Material Shortages and Supply Chain Issues in the Construction Industry
For more than two years the construction industry has experienced material supply chain issues and higher prices due to the COVID-19 pandemic. Since this issue continued through 2022, material prices and availability have not returned to pre-pandemic levels. The war in Ukraine, transportation issues, and the Infrastructure Investment and Jobs Act (“IIJA”) have also contributed to continued material supply problems.
The Q4 2021 Construction Cost Index Report, produced by the U.S. Chamber of Commerce, found that 95% of surveyed contractors experienced at least one material shortage. Additionally, 97% of those contractors experienced medium or high impacts to their businesses due to cost fluctuations in materials.1 In 2022, global issues compounded the ongoing material shortages and supply chain interruptions. For example, limited steel availability and the resulting higher prices were beginning to ease in the summer of 2022, but the continuing war between Russia and Ukraine is keeping costs above pre-pandemic levels.2 After China, Russia and Ukraine are the world’s second and third largest steel exporters. Forecasts predict the conflict will continue disrupting steel production,3 and could lead to additional delays and increases in steel costs.4 Other key materials including lumber, copper, concrete blocks and bricks, and cement have also experienced volatile availability and pricing this year.5
Transportation issues (e.g., limited vessel supply and disrupted transportation routes) impacted material availability for owners and contractors and material production for suppliers. The American Chemistry Council’s (“ACC’s”) 2022 Second Quarter survey found that 97% of chemical manufacturers in the United States modified their operations due to major supply chain and transportation issues.6 More than 50% of respondents stated they were forced to reduce production due to an inability to export materials, citing a lack of available empty containers and vessel space. Additionally, 76% of respondents had increased transportation costs from diverting vessels to alternative ports to avoid congestion.7 While a majority of the ACC’s survey respondents stated they saw improvements in ocean-freight shipments, a majority of respondents who ship by rail were reporting worsening conditions.8
In the United States, the IIJA could further strain the material supply chain in the coming years. The IIJA, signed into law on November 15, 2021, approves $1.2 trillion in funding for transportation, infrastructure, energy, internet and water projects. Half of that amount is ear-marked for “new” projects.9 Although the IIJA may have positive impacts on the construction industry by increasing the number of civil and infrastructure projects in the U.S., some predict it may also lead to a higher demand for materials, which 64% of civil contractors believe will further exacerbate supply chain issues.10
Higher demand and supply chain issues could potentially extend material lead times. According to Turner & Townsend’s 2022 International Construction Market Survey, over the last 12 months, 94.3% of global markets experienced increased lead times for materials, with the majority reporting an increase of at least four weeks.11
To combat these challenges, owners and contractors can consider alternative solutions. In response to longer lead times, availability, and supply chain transportation constraints, project stakeholders can potentially contemplate initiating material supply chains earlier. One recommendation from industry experts is to begin the preconstruction phase as much as a year earlier than during pre-pandemic conditions (e.g., 18 months before groundbreaking compared to the previous 6 months).12
Companies could potentially look to geographically diversify their supply chains to avoid disruption. For example, European contractors could switch from Russian and Ukrainian steel suppliers to the Asian markets.13 Other strategies include building extra time into baseline schedules to account for potential material delays and adding contract clauses that expressly address liability for supply chain issues.14 However, different approaches will have tradeoffs. Changing suppliers may produce more dependable delivery dates but could also result in longer lead times.
Many of Breakwater’s clients feel the ongoing impacts of material shortages and supply chain disruptions due to the Covid 19 pandemic, the war in Ukraine, transportation issues, and the IIJA. Breakwater has skilled professionals who assist clients by analyzing construction cost and schedule impacts resulting from these issues.
1: “Q4 2021 Commercial Construction Index” by the U.S. Chamber of Commerce, dated December 15, 2021.
2: “United States Country Commodity Report: Q2 2022” by Linesight, dated August 4, 2022.
3: “War in Ukraine: Assessing the Impact on European Construction,” by Euan Reaper, dated April 11, 2022.
4: “War in Ukraine: Assessing the Impact on European Construction,” by Euan Reaper, dated April 11, 2022.
5: “United States Country Commodity Report: Q2 2022” by Linesight, dated August 4, 2022.
6: “Supply chain, freight transportation problems plague chem manufacturers – ACC survey” by Adam Yanelli of Independent Commodity Intelligence Services, dated August 18, 2022.
7: “Supply chain, freight transportation problems plague chem manufacturers – ACC survey” by Adam Yanelli of Independent Commodity Intelligence Services, dated August 18, 2022.
8: “Supply chain, freight transportation problems plague chem manufacturers – ACC survey” by Adam Yanelli of Independent Commodity Intelligence Services, dated August 18, 2022.
9: “Infrastructure Investment and Jobs Act (IIJA) Implementation Resources” by the Government Finance Officers Association.
10: “The Civil Quarterly, Issue 2 2022,” by Dodge Data & Analytics, dated April 26, 2022.
11: “2022 International Construction Market Survey,” by Turner & Townsend.
12: “Hoarding, ghost orders and pop-up warehouses: construction’s new supply chain playbook,” by Joe Bousquin, dated February 23, 2022.
13: ”War in Ukraine: assessing the impact on European construction,” by Euan Reaper, dated April 11, 2022.
14: “The Civil Quarterly, Issue 2 2022,” by Dodge Data & Analytics, dated April 26, 2022.
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