5 Minute Read
April 14, 2020
Entering 2023, contractors, consumers, and frankly anyone who spends money have high hopes that inflation will continue to abate, and supply chains and prices will stabilize back to normal levels. After nearly a year of high-single-digit inflation figures, December 2022's 6.5% inflation rate indicates some progress in corralling runaway prices. However, construction material costs have been uneven at best, and contractors are still struggling to acquire enough materials to meet the current demand for certain projects. With supply chains still bottlenecked and the continued effects of a construction labor shortage to deal with, contractors have been quickly forced to find every way possible to either save on materials or shrink their profit margins—and no one wants the latter.
The obvious question is—if the pandemic is no longer at its height, why are building materials still in short supply? The answer is multi-faceted, but the major reasons include the following:
The labor shortage has affected the material supply chain in numerous ways. For example, truck drivers and warehouse employees are hard to come by, turning transition points in the supply chain into bottlenecks. Material production also suffers as a result of the labor shortage. While some of these struggles were predictable as a result of the retirement of the Baby-boomers, no one saw COVID-19 coming, and no one knew that many employees would never return to their pre-pandemic jobs.
Even before COVID-19 there were concerns in the construction industry around the supply chain and building material costs due to international trade. Trade tensions across the globe, especially between two key supplier-buyers—the United States and China—led to rising costs and issues with the materials acquisition process for some contractors.
"The cost increase of imported materials from China as a result of the newly implemented tariffs have shown the most significant impact on material costs so far this year,” Marc Padgett, president of Summit Contracting Group Inc., told National Real Estate Investor back in November 2019. “Approximately 60 percent of the cost increases we’ve seen recently are directly related to tariffs.” Now four years into the China-U.S. trade war, contractors are still dealing with this issue today.
All combined, continued high demand for goods and services, labor shortages, and foreign affairs (most of which originated from the COVID-19 pandemic) have produced inflation the likes of which we haven't seen in four decades. In fact, the pandemic was actually a major contributing factor to rising demand for construction materials in the housing sector. During the last three years, spending has shifted from consumable goods to durable ones, such as building materials. This investment in long lasting materials is usually a sign of a healthy economy, but combined with a labor shortage, it is the perfect recipe for high prices and low supply.
Even though the pandemic is mostly in the rearview mirror in the U.S., we've seen inflation slow only moderately so far, with the supply chain regaining some fluidity as new relationships are built. Reflecting both on the tumultuous past and the uncertain future, it's clear that contractors must have construction management processes in place that are capable of helping businesses respond to building supply issues as they arise.
Rebuilding global supply chains for goods and services that were broken by pandemic lockdowns have become one of the biggestn challenges. Labor shortages in manufacturing facilities, warehouses and fulfillment centers, shipping delays, and more have all led to dwindling supplies and rising costs for nearly every industry.
Over the last two years, construction materials such as steel and roofing material have faced a crippling shortage, and some contractors have been forced to find alternative building materials. Shortages of key construction materials also included PVC and copper piping, glass, adhesives, drywall and electrical equipment.
“There is a lot more uncertainty surrounding construction activity, costs and completion times,” said Ken Simonson, chief economist for the Associated General Contractors of America (AGC) in an early-2021 assessment. “Even when factories in affected countries re-open, they may not be able to get all of the inputs or labor they need,” predicted Simonson. “In addition, disruptions to internal transport, ship loading and unloading at U.S. ports will add to delivery delays, possibly for many months after the virus itself subsides.” He wasn’t wrong: Almost two years later we are still experiencing labor and material shortages.
According to Construction Dive, cement and concrete prices continue to climb due to strange and seemingly disconnected factors like droughts and sand shortages. Drywall and insulation materials are likely to continue to be impacted. And some mechanical components like semiconductor chips, which has sprawling effects and are needed in almost every industry, are becoming more available but may still face long lead times for contractors who need them, leading to further project delays.
The overall lack of essential materials affects production chains used in commercial, heavy-highway, utility and civil projects across the globe. Contractors working in those spaces may look to stockpile materials to ensure that they are able to compete for work.
Specialty contractors, including the electrical, mechanical and plumbing trades are also closely watching their material usage, especially as electrical and mechanical materials continue to rise in price even after the pandemic. Steel and aluminum prices have begun to drop and stabilize as the new year begins. However, copper, which is essential to everything from electrical wiring to plumbing, continues to rise in price. Already considered a semi-precious metal, contractors have had to keep copper under lock and key thanks to increases in theft from job sites.
For commercial and residential general contractors, lumber and glass are often among the most in-demand materials. Lumber costs have been dropping slightly since the middle of 2022, showing an average decrease of 9% quarterly. Although good quality wood is expensive and hard to come by, especially during the pandemic due to delays in shipping, its prices have now stabilized. Glass brings its own slew of problems. Despite being common, it tends to be among the pricier materials used. It is also hard to work with, as certain types of glasses are very delicate, requiring specialized workers to handle.
Fuel too is being closely watched as prices have slowly begun to fall for gas. Diesel prices, on the other hand, have seemingly refused to lower due to a diesel shortage for months now, however, there are recent signs that it may begin to decline.
With many construction material costs still rising, combined with a falling but still high inflation rate (6.5% in Dec. 2022) and ongoing construction labor shortages, the price tags of construction projects remain expensively high. Yet, with significant competition for work on the market, many contractors are looking to other areas to cut costs rather than raising contract estimates too much. The challenge though, is that without a solid materials procurement, usage and tracking strategy in place, any materials misstep could eat further into contractors’ already razor-thin profit margins.
While there’s no crystal ball for predicting tomorrow’s materials costs, preventing material waste is among the toughest—and costliest—challenges contractors can face. With so many moving parts on projects today, it’s easy to overlook just how materials, parts, tools and more are being utilized and accounted for. However, with already razor-thin profit margins and supply chain uncertainty, it’s clear that contractors need to be scrutinizing their materials processes more.
Misuse of materials, theft, destruction and other material waste issues cost contractors tens of millions of dollars each year in potential profit. And, the volume of annual construction waste is expected to reach nearly 2.2 billion tons by 2025 worldwide, leading to a greater push for closer material tracking and recycling programs in construction.
The problem though, is that many contractors are not equipped with the right tools to effectively do so. As noted in one report, Improving Performance with Project Data, produced by Dodge Data & Analytics and Viewpoint, many contractors are still on some form of manual processes like spreadsheets or paper. In fact, in a comparison on the use of automated software solutions versus spreadsheets, more than half of the contractors involved noted spreadsheets still account for at least half of their data collection processes. And, 13% of general contractors and 9% of specialty contractors relied on only spreadsheets.
Spreadsheets, paper, and disconnected software solutions all leave the door wide open to errors, misinformation and delayed information, meaning that contractors are hard-pressed to achieve accurate material counts in real time or effectively track material usage and waste—while there’s still time to make course corrections or plan ahead.
To effectively track and manage materials, contractors need a modern, connected software solution that can provide real-time updates from the jobsite to the warehouse to the vendor supply chain.
The Trimble Construction One suite of cloud-based construction management solutions provide just that. Trimble Construction One gives construction companies a truly connected software suite that collaboratively ties back-office professionals with field operations and entire project teams together with real-time workflows. Hosted in the cloud, Trimble Construction One combines leading-edge construction ERP offerings with collaborative team and field products and in-field mobile applications, giving customers a single source of data truth across the construction organization.
Trimble Construction One helps contractors get ahead of their materials and supply chain issues, allowing them to:
Staying on top of construction materials, whether prices rise and supply chains struggle, or prices fall and materials are in long supply, will help contractors gain a competitive edge over their competition. When a contractor can show owners their house is in order and run a tight ship to control costs, they’re much more likely to develop long-term relationships and win more work.
Contact Viewpoint today to learn more about how Trimble Construction One can help your organization gain control of its materials management, and operate in a more productive, seamless cloud environment.