2021 has been kind of funny. If the word of the year for 2020 was unprecedented, the word for 2021 is precedented. Like the rest of the world, the construction industry has seen first-hand how interconnected everything is — from raw material manufacturers that work with shipping companies that work with the ports that work with trucking companies that work with warehouses. It has been a year of more adapting, more waiting, and more playing whack-a-mole with global supply chain issues. A few themes have been present this year:
The Global Web is Still Broken
The logistics web is starting to heal as we still deal with massive logistic and operational challenges. It is hard to get equipment and materials. And when you are lucky enough to get them, they are at a high cost because inventories are already depleted. When it comes to material cost, inflation is slowing the construction recovery rate.
Plus, global transportation issues aren’t helping. Ocean shipping costs are up as much as 500% and 13% of the world’s shipping containers are in the wrong place at the moment. There is a shortage of 80,000 truck drivers and the backlog of containers waiting to be unloaded reached as high as 540,000. So, all of this — along with labor shortages — is creating a construction backlog as owners see sticker shock and contractors struggle for materials and skilled labor.
Yet, there is some hope with many of the construction commodities. While there has not been a return to pre-pandemic price levels, some prices have been easing:
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Lumber prices have eased but are still volatile.
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Steel prices are falling back into line.
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Plastic resin prices are historically high but stabilizing.
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Aluminum prices are easing as well. Costs are up 18.9% year over year, but that is down from 28%, so it’s improving.
Labor Issues Continue
In today’s market, employees have more choices. There are more open jobs than there are humans looking for jobs. Some boomers chose to retire early to avoid COVID risks and take advantage of high-performing stock market returns boosting retirement accounts. People are now looking for jobs that pay as much or more than construction to work in a climate-controlled environment and forgo dealing with the elements on a daily basis. They are also looking for remote work options and safer environments. So contractors now face more competition for labor.
There’s A lot to Look Forward To
Even with all of these issues, there is a ton of optimism. We are just waiting for the dam to break. According to the American Institute of Architects (AIA), there has been a historical recovery in demand for design services in all sectors. Architectural firms’ backlogs are through the roof.
Also, we have seen historically strong numbers of projects entering the planning phase, which is great news, but labor cost and material scarcity are causing projects to stay in planning for up to 9 months more than pre-pandemic. And while this may be hurting overall construction starts, once obstacles remedy themselves, we will start to see growth. For 2022,non-residential construction starts are forecast to be up around 12.2%.
In July 2021, overall U.S. construction spending matched 2019 levels. Demand for construction is healthy and construction recovered as a whole, driven mainly by residential construction. The demand for non-residential in some sectors is there. For example, there has been explosive growth in data centers, distribution centers and hospitals. Contractors are optimistic. Parts are moving faster and port congestion is down substantially. In addition, consumer spending is through the roof. People are spending less on services and more on tangibles and goods, which compounded the supply chain mess.
2022 Brings Questions & Curiosity
2021 is forcing us to stay curious and ask more questions:
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If everyone is fighting for labor, what do we make of it as an industry? How will we adapt, survive and enhance the industry?
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Infrastructure spending has increased and infrastructure projects need both humans and equipment. Will enhanced infrastructure create a bottleneck in 2022 or beyond? What will its impact be on labor in non-residential construction?
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It will also be interesting to watch where people are migrating. Many have left major urban settings for more suburban areas. Continue to watch how this affects construction in those areas.
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In place of new construction, many companies have a renewed focus on renovating and repurposing spaces. How will HVAC systems be redesigned for even better ventilation? How will spaces be reconfigured?
Here is hoping 2022 will mend the global supply chain web, bring positive changes, help us better manage the effects of this pandemic and use all we learned to create an even better future. Companies across the construction value chain that adapt and become more agile will win the future.
Curt Fessler is the Market Research Manager at Construction Specialties,where he is in charge of economic and construction industry analysis and forecasting. He gathers market insights, analyses material and product pricing, studies trends and conducts competitive analysis. In addition to these superpowers, Curt has an MBA. He is a Lean Six Sigma Green Belt and a CSI CDT. And he also holds a degree from McDonald’s Hamburger University in Chicago.Curt has been with CS for almost 15 years in several product delivery and marketing leadership roles.
