The summer of 2021 is seeing huge disruption within the construction industry due to supply shortages and escalating prices, Phillip Lidgerton, managing director of Building Materials Nationwide Ltd, explains why the building materials shortage presents an acute problem for construction
I have seen first-hand how these issues have grown more critical as the year has progressed. This is causing huge disruption to the industry. There is an unfortunate combination of factors that are currently creating difficult conditions in the supply chain…
Many overseas items face a huge supply shortage, with materials from both Europe and the Far East seeing considerable jumps in price. We have seen prices leap 120% for timber. There is an impact on lead times too, a pallet of plywood used to take 2 days for trades to get, now it can take up to 2 weeks.
We have seen suppliers setting plasterboard on allocation, as there is not enough to meet the demand globally. Producers of building materials cannot produce the volumes required, and it is a new request due to many factors that they will hopefully get used to.
Demand remaining constant
Our clients have been keen to get their building materials, but almost everything is a little bit harder to get. We have seen confirmation of our belief that building materials and the construction industry are fundamentally a people business. The intensity of demand has accelerated the tenacity needed to source materials for our clients from our network of suppliers.
House prices in America are at an all-time high, so the lumber demand is at an all-time high. It is a global problem with a combination of factors. Brexit and Covid-19 have mixed to form an environment where supply is low and costs are high for both materials and the cost of shipping from overseas, many of which are affected by the introduction of new charges.
There is a change afoot thanks to the changes brought about by continual lockdowns across the globe. New construction projects during lockdowns have presented many in the industry with a welcome boost in demand, but the supply chains are not set up to handle such activity.
Brexit has seen delays for HGV drivers, and new charges can be cost-prohibitive. However, even shipping from the Far East is more expensive. We have seen costs of shipping from China and other major Asian producers soar, from $1,500 to over $10,000. Though shocking, this highlights the global nature of this collection of problems.
In some cases, we have even seen HGV driver shortages – which again mixes with all kinds of unseen supplier delays. Businesses of all kinds are under tremendous stress at this time, and loss of staff, organisational difficulties and individual supplier issues will cause delays and other disruptions in any company.
Supply chain issues reflect a change in our behaviour, with many people pursuing building work during the lockdown periods. The UK government has stoked this persistent urge for people to take the time to undergo home improvements with their ‘Help to Build’ scheme in April.
New homes will be constructed with £150m in government backing for people to build their own homes, which is good news for those wanting to build their own homes and for building material firms. The benefit for small firms, in particular, is a part of the governments ‘Plan for Jobs’ pledge. Again, you can see the entangling nature of the current state of the materials shortage in the construction industry.
Compounding issues and market changes
It’s a problem upon a problem, and it’s created a situation where we do not know what will happen for the industries badly affected – such as the commercial and retail building sector. So, the question of what the future will hold remains.
Firstly, a price rise is likely to persist. I have read recently that a 15% increase in the next 5 years is a reasonable estimation of what we can be expecting. Preparing for continued demand is essential as this will continue for some time, so long as the trend of most people wanting to build as soon as possible remains consistent.
Changing business plans
Expanding and investing at this time of caution is another growth spurring decision which we see as viable, as any investment will immediately become worthwhile if it can meet even a slightly higher portion of all the pent-up demand. Successful firms should be ready to deliver better customer service across a broader range of people if they do so.
As we are moving ahead with legal restrictions ending for the UK over the summer, we think the initial few months of this change will be a time when further observations can be made. Our predictions include a further price rise and greater difficulty in getting supplies until 2022 – and potentially longer.
The persistent ongoing problems that arise from the current shortage of materials include the feasibility of our reliance on a global production system. The expenses of operating in a regional system make this difficult. Production of certain materials is also impossible in regions where they are not present.
The current state of the materials shortage in the construction industry may be a messy global happenstance but for the near future the challenges of materials running low while demand increases will be difficult to contend with.
The future of supply for construction companies
It is difficult to say whether this current crisis is a one off due to the situation we have seen with Covid-19, or if it is a sign of a new ongoing problem. With future pandemics and the new protections/conditions that have been put in place, we may see issues with supply and costs continuing.
We are seeing more construction companies turn to services like Build Materials Nationwide Ltd, because we deal with multiple suppliers and can usually get supplies faster than traditional businesses.
Our advice to businesses within the construction industry would be to get your orders in early and allow longer lead times to avoid any disruptions due to any potential ongoing supply shortages.