Supply chain issues have plagued the construction industry for the past two years and we are now experiencing the worst materials shortage in 40 years.
And there’s no end in sight.
About 80 per cent of goods are shipped by sea globally and port logjams are once again plaguing shipping routes with recent spikes of Omicron variant Covid-19 infections reducing capacity.
BIS Oxford Economics economist Kiki Sondh said ports had ramped up operating hours to try to ease congestion but were struggling with absenteeism due to Omicron.
“Absenteeism related to renewed increases in Covid-19 infections may scupper hopes of these pressures abating in the near term,” Sondh said.
“We expect transportation bottlenecks to persist well into 2022 with problems existing throughout the supply chain—spanning from port and ship capacity to the ability of logistics networks to deliver goods to their final destination.”
Sondh said they were anticipating a recovery in shipping lines to pre-pandemic levels in the second half of 2022 in Europe, and into 2023 in the US.
Voluntary administrations across the country rose sharply during the fourth quarter of 2021 with the construction sector currently the highest payment arrears by industry, according to credit reporting agency CreditorWatch.
It has been a difficult road for construction companies throughout this “profitless boom”, grappling with steep rises in steel and timber and other materials, in addition to labour shortages, all eating into lean profit margins.
Construction firms Privium and ABD Group both went into voluntary administration, and many are warning this is the tip of the iceberg.
Altus Group director of cost management Alan Fox said quantity surveying for long-tail projects had been difficult, and that speaking to contractors and suppliers at the coal face had been critical in understanding where supply chain constraints would bite.
“We are talking to the market and trying to find market feedback on supply chain issues,” Fox said.
“Everyone is trying to forecast but nobody really knows … it really is just by feel.
“It’s a combination of hearing what’s at play in the market and being out there talking to contractors. It’s not an exact science but we do our best.”
Fox said there had been an unprecedented convergence of materials shortages, labour shortages, and price hikes for global shipping, which, he said, would probably claim more scalps within the industry during the next 12 months.
“Things will continue to spike into next year … I think it’s the raw materials that are really difficult to cost, where they’re going to land,” he said.
“The lower-tier construction firms and small contractors are fighting for work. I don’t think we’ve seen the likes of it before.”
A quarter of insolvencies nationally are in the construction sector.
Last month, Privium and other companies in the group were placed in voluntary administration with debts of more than $28 million. The builder has completed more than 600 projects worth about $180 million. The firm has blamed surging construction costs for the collapse.
Melbourne’s ABD Group also went into liquidation.
CreditorWatch chief economist Harley Dale said the construction sector was on edge.
“The industry faces severe supply constraints for items such as timber,” Dale said.
“It is also a challenging industry in terms of gearing back up swiftly [after Covid-related shutdowns].
“This all shows up in a payment arrears figure of 12.4 per cent for November, a number that is unlikely to materially change in the coming months.”
Supply chain consultancy TMX is forecasting global shipping will level out in 2023, but project director Patrick Leong said the property sector would be better prepared going into Christmas next year.
“Structural steel design, fabrication and installation has been subject to dramatic volatility with price increases of up to 60 per cent, which has been further exacerbated by China cutting steel production and export to Australia,” Leong said.
“Other materials such as insulation, electrical material and roofing are also seeing price rises of over 20 per cent.
“To manage the market volatility, it is important that project requirements are well documented in a robust design brief that clearly defines the project scope at the very initial concept stage.
“This solidifies project and construction requirements to minimise the risks associated with cost escalation, variations and resultant delays.”
Leong said businesses would optimise design to minimise risk of cost increases during the project delivery, and develop build programs that accommodated longer lead times for construction materials.
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