We’re almost 2/3rds of the way through 2021, and the material shortages, delays, and price increases that have plagued our industry since early 2020 still haven’t subsided. The challenges we and others in the construction industry are facing don’t show any signs of slowing down. So, what exactly is going on in construction? We’re breaking down the issues here, and what we can do to handle these challenges:
Material shortages began early on in 2020, with Covid shutdowns affecting factories and supply lines. Manufacturing plants complied with mandatory shutdowns, severely cutting production of raw materials used in construction. Railways and waterways shut down as well, which interrupted all logistics and supplies.
To make matters worse, Hurricanes Laura and Delta hit the Gulf Coast late in 2020. These storms led to delays and shortages in materials: namely MDI, an extremely important ingredient in polyurethane. In fact, 80% of the global consumption of MDI is in polyurethane manufacturing.
As if all of this wasn’t enough – the unprecedented freezing temperatures in Texas early on in 2021 further stressed supply chains. We’ve experienced shortages in both rubber and polyurethane due directly to the Texas freeze in February of 2021. Many manufacturing plants had to shut down for prolonged periods and we’re still feeling the reverberation of those shutdowns 6 months later.
Finally, shortages have been created due to rising demand in the construction industry. Projects that were delayed due to Covid are now starting simultaneously with previously-scheduled ones. The global polyurethane has increased as well, especially in developing countries – TDI & MDI, two important urethane ingredients, have a market growth projection of 6.7% by 2026.
Along with shortages, materials have been delayed. An increase in online purchases over the course of 2020 has caused global deliveries to increase as well. Larger and larger ships are entering ports to keep up with demand. There are backlogs in ports all across the United States.
According to World Construction Today:
- 83% of contractors were already experiencing delays at the beginning of 2021
- 71% of them were already struggling to meet schedule requirements
- 68% expected these delays to persist into Q2 of 2021 (and they have)
The supply chain interruptions mentioned earlier, as well as labor shortages across the country, are contributing to these delays.
On top of it all – the blockage of the Suez Canal in March halted trade for an extended period of time – and we’re still feeling its effects now. 12% of global trade, including 8% of natural gas & oil, pass through the Suez Canal each day. The blockage halted about $9.6 billion worth of trade daily. DAILY. The numbers are wild – and truly paint a picture about how important regular trade is.
Both of the above factors have led to our final issue: price inflation. Demand for construction materials has continued to increase in 2021, which supply has not followed suit. The aforementioned delays and shortages, in fact, have decreased supply while demand skyrocketed.
Prices have risen 5.4% YoY by the end of June according to the Consumer Price Index. The energy sector has seen nearly 25% inflation as well. This high amount of inflation looks more and more like it will be a long-term problem for our country and world in general.
For contractors specifically, costs have risen10%-30% from February 2020 to April 2021. Bid prices have only increased by 0.5% – causing a huge discrepancy. Contractors are facing these rising costs and have had to honor prices from months or years ago: and it’s hurting all of us.
How do we fix this?
Here are some solutions we can work on, according to the Association for Corporate Growth:
- End tariffs and quotas on imported materials: many US factories are at capacity – and bringing in more imports at competitive prices could help to ease inflation and material supply issues.
- Contractors will likely need to adjust their prices and delivery dates for projects that were awarded before or early on in the Covid-19 Pandemic.
- For newly awarded projects, contractors must adjust pricing and add flexibility in design, lead times, and delivery dates
As we continue to navigate these issues, all parties must be openly communicative and honest about the issues they’re facing – we can work through these problems together and come out stronger on the other side