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Impact of Construction Material Shortage & Increasing Prices on Construction Industry

The past couple of years have been eventful, to say the least. Nearly every industry has been turned on its head. But, while many are starting to get back to normal, construction is still bearing the brunt of pandemic upheaval.

While labour shortages and shutdowns have had an impact, it’s the material shortages that are having the biggest impact right now. Here’s what you need to know about material shortages in the construction industry right now.

What Caused the Material Shortages?

As with most things, there’s no single cause for material shortages. Early on in the pandemic, borders closed, and shipping slowed to a crawl. Most places were affected, but Australia, which relies heavily on ocean-based trade, felt it more than others.

As various industries around the world shut down or moved to a pandemic era skeleton staff, production of many products slowed. At the same time, people were spending more time at home, which inspired a wave of renovations, using up existing inventory.

Then, in March 2021, the Ever Given did the unthinkable, blocking the Suez Canal for six days, and once again, shipping ground to a halt.

Just one of those would have caused trouble with supply chains, but collectively, they’ve been catastrophic.

Who Is Affected?

It would be easier to list who isn’t affected by pandemic era supply chain problems. Every industry and every product have been affected, and there’s no end currently in sight.

Impact on Builders and Construction Business?

The supply chain problems caused or exacerbated by the pandemic have affected all industries, but construction is particularly hard hit.

Supply delays have limited stock on distributor shelves, which has resulted in project delays. When projects are delayed, it has a knock-on effect, delaying subsequent projects, and because there have been so many product supply delays, there’s no option to move to a different job while you wait.

Shortages have also driven up prices, essentially creating an industry-wide bidding war for various building materials and products.

Impact on Consumers?

There have been many trickle-down effects for consumers.

On the one hand, DIY has got a lot expensive (or even impossible) as retail prices and availability have caused problems. On the other, consumers who hire a professional to complete their building projects are paying more and waiting for longer thanks to supplying delays.

Contract Disputes Due to Sudden Inflation in Prices

When most builders quote a job, they use the reigning prices and might hold their price for thirty days. However, with the volatility in the material market, many builders and construction industry suppliers have had to reduce quote validity to two weeks or less. Even then, when prices increase dramatically, there are frequent claims for additional contract costs.

Most builders and construction companies hate asking for more money. But when materials are eating up profits, there are very few other options.

The Future of the Construction Industry

The good news is the construction industry is resilient. It will bounce back at some point, and when supply chains get back to something resembling normal, there will be a building boom.

However, the pandemic has also shown many industries that rely on imported materials can be problematic when imports aren’t arriving as they should. So, it’s likely that there will be a boom in manufacturing and processing all kinds of products (including building materials) at home.

What Consumers Need to Be Aware of

There will still be months or years of supply chain problems. Until the pandemic is under control around the world, expect projects to take a little longer, and prices to be more volatile. Try to make decisions quickly, to ensure you don’t face material cost escalations.

How Can Builders Protect Their Business from This Sudden Inflation?

There are several ways that builders can build a buffer against material cost inflation:

  • Try to keep a larger stock of commonly used items
  • Negotiate better discounts and terms with suppliers
  • Add a larger markup to the materials on your quotes
  • Include escalation clauses in your quotes and tenders
  • Offer shorter validity period on quotes