According to the Construction Leadership Council (CLC) the ongoing materials shortage facing the utilities and construction industry could continue well into next year.
Supplies of key materials for the utilities industry such as plastics and resins alongside vital construction materials like steel, cement and roof tiles have been restricted for months. There are no signs of change with prices rising across most materials categories.
As reported in the June Construction PMI from IHS Markit and the Chartered Institute of Procurement & Supply (CIPS), construction output reached a 24-year high in June, the fastest rise in construction activity since 1997. However, supply simply cannot keep up with demand and delivery times have lengthened amid severe shortages of construction products and materials.
Shortages of materials, longer lead times and higher prices
Ian Winn, Group Financial Director for Aptus Utilities says “We are seeing prices increase as lead times lengthen and demand increases, making it very difficult for manufacturers and suppliers to build up stock levels. This is leading to shortages and impacts across the board.”
The CLC states that roughly 60% of imported materials used in UK construction projects come from the EU and following the UK-EU BREXIT trade deal, increasing lead times have lengthened the supply lines for a number of core supplies from Europe.
In fact, according to Winn, lead times for vital components such as electric cabling which comes direct from a manufacturer in Scandinavia have almost doubled lead times. The two main factors cited for this increase being COVID related problems as well as added bureaucracy and friction following BREXIT.
It has also been reported by The Department for Business, Energy and Industrial Strategy (BEIS) that the cost of materials has risen by 10.2% for all construction work in May compared to one year prior, a monthly increase of 2%.
“We have seen significant increases in some of our core materials such as electric cabling and plastic pipes which is directly linked to the global price of certain commodities. In fact, prices for both have gone up by over 20% in the last year and we see no sign of prices falling anytime soon.”
It’s a problem finding people
According to the Office for National Statistics (ONS), demand for construction workers is almost at a 20-year high, while employment levels have fallen 4% showing a serious issue in the industry.
Ian Winn says: “The tightening of the labour market in construction, energy and utilities together with increasing demand are also making it harder and harder to find and attract the best new talent.”
If utilities businesses in the future cannot attract enough skilled workers, the impact could be significant. Developers and Local Authorities could be looking at drastically increased costs and delays.
The widely reported shortage of HGV drivers in both the UK and further afield is also causing issues. Without those drivers, the products needed to complete projects in a timely fashion are at risk both on import and subsequent transportation.
Uncertainty around COVID and lockdowns last year meant that many businesses extended the life of their fleet as a natural way of cash management.
Placing orders for new vehicles in the last quarter of 2020 was also fraught with issues. The uncertainty around a deal/no deal BREXIT meant prices could not be guaranteed as there was no guarantee about the tariffs which could be in effect following the UK’s departure from the EU.
Furthermore, with the construction bounce back earlier this year, there was a significant increase in activity meaning many fleets were further stretched.
“It has almost been a perfect storm for fleet managers. A combination of supply issues – well documented problems with chips – and demand issues – a massive increase in online trade, has led to all major logistics businesses wanting more vans. Add this to a significant backlog of replacement orders from last year and you can imagine the problems being faced. We ordered 30 vehicles in the Spring and we will only see a fraction of these delivered this year.”
The result of these delays for many is an aging fleet which drives up operating costs as older vehicles start to break down leading to higher repair and maintenance costs.
So what can we do?
Collaboration is key. Suppliers and customers must work together to understand the issues being faced at either end of the supply chain. This will help the utilities and construction companies to be 100% transparent when it comes to lead times and project timelines.
We also need more understanding that in times of supply shortages there must be some flex to design specifications. Sticking rigidly to certain factors such as pipe colour or a particular manufacturer can lead to delays, especially when other perfectly suitable products can be found.
Making the industry somewhere the younger generation wants to work is also vital. There has to be a targeted approach to improving the sector’s image, in order to attract the younger generation. Diversity must also be addressed at every level.
Winn concludes: “We have to work together as an industry to get through these tough times otherwise we run the risk of losing smaller businesses and not being able to source enough good talent to get the job done in the future.”