Impact Of Material Shortages And Price Increases

Panellists: Ciaran Brennan, Michael O’Donohoe, Ronan Brennett, Paul Mulvihill, Colm O’Callaghan, John Devereaux

What Impact Will Material Shortages And Price Increases Have On Construction Projects?

 

In early December The Sunday Business Post reported that McMahons Builders Providers, a leading construction supplier told developers there would be significant price increases of 3% – 15%  on key building materials at the start of 2021. 

The unexpected lockdown of construction in Q1 has resulted in this problem not being highlighted to its full extent. Our goal here today is to try answer some of the following questions:

What are the main drivers of these price increases? What materials are affected? Are we facing a shortage of certain key materials? What does all of this mean for our projects in 2021? What impact will material shortages and price increases have on construction projects?

To dig deep into this issue we brought in industry experts who have been embedded in these issues for some time.

 

Podcast Highlights

 

What construction materials have been affected by customs issues due to Brexit? 

Ciaran Brennan:

What materials, what products, have been affected by customs issues? Or how is this impacting your customers?

Paul Mulvihill:

Yeah, I think falling on from the guys that spoke already, Ciaran. Brexit has had an impact on our business. But I know we’ve brought in now, over the last two months, about 100 loads a month. January was difficult, and it was more around the paperwork issue. I have to say, more from a UK side than an Irish side, the tax, the VAT numbers. All that kind of stuff just became a bit of a hassle.

I think in fairness, the lockdown to some degree, while no one wants a lockdown, came at the right time. Because it’s given us a number of weeks to get over some of the paperwork headaches. But the days of getting stuff out of the UK in two to three days, forget it. It’s just not going to happen. Realistically, it’s a two week program now.

John alluded to it a little earlier on. There’s some other nuances in it. If a product comes from Germany, and goes into the UK, there’s no duty on it, because of the Brexit deal. But if that product then leaves the UK and comes into Ireland, it can be subject to duty. There’s all these little nuances that none of us knew about, or weren’t 100 percent clear about. That is going to add a cost onto product.

That product, I know we’ll talk about commodities further on in the conversation, but that’s across the board. It’s from a bucket of screws, to a roll of insulation. But our findings at the moment would be, from just a paperwork point of view, on general commodity items, it’s probably going to add a percent onto the cost. That seems to be where it’s sitting at.

But I think that, and Michael also alluded to it, there’s a bigger issue here, Ciaran. It’s not just Brexit. It’s what’s happened in the world. Europe, America, economic turmoil. I don’t know if that’s the correct term for it. But there are a number of forces coming into play, that realistically, while the UK market is an important supplier to the Irish market, the cost of Brexit and the paperwork will be minimal, in comparison to some of the worldwide cost demand. Freight shortages.

All that kind of stuff is going to have a much bigger impact on costs and availability, than Brexit on its own. While it’s important, it is only a small part to the overall increase in costs.

How did this year’s price increases on material compare to other years? 

Ciaran Brennan:

Let’s say our product material cost increases, fluctuation, that type of stuff. I mean, what did this year’s price increases look like, in terms of previous years?

John Devereaux:

Yes. So, like even late last year or most of last year for certain products like timber and so on, there was an increase every 3-4 months on timber. This year in January, you’re used to, coming back after Christmas, you’ll have a number of letters or emails saying, look… It’s usually low, single digit increases and mainly down to looking inflation and so on.

That’s all fine. It’s normal business. But this year, it was more kind of high single-digits into double-digit stuff. Some very high increases, 15-20% on certain products. So it is concerning. And look, I know the gents mentioned before, it is the perfect storm. There’s a number of factors going on and it is hard. It’s hard to accept a lot of them.

You don’t have a choice in a lot of cases, but we do, as an end-user, I suppose we do need to go back and question everything, and even distributors that are getting increases from manufacturers just to, we need to understand wider common true because we go to a client of ours and say suddenly, your job’s gone up by X, it’s due to the increases in materials.

They’ll go, well, you need to explain exactly why that is and we can’t just say, Oh, it’s because of Brexit or it’s because of admin costs due to customs procedures. And COVID, it’s going to be a number of those things. So we need to understand what that makeup is. And if we’re explained that’s the case, then that’s the case. But we’re just a bit cautious as to, just accepting an increase for the sake of it.

We have to look into it a bit more, and that’s been a difference. It’s been a major difference this year.

Advice for contractors dealing with material supply & price problems in 2021

Ciaran Brennan:

So, what advice would you have for those companies that are now facing the stage that we’re talking about here. Maybe supply issues, probably seeing increases. What advice could you have for maybe other companies to deal with that?

John Devereaux:

Yeah, I’d say on the Brexit side, I would plan as far ahead as you can and order your products in advance, if you can, I know there is cashflow implications and all that. But if you can, if you’re bringing product in from the UK, definitely allow yourself an extra two or three weeks just to get the paperwork in order. You might’ve done all the work in the world and been organized. You might be familiar with all the procedures, but it doesn’t matter if the supplier isn’t familiar, if your transport company isn’t familiar. Everyone in that supply chain has to be on the same page or else there’s going to be a fall down.

So, allow yourself extra time. I would say that, even though there is price increases, there’s a number of commodities seem to have peaked now, and you hope that you would start seeing a downward trend on some products, especially steel and reinforcement and galvanized product like that.

So I’d stay close to your own suppliers. Call them regularly, pick up the phone, just get their take on where the market is going and keep informed really. Because if you’re pricing projects today, in a month’s time your product might’ve gone up, it might’ve gone down. So that regular contact between yourselves and your own suppliers is key I think. But also say, look, and I mentioned in Brexit prepared, you can never learn enough I think on Brexit.

There’s Constantly webinars that are been put on that are free of charge. There’s courses that are free of charge on customs duties. Just educate yourself as much as you can. It won’t cost you anything just your own time. Because it’s good to be armed with that type of information. At least you might be able to help a supplier in the UK to say, look, this is what you need to do.

And it might speed things up by a couple of days that might be key to yourself. And I would look at it as well, if you have projects coming down the line, if it’s a job that’s, might have a bit of steel in it that’s six months away, look at where you think steel is in six months time. It is quite high at the moment, but can you wait three, four months and purchase a day in and wait for that drop-off?

There is a risk involved because it’s so terrible and at the moment we don’t know where it’s going to go. But from looking at the commodity tracking tools that we would use, there is a bit of a peak showing drop off into Q2, Q3 this year. So timing is key on your purchasing decisions. So that’s as much as I could probably give right now, Ciaran. Yeah.

How will buying UK products impact Irish product specification, regulation, certification in 2021? 

Ciaran Brennan:

In terms of when we’ve been so associated, sharing regulations and product specifications and stuff like that, how will some of the issues that we’re highlighting here today affect regulations and specifications around product?

Michael O’Donohoe:

Well, it’s unknown, particularly given now that the UK has diverged from the European standards, and they’re going to go their own roof, so that’s going to have implications for product standards and specifications, because heretofore it was covered by the Construction Products Regulation, and you had EU standards in relation to certification and CE marking.

Now that requires, for those exporters, will need to have in place their own type approval to meet the requirements for exporting into the EU countries. It could be that certain products, which would have had the same standards, will diverge, and that may have implications in terms of manufacturing and supply chain, so that a UK-based manufacturer will produce version X for the EU and version Y for its own domestic market. Look, all of this uncertainty, harping onto what Col and John said. All of this is lengthening the supply chain, potentially. Recognizing there are delays in that supply chain.

Just in the terms of our own business, we had a very strong demand from our customers in Northern Ireland in December, all of whom were gearing up significantly for stock around the uncertainty in relation to Brexit. If that means there’s more stock in the supply chain, I think that’s something. I know there’s a cash element there in bringing that in, which might necessarily appeal to everyone.

But having an understanding, too, in terms of realistic dates and expectations. As can often happen with the case, and many projects can happen. Decisions made a Friday, and an order is placed on a Monday, and there’s an expectation that goods are on site on Tuesday. I think we have to have an understanding now, given the uncertainty internationally and due to Brexit, that’s not going to be the case. That puts pressure on everyone in that chain, so I think to plan and to, for that as best as possible.

 

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