Supply chain issues have continued to accelerate into 2022 as the effect of the COVID-19 pandemic has had far-reaching effects on the world’s supply chain. However, with time, these issues have evolved — and contractors are having to solve problems that they hadn’t even considered in prior years.
“It’s as bad as any time during COVID,” said Erin Roberts, who leads Ernst & Young’s global construction and engineering practice. “You’ve got all this demand after a brief pause shutting down the supply chain, and it’s just causing havoc.”
“Inflation remains hot, hot, hot,” noted Anirban Basu, chief economist for the Associated Builders and Contractors (ABC). He claims that 2022 is going to be just as difficult for the nation’s supply chain as 2020 and 2021 were, adding that “There is effectively no relief in sight for the nation’s contractors.”
“Unfortunately, it’s just gotten progressively worse,” said Paul Moffat, vice president of preconstruction at Michigan’s Barton Malow. “It seems like every month, there’s some new material that has a problem.”
The situation has fundamentally changed many companies’ outlook on how they should be running their businesses: “Everybody realized that instead of ‘just in time,’ we needed ‘just in case’,” added Roberts.
Supply buildup isn’t as simple as it was pre-pandemic
One of the most difficult parts of the current supply chain situation is that no single aspect is making the most impact — instead, a chain of issues is holding back contractors in multiple directions.
With so many unable to trust when they might get what they need for their projects, most contractors have been focusing on ways to build up supplies in order to make sure they’ll have what they need when the time comes.
However, even this is getting difficult for many.
“The entire roofing industry is just an absolute mess right now,” said Granger Hassman, Vice President of preconstruction at Minnesota’s Adolfson & Peterson Construction. “It’s ridiculous. The manufacturers aren’t even providing competitive pricing. They won’t give you a bid until you actually order it.”
So-called “ghost orders” have plagued the industry recently — a term suppliers have used to refer to contractors that put out multiple bids for a single product they need.
Brian Sudduth, president of Florida’s Miller Construction Co., noted that manufacturers have looked to police against this practice, saying that suppliers “are pushing back and asking for project-specific information…so they don’t have a bunch of ghost orders down the line.”
Time and space are both of the essence
Once companies do finally get ahold of their materials, there’s been an even more surprising turn of events for many of them: Warehouse space has grown scarce.
“The market for warehouse space is so tight around the country, you almost have to sign a lease before or during construction to secure it,” said Amy Rodbell, a broker for commercial real estate consultant Newmark. “We’ve been reaching out to empty big-box retail centers to help bridge the gap.”
“[Many contractors are] erecting temporary structures on or near jobsites to house materials before they’re needed,” said Jacob MacIntyre, director of QuickBase’s customer acceleration group. Though this helps to solve the issue of space, it’s costly. “That can remove most or all of the attempted cost savings by pre-purchasing,” MacIntyre noted.
Lead times are one of the biggest problems at the moment as well: Even if a contractor is able to find a willing supplier and a place to put the materials, it may take much more time for those materials to arrive than contractors are used to.
“We recently learned that the lead time for acquiring open bar joists has pushed into 2023,” said Chris Bailey, senior vice president of integrated solutions at California’s XL Construction. “Beyond that, lead times for a wide array of materials that were commonly known to be weeks pre-pandemic have turned into months.”
“We’re telling our owners that once we start, we can still build their job in 11 months, but we can’t start it right away, because after a couple months on site, we’d have to stop and wait for steel,” added Hassmann. “You’re spending the first two months ordering to get material there so it’s on site, or in a bonded warehouse, or in storage bins…Wherever you can put it just to make sure you’ve got it and it’s captured.”
Even given all the potential obstacles, contractors are hoping that they can continue to find ways to remain profitable — and are willing to do whatever it takes to keep projects moving.
Though the current supply chain issues have exacerbated existing problems with funding, these are common in the industry, and maintaining efficient materials financing is one of the most important things that contractors can do to stay profitable.
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According to Levelset’s 2021 Construction Cash Flow & Payment Report, only 9% of responding contractors were paid on time for their work. Materials have to be paid for upfront, and if contractors aren’t getting prompt payment, then profitability becomes a big issue.
It’s similarly important to keep a watchful eye on shifting prices in the industry to make sure that the money you are spending on your materials is being well-spent.
Levelset’s Materials Price Tracker can be used to keep track of recent industry trends nationwide as well as what the best prices are in your region on some of the industry’s most common construction materials.