instead of the usual six weeks, according to infrastructure consultancy Aecom, and roof tiles taking up to six months. 

Brexit, the Suez crisis, recent environmental legislation affecting Chinese manufacturing and explosive demand in the home improvement and construction sector throughout the COVID crisis and beyond, have combined to cause havoc in supply chains, bringing some projects to a complete halt.

Other materials made in – or dependent on raw materials from – Europe, China and the US, which are all grappling with their own shortages, and post-Brexit trade barriers are further complicating the picture.

“The only thing there’s no shortage of is PPE,” says Duncan Brock of the Chartered Institute of Procurement and Supply.

One factor, paradoxically, is the industry’s impressive recovery. Construction output had bounced back to pre-COVID levels by March after falling by 45% during the pandemic. The boom being largely driven by locked-down homeowners unable to take holidays abroad and with little else to spend money on.

And this isn’t just in the UK. The boom has been worldwide, with lumber prices going up more than 250% in the US. The global shipping industry is still dealing with the fallout of COVID and the Suez Canal accident, and recent environmental legislation is also affecting capacity in the Chinese manufacturing sector, leading to higher prices and supply shortages. 

As the shortages initially became apparent, manufacturers prioritised their biggest and most reliable accounts, meaning that small-scale distributors and contractors often got the short end of the stick. These product supply shortages have now morphed into price increases upon price increases and a grudging acceptance that delays are inevitable for the time being. The frustrations, questions and complaints are likely to keep coming for the forseeable, and how companies manage this turbulance with their customers will be critical. 

Even where materials are available, another vital resource in short supply that is now hindering the construction market is a shortage of available and skilled labour, and the COVID effect is again in operation. Furlough is still in place with an estimated 3m UK workers currently not at work; a labour market that saw a wave of unemployed people made redundant in the first throes of the pandemic has become more static as people are more risk adverse and are worried about ‘last one in, first one out’. 

Brexit and the right to work in the UK is reducing the numbers of available Eastern European workers, and the ‘brain drain to London has become more of a ‘trade drain’ as a number of subcontractors from the north and west of England have been commuting south where the wages are being pushed skyward in response to a short labor market. 

It seems clear that price increases, delays to product supply and a short labour market are here to stay for the next year or two as the global supply chain settles down. In times of crisis though opportunities are created and it will be interesting to see how business responds – is there an opportunity for more UK based manufacturing to ease global supply chain issues?

Posted by: MacGregor Recruitment