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APRIL 21, 2021 BY NICK GRANDY
The construction sector has experienced a significant increase in material prices over the past year. This tr is driven by several factors including higher commodity costs, shipping expenses, and disruptions caused by the COVID-19 pandemic.
Commodity Price Increases
The most notable factor driving up costs is the rise in commodity prices, such as lumber, steel, and copper. These materials are essential components of construction projects worldwide. A surge in demand for these commodities has led to a scarcity on the market, pushing their prices upwards.
Shipping Cost Impact
Shipping logistics have also become more expensive due to global supply chn disruptions. As trade volumes increased from Asia to the U.S., it caused delays at American seaports and pushed up contner rates significantly.
Supply Chn Disruptions
The pandemic-induced slowdowns in steel production exacerbated shipping issues, as many steel manufacturers reduced output anticipating a downturn in demand. However, the economy recovered faster than anticipated, leading to robust demand for steel which outpaced supply capabilities. This imbalance resulted in higher prices.
Economic Pressures on Contractors
For construction companies, these increased costs create pressures on margins and profitability. The average growth rate of final demand pricing for construction services has been sluggish at 2 year over year through March, indicating that contractors are absorbing the cost hikes without passing them onto customers.
As a result, this situation may challenge the industry's ability to mntn their profit margins, which traditionally operate with very thin margins.
The RSM Coronavirus Resource Center
For comprehensive insights into how the COVID-19 pandemic is impacting midsize businesses and industries related to construction, please visit our RSM Coronavirus Resource Center. Our economists provide up-to-date forecasts and trs that can help navigate through these challenging times.
About Nick Grandy
Nick Grandy specializes in providing industry-specific economic insights at RSM US LLP. With expertise across the country, he supports clients by keeping them informed about changes within their sectors. In his role, Nick collaborates with economists and senior analysts to analyze economic trs that affect industries serviced by RSM.
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Supply Chain Disruptions in Construction Construction Material Price Increases 2021 Commodity Costs Impacting Building Industry Shipping Expenses Drive Up Prices Pandemic Driven Cost Pressures on Contractors Economic Forecast for Midsize Businesses