Contractors continue to struggle to procure certain materials when needed. Supply chain issues, global conflicts and long lead times are the main drivers of this struggle, but contractors can take actions to mitigate these effects. Learn about the status of the materials shortage and how you can avoid project delays due to material unavailability:
MATERIAL SHORTAGES ARE OFTEN PRODUCTION ISSUES
Building materials are in short supply because of supply chain issues, production issues or both. There are long lead times on construction equipment because manufacturing had laid off a lot of employees and sold off equipment and property during the pandemic, and now they have to create the infrastructure to increase capacity. This is a production issue.
The same goes for microchips, lithium batteries and certain components for HVAC (heating, ventilation and air conditioning) equipment. All are experiencing production issues at the point of production (manufacturing) and at the point of extraction (mining).
The shortage in microchips has led to shortages in new cars and pickup trucks, and that’s why used vehicle prices have increased dramatically since 2020. The shortage of lithium batteries has led to long lead times for electric vehicles.
The companies who are waiting for components from further up the supply chain experience a materials shortage, but it’s rarely due to a supply chain issue.
PIRATES ARE REALLY A THING
The largest factor affecting supply chains is the conflict in the Middle East. The number of pirates in the region has increased dramatically due to the conflict.
According to research company Z2Data, “As of late January, the volume of container ships traveling through the Red Sea has all but collapsed, dropping by 75 percent, and most of the world’s largest shipping lines—including Maersk, CMA-CGM and Evergreen—have stopped transporting cargo through the increasingly dangerous route.”
Although a lot less cargo passes through the Panama Canal, it is limiting passage due to a historical draught. As shippers find affordable and timely ways of rerouting materials, shipping costs and lead times will be increased.
HOW TO COMBAT THE MATERIALS SHORTAGE
Here are four tips contractors can take several measures to mitigate the negative effects of materials shortage:
- Keep a log of your suppliers. Document their location, shipping routes and couriers, lead times, company viability and relationship history. Any of these could be red flags that they may have difficulty delivering products on time in the future.
- Find alternate suppliers. Research alternate suppliers who won’t be affected by the same issues as your current suppliers. For example, your overseas supplier may be more affordable, but a North American-made product may be more readily available.
- Build relationships with your suppliers. If you have a good relationship with your supplier, they’re more likely to come through for you in a pinch than if your relationship is strictly transactional.
- Stockpile some materials. If you require materials that aren’t always available when you need them, purchase them in advance and stockpile them. Does it cost more to warehouse the materials for one month or to delay a project for one week while you wait for the materials?
A macroeconomic factor that will have a positive impact on materials shortages is the decreased demand caused by a slowdown in the construction industry.
According to the January 2024 AIA Consensus Construction Forecast: “After increasing by more than 20 percent last year, spending on nonresidential buildings will see a much more modest 4.0 percent increase in 2024, at a pace that will slow to just over 1.0 percent growth in 2025.”
The decreased demand combined with the stabilization of many supply chains has led to material price moderation and stability. Prices are increasing more or less in step with inflation, with copper and concrete being the two notable exceptions whose prices continue to increase without any moderation in sight.
While the materials shortage is still a factor contractors must grapple with, following the tips listed will help mitigate the amount this could affect your business.
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