When increasing demand for building materials came up against production and logistics problems presented by the COVID pandemic it was inevitable the cost of those materials would rise.
Lockdowns and the inability to ship goods easily contributed to supply bottlenecks, and the price of certain materials – such as steel and timber – soared by up to 79% in the middle of 2021.
In addition, Brexit helped exacerbate supply issues contributing to a shortage of HGV drivers to deliver materials to building sites, as EU citizens returned to their home countries.
All this combined to drive construction materials costs overall in the UK rocketed to a 40-year high at the halfway point of 2021, based on the annual growth of the materials cost index provided by the Building Cost Information Service.
Are Things Getting Worse?
Midway through 2021 the industry was being told to expect shortages to ease, but that supplies of certain materials, notably timber, might not be restored to normal levels for another four to six months.
If that wasn’t enough, Russia’s invasion of Ukraine created more uncertainty. An industry guidance note published in March this year by the Construction Leadership Council (CLC), which represents government departments and the industry, suggested the withdrawal of materials and products sourced directly from Russia, Ukraine and Belorussia would have a limited impact on UK construction activity.
However, while the total share of construction material imports from these countries was less than 2%, this included what the CLC called a number of “critical categories” – the most important of which are bitumen, cast iron products, rebar and timber.
Equally important is the war’s likely effect on energy supplies. “[Rising] wholesale energy prices in the UK…are having a direct impact on the costs of manufacture of energy intensive products including steel, cement, bricks and blocks and glass”, the CLC warned. “Energy markets are also being disrupted by sanctions affecting energy trading intermediaries,” the CLC warned.
A Construction Product Availability Statement from the CLC’s Product Availability Working Group painted a slightly less bleak picture, however. The supply situation remained stable in terms of full production, “with good stocks and availability of most products.”
Supply challenges continued to affect bricks, aircrete blocks, roof tiles, gas boilers, plastic drainage and other plastic products dependent on polymers, the group said, along with some electrical products particularly those using semi-conductors.
However, it was price inflation that really concerned the CLC. It noted that some suppliers were only willing to hold quotes for tender prices for 24 hours. “The resulting uncertainty is leading some contractors to pause before entering fixed-price or long-term contracts,” it added.
These higher materials costs will inevitably lead to rising inflation across the sector. So will construction costs go down in 2022 in the UK? Its unlikely. The latest S&P Global/CIPS UK Construction Purchasing Managers Index, published in early April, argued that imbalanced supply and demand, together with escalating energy, fuel and commodity prices, had seen the overall rate of input price inflation accelerate sharply since February, reaching its highest level for six months in March.
This will lead to projects being more expensive to deliver, and potentially put pressure on sub-contractors to do the same for less. Some businesses will suffer.
Dealing With The Problem
So what can be done? Parts of the construction industry want more support from government. The Construction Products Association (CPA), which represents construction product manufacturers and suppliers, called last month for more support for energy-intensive businesses.
While he welcomed the move by the chancellor of the exchequer in his spring statement to reduce VAT on energy-efficient products for domestic households from 5% to 0%, the CPA’s chief executive Peter Capelhorn said: “We will echo many others across manufacturing, however, to say that the lack of support to tackle spiralling energy costs for businesses is frustrating.
“Energy bills often account for as much as one-third of overall costs for manufacturers, and with these bills, at historic highs, it was a critical moment in need to ensure a resilient UK industry.”
Further government support may be forthcoming, but it also will be crucial for firms to take stock of their situation and adopt new approaches to help mitigate both supply shortages and looming price hikes.
Using Digital Technology
One avenue that can help is using digital technology. Digital collaboration software, like Bluebeam Revu, can assist projects from inception through to completion by enhancing collaboration and communication within teams, while creating efficiencies through streamlining processes such as shared annotations and measurements online.
Balancing project costs and the need for efficiency without compromising on quality is demanding enough in normal trading conditions. The headwinds currently confronting the UK’s construction sector are the most challenging in years.
It is encouraging that coming off of an economy-denting pandemic, demand is as high as it is; for new homes, infrastructure and office developments.
Prices for many products will remain stubbornly high, fuelled by global crises beyond the supply chain’s control. Relationships forged across the construction sector will prove their worth. Working closely with supply chains will be vital in securing products at the best possibly prices in the months to come.