Money Alone Won’t Ship the Construction Materials Needed for Construction Projects
As the public was consumed, and amused, by the container ship Ever Given being stuck in the Suez Canal, this was just a short-term distraction to long-term problems North American construction companies are going to have getting the supplies they need to jobsites. Despite the large amounts of liquidity currently available, low interest rates and the talk of the federal government spending even more money on infrastructure, the costs to ship materials have been going up for years—and this trend has only been amplified by COVID-19. That means no matter how much money is available for the projects that developers and governments want to occur, the price to get them done will continue to rise for the foreseeable future.
In July 2020, McKinsey & Company released a report on the shipping industry that found freight and shipping companies will need to adapt to the “new normal” that they will be working in post-coronavirus. The authors predicted that a full recovery will take three to five years, and heavy metals, wood and other miscellaneous manufacturing materials will take the longest to recover. This is in addition to a report by the United Nations that came out in November 2020, which predicted a 4.1% decrease in maritime trade due to the pandemic.
In the last year, North Carolina State University found, after speaking with many construction managers, the increase in costs of lumber, cement, and concrete products were a major factor in why the overall price of construction projects went up. That’s because even when they tried to go to local suppliers, competitors did too, which only increased the demand for the materials as the supply dwindled because imports from other countries were hard to come by.
Let’s take steel for example, the metal used to build new office buildings, hotels, and multi-family housing units. In February, the price of steel went up for the ninth consecutive month, causing companies that use the metal for the construction projects to increase their prices as well, leading to a domino effect throughout the entire supply chain.
The increased shipping costs are on top of the prices that are incurred to use steel on projects including taxes and high salaries for workers, which will only raise the overall costs for construction. As we recover from the pandemic, the demand for steel is predicted to increase, even more so if Congress passes President Biden’s proposal to spend $3 trillion dollars on infrastructure, that may include building 1.5 million new sustainable homes across the United States and retrofit buildings so they become more energy efficient. Without the materials needed to get these infrastructure projects off the planning table, the costs to start them will continue to rise, making it harder for them to complete.
The United States is a major importer of steel, and even before the pandemic there were already signs that costs of maritime shipping will increase. Larger ships were being used that, while benefiting the shipping companies, those using their services saw the price to get the materials they needed increase; in 2019, the world’s merchandise being shipped by sea fell by 5.4% and overall trade using maritime transportation services decreased 3.2%.
The problems experienced in the past few years will not be solved alone by more people receiving a coronavirus vaccine, either. Costs to ship large materials were always expensive, and unless shipping companies change the way they do business, the industry will still see some of the underlying problems that caused the prices of their services to increase. Instead of trying to figure out ways to distribute the largest amount of product possible, instead, these companies should use new technologies that help them with logistics, making the process more efficient, which would not only reduce costs for contractors but for their customers as well.
At this point, with the COVID-19 crisis in India, contractors should expect the prices for the materials needed for construction projects are only going to keep going up, which will continue to slow down the economy for the next few years.