A Perfect Storm

22 April 2022

Challenges come thick and fast. Energy price volatility, the war in Ukraine, supply chain disruptions, a global shipping crisis, the talent shortage, 30-year-high inflation, ‘great resignations’, and lingering Covid-19 (with new lockdowns in China) are combining to further impact our lives. To have so much disruption on so many fronts, simultaneously, is highly unusual and does not bode well. It could all be leading to a massive crisis.

A news update last month from the UK-based Construction Leadership Council (CLC) described how some UK material suppliers are issuing material quotes that are valid for only 24 hours. Scary, eh? Like something out of 1923 Weimar Germany.

As inflation rises, construction equipment suddenly becomes underinsured, with potential consequences for contractors. Employees will see the real value of their wages fall and in response demand pay rises. Firms will see their costs raised and so increase prices. Uncertainty may see some contractors delay committing to a project, or even walk away in extreme circumstances; owners may get jittery and postpone, or even cancel projects.

Having already unfolded, even more interruptions to materials supplies are likely which, in any case, have been under pressure after more than two years of Covid.

Concrete and steel look most likely to be affected. In Spain, some cement plants are reported to have closed due to rising energy costs, while sanctions on Russian steel could further impact tunnelling worldwide. Sanctions are an odd thing: they may impact the sanctioned, but they can also turn round and bite the imposer.

The UK is currently experiencing supply challenges for steel, plastics, electronic components, cardboard and other materials. Shortages in any of these during the summer months could mean more price rises and supply disruptions. CLC advises contractors to plan ahead as the market starts to gather pace.

This year didn’t start well and it may not end well. The whole shebang may run deeper and last longer than we anticipate. Time, perhaps, to batten down the hatches.

George Demetri Editor