In the current market, contractors are terrified of the coming “perfect storm.” The fear stems from rising prices, labor shortages, and material shortages which have led many builders and contractors to worry rising expenses and disrupted supply, just when they’re counting on it for more business!
As the United States recovers from a devastating economic crisis cause by the COVID pandemic, there is new demand— nationally and internationally—for critical materials that have not seen price spikes in years.
“An unprecedented leap in the price of goods used in construction and supply-chain disruptions are wreaking hardships on contractors and slowing projects…The producer price index report documents just some of challenges contractors are experiencing with fast-rising materials costs, lengthening or uncertain delivery times, and rationing of key inputs.” – Associated General Contractors of America.
Since the beginning of 2021, prices for materials, specifically steel, copper, parts, labor, and transportation have been continually rising while simultaneously becoming scarce. These two factors are having a detrimental effect on the industry, as they cause delays, higher costs, and unfinished work for some construction and utility mapping companies. Industry experts are concerned that projects will be forced to a halt.
Table of Contents
FUEL
The return to pre-pandemic behavior has caused crude oil prices to increase since early 2021. This has been especially true because the construction industry is set to grow more than 5% in 2022.
source: tradingeconomics.com
Now, with sanctions leveraged against Russian imports due to the war in Ukraine, oil prices are being bumped up even further. Businesses that operate heavy machinery such as drilling rigs, bulldozers, dump trucks and excavation machinery, as well as 18-wheelers, are now pushing for a cap on fuel prices in order to keep their operations running without net losses. To give you an example, some heavy machinery burns through 40 gallons of diesel an hour on the job. Gas prices affect everything, so oftentimes this requires companies to increase project costs which are passed on to end clients.
With the construction industry relying on oil and diesel heavily, this trend will be tough for builders in America as they try to recover a profit on projects subject to rising material costs. In fact, part of the reason that materials and shipping them is more expensive is also due to their reliance on oil which has quadrupled over the past decade.
STEEL
In most countries, steel prices are determined by the global market. However in America’s case, it is also heavily influenced domestically due to limited supplies and shipping challenges that have caused a spike in price for domestic mills. In addition to the tariffs that are applied, average prices for imported steel have risen nearly 80% from their pandemic low.
COPPER
At the beginning of 2021, domestic copper prices hit a 10-year high. This metal is crucial to construction materials, electrical wiring, and pipes. In the next decade, shortages and rising prices for copper are only expected to get worse as the push for green energy will double current world consumption of copper or worse still triple what’s currently available according to some estimates.
PARTS
Rising prices are also affecting parts used in the construction and utility industries. Recent industry-wide increases for imported and domestic steel fittings and flanges are a reflection of this problem. Long lead times paired with rising shipping costs for PVF products have highlighted the need to support more domestic sourcing.
LABOR
When unemployment reached nearly 15% in 2020, there were between 220,000 and 330,000 unfilled construction jobs. Now, labor, particularly skilled labor, is hard to find and contractors are worried about the higher salaries demanded. The current labor shortage is causing major delays in construction projects and expensive disruptions for power companies.
The post-pandemic boom has really exacerbated an issue that construction and power companies already faced: a fundamental skills gap. It is now more challenging to find enough workers, and the right kind of workers, who are able to adopt the new skills that utilizing technology in these industries demands. Employers in these industries want to hire people who can successfully manage change as they rely more and more on automation.
Of course, everything has a price. So, as skilled workers find themselves in higher demand, their expectations for starting salaries and raises go up as well. This rising cost in labor is essentially a burden for construction companies and contractors everywhere at the moment.
TRANSPORTATION
Supply delays caused by trucking are turning into a big issue. Steel, copper, lumber and other raw materials are sitting in warehouses for weeks because there are not enough trucks available to make deliveries. This, along with higher gas prices, has caused transportation costs to skyrocket.
Slow and expensive transportation is also affecting materials and parts that are moved in containers due to congestion and accumulation of shipments in many ports worldwide.
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