Contractors Hoard During Supply Shortage

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The supply chain problems that arose after COVID remain. Erin Roberts from Ernst & Young's global construction and engineering practice, says: "With prices as high as 50% more than they were pre-pandemic, it's hard to find the materials you're looking for, which is leading contractors to hoard what they can find, building temporary warehouses where they can store materials. With suppliers, cash rules all, and credit is scarce.

"It's as bad as any time during COVID," said Roberts. "You've got all this demand after a brief pause shutting down the supply chain, and it's just causing havoc."

According to the US Bureau of Labor Statistics, prices sit higher than ever since recording data in 1987. For example, the Producer Price Index revealed a 24% rise in prices over last year.

"Inflation remains hot, hot, hot," said Anirban Basu, ABC's chief economist. "There is effectively no relief in sight for the nation's contractors."

Steel mill products topped the list (up 112%), steel pipe and tube (up 78%), structural metal (up 60%), and metal joists and rebar (up 55%).

"I'd rather be looking at it, than looking for it," said Peter Tuffo, president of Boston-based Suffolk Construction's South Region, about his construction supplies. "We're at the point now where we're warehousing materials and getting them wherever we can. If you have to move it twice, you move it twice. But you know what? That cost of moving it twice is much less than having no work to put in place for that month."

Worrying about "ghost orders," some suppliers push back; they ask for product quantity confirmation before selling items.

Granger Hassman of Adolfson & Peterson Construction speaks of the need to plan projects distantly. "You're spending the first two months ordering to get material there, so it's on-site, or in a bonded warehouse, or in storage bins. Wherever you can put it just to make sure you've got it and it's captured."

Still, Basu from ABC is cautiously optimistic. "It may seem naive given current data readings, but the expectation remains that, at some point later this year, construction materials prices will moderate."

With no end in sight for building materials price inflation, construction companies continue to protect in-stock products any way they can.

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