Construction Product Availability Statement from the CLC

Construction Product Availability Statement from the CLC

Statement from John Newcomb, CEO of the Builders Merchants Federation and Peter Caplehorn, CEO of the Construction Products Association, co-chairs of the Construction Leadership Council’s Product Availability working group

A slight slowing of the market over the summer holiday months has resulted in product availability broadly improving.  Some issues remain, with extended lead times continuing for aircrete blocks, bricks, gas boilers and various items containing semi-conductors and other electronics.

Price inflation remains the biggest issue for the entire industry and further significant increases in inflation are anticipated due to energy, raw material and labour cost rises.

We also note that although the UK Government’s recent announcement of a six-month energy price cap for business users will help manufacturers here to some degree, the risks around supply and cost of energy threaten manufacturing throughout the EU.  While EU policy-makers wrestle with their own solutions, the possibility of factory shutdowns on the continent may lead to shortages of products, materials and components exported to the UK.

The root cause of the problem affecting smart meters, electrics, white goods and gas boilers is set to continue into 2023 as sub-component manufacturers struggle to secure supplies of semi-conductors and electronic components in a highly competitive market.  Electrical component shortages are similarly affecting manufacturers in the wider electrical sector, likely to lead to reduced availability and increased prices.

Lead times for most roof tiles are improving.  Separately, we are concerned to hear increasing reports of ungraded and poor battens being stamped as standard.  Contractors are warned to ensure that correct battens are being used.

High demand for bricks, particularly for new housing, continued over the summer and led to reduced stock levels.  This pattern is expected to continue in September, but manufacturers are delivering to agreed schedules with customers.  Energy price hikes present a further challenge to both domestic and imported bricks, although Government support may ameliorate this issue for UK manufacturers.  Aircrete supply has been compounded by a production issue at one of a major manufacturer’s sites, which meant deliveries were reduced in August.

Uncertainty around energy supply in Europe could also impact raw materials for paints and coatings, which are already affected by raw material shortages.  Medium-term, there is a need to amend the UK REACH registration process to ensure chemical registration is not made so difficult and expensive that UK manufacturing loses access to key substances for products.

Overall steel supply has improved, but the EU has completely filled their quotas from non-EU countries, including the UK.  Heavy sections cannot be transported from the UK mainland to Northern Ireland without incurring tariffs.

Rising energy costs are likely to affect timber prices as we move into Q4 and Q1 2023.  There are good stocks on the ground of both structural softwood and wood based panels, but stocks at ports are much lower and buyers will need to consider forward purchases to ensure the specifications they require are available through to year end and into 2023.  Price pressure eased considerably over the summer but log prices remain firm as demand for pulp and paper, pallets and fuel wood is currently very strong throughout Europe.  With energy costs rising, forward replacement prices for structural softwood are unlikely to be at current UK levels.

The effect of high inflation and softening demand has seen shipping output and punctuality improve, and costs for some key UK routes down by a third since the beginning of the year.  It is too early to gauge the impact on the construction sector of industrial action at Felixstowe, but we know that some businesses are suffering logistical headaches and added costs owing to re-directed deliveries.  This Group will also monitor the two-week strike planned for 19 September at Liverpool’s port, Britain’s fourth largest.

Finally, we are saddened to note that the year to June recorded the highest annual level of insolvencies amongst UK construction firms since the financial crisis over 10 years ago, despite strong demand throughout the first half of the year.  The key risk going forward, given the substantive rise in insolvencies, is to what extent sharp cost rises and slowing demand over the next six months will exacerbate the rise in insolvencies.

For all the work FIS is doing around inflation and availability, including recommended contractual terms click here

FIS State of Trade Survey: Cautious optimism prevails for the next 12 months

FIS State of Trade Survey: Cautious optimism prevails for the next 12 months

The market has remained bouyant in Q2 2022 with 54% of respondents reporting growth – this is a similar number to reporting same in Q1 2022, but with the vast majority now seeing sales growth in excess of 5%.  This is positive, but there has also been an upturn in the number of companies reporting declines of over 5%, up from 15 to 21%, underpinning that the market remains volitile.

The annualised picture also shows that, in terms of volume, the market has been pretty strong, with just 7% of businesses indicating that workload has actually decreased by over 5%.  Again anticipated sales are, on the whole, optimistic, with a 67% (down from 75% in the last survey) anticipating growth in sales and 59% reporting an increase in workload in the year ahead (down from 62%).

The key risks to the sector are identified as:

  • A prolonged war in Ukraine leads to material availability issues and continued inflation
  • Inflation impacts viability of planned and future projects
  • Inflation drives aggressive tendering – squeezes margin and impacts viability of businesses, particularly where fixed term prices are imposed unsympathetically.
  • Inward Investment becomes less attractive as companies consider the impact of potential future sanctions in the UK.
  • More ethical scrutiny of investors starts to impact sources of inward investment.
  • Prolongued Labour Shortages constrain growth
  • Retrospective elements of the Building Safety Bill create a blame culture that in turn leads to higher business failure rates and availability of insurance

FIS State of Trade Survey Q2 2022

FIS Focus: Vital Information on Inflation and Product Availability

FIS Focus: Vital Information on Inflation and Product Availability

FIS Position and Support on Inflation and Material Shortages

The past two years have, without doubt, been some of the hardest times businesses in the finishes and interiors sector have faced.  Uncertainty and challenge continues into 2022.  After rapid inflation in 2021 across all material groups, the year started with concerns around the impact of ongoing labour shortages, but in recent weeks the escalation of tragic events in Ukraine have started to put pressure on energy and fuel prices further pressure on the supply chain.  This has resulted in the announcement of further price increases and rapid inflation for key materials, fuel and energy.  Of particular concern for FIS members are increases in insulation, steel and plasterboard.

Where this impacts existing contractual relationships members are reminded to check contractual terms and consider the relevance and application of any fluctuation clauses.  If you are unable to rely on standard fluctuation clauses, an early conversation with your client in terms of your ongoing ability to fulfil the contract in the wake of rapid and unexpected price increases is essential.

Where you are currently tendering, consider carefully the impact of the current inflationary environment, look to link any fluctuation to material and product prices rather than general inflation or ensure that quotes are time stamped and limited.  Where you cannot negotiate a shared risk approach with your client, you need to seriously consider what could worse case scenario mean to your business if prices drifted?

We encourage all in the construction sector to consider seriously the impact of imposing fixed prices at this time.  The sector is working on every tighter margins and this could impact the resilience and ongoing viability of of businesses in the supply chain.  Where concerns are raised, a pragmatic, understanding and collaborative approach is essential.  It is vital that we work together to avoid conflict and we further encourage all companies to consider signing and adopting the principles set down in the Conflict Avoidance Pledge that has be developed by the Royal Institute of Chartered Surveyors (RICS) and endorsed by the Construction Leadership Council (CLC).

Below we provide some information on the market forces that are resulting in ongoing inflationary pressures and additional advice and guidance related to managing businesses and contracts in a high inflation environment.

The aim is to keep it refreshed so our members are have a clear picture and can have informed decisions up and down the supply chain.

When can we expect an end to all of this?

With such a perfect storm of complex and cumulative issues it is difficult to know when we will start to notice improvement or how much worse things may get.  The old adage hope for the best, but prepare for the worst comes to mind.

The FIS is an active participant in the Construction Leadership Council who continue to monitor the situation through a dedicated working group of subject experts – you can access the latest Construction Leadership Council Product Availability Statement here (27 July 2022).

Certainly data from the RICS (published November 2021) construction materials costs in the UK continue to escalate, reaching a 40 year high based on the annual growth of the BCIS Materials Cost Index.  According to Joe Martin, BCIS Lead Consultant “The pressure on materials prices and availability is expected to continue at least until the end of 2022. Labour shortages are expected to evolve as the significant driver for overall construction cost increases next year and the construction sector would need to compete for it with other sectors”.

Above was before the situation escalated in the Ukraine.  The Construction Products Association have prepared for FIS Members an update on the wider impacts of this tragic conflict.

Demand Related Issues

The impact of higher than anticipated demand in key sectors like housing and the domestic refurbishment sector (fuelled by growing household savings) have exceeded expectation.  It is not simply UK demand, but we operate in an increasingly globalised market.  A surge in Chinese consumption is linked to faster than expected recovery from the pandemic fuelling property development and investment in infrastructure and notably by global demand for appliances and electronic goods (many of which are manufactured in China).

Supply Side Issues

As we step into 2022 the rapid escalation of events in the tragic Ukraine has sent oil and gas prices and hence energy costs across the world into a period or rapid inflation which is now feeding through into the price of construction products and logistics.   Since 1 April 2021, wholesale gas had risen from around of 50p/therm to around £2.80/therm by the end of March 2022.

You can track natural gas prices here.

Whilst the UK in not overly reliant on Russia or Ukraine for construction products (which together account for just 1.2% of imports of construction products, some areas such as flat glass and certain timber products have a more significant share from these markets.  Projects could also be impacted by shortages of products such as concrete reinforcing bars or other unrelated shortages (such as bricks) which are still ongoing.

The global situation remains volatile and it is impossible to predict accurately the ongoing impact on material and product prices.  Beyond the escalation in Ukraine, tension between the US and China and genuine concerns about UK Conformity Assessment (UKCA) marking implementation limiting availability at the start of 2023 as manufacturers struggle to get products tested in a compliant fashion in time and guidance remains unclear.

Logistical and Freight Challenges

Beyond supply and demand, inflation and availability problems has been further compounded by a number of issues related to freight and logistics, in 2021 we had the Suez Canal logjam, Brexit and pandemic uncertainty .  An ongoing shortage of lorry drivers has also been reported and has put upward pressure on transport costs.   Whilst shipping freight prices have started to ease in 2022, the invasion of Ukraine has pushed up fuel prices.

Squeezing the supply chain

A key concern is that in the wake of double digit inflation in the price of some materials and increasing labour costs and despite an increasingly healthy pipeline, we are not seeing equivalent inflation in tender prices, which means margins are likely to be squeezed and in extreme cases businesses could be driven into recession.

The  latest tender price reports from MACE is showing that current tender price inflation ran at 7.5% in 2021 and are expected to rise by 5.5% in 2022..

How can I track and report price movements?

There isn’t currently an index of prices specific to products in the Finishes and Interiors Sector, but you can draw out the main material movements via the Office of National Statistics, note this is lagging and prices are changing fairly rapidly at the moment.  It also doesn’t necessarily reflect prices on the ground due to specific grades/distribution buffering etc.

The World Bank commodity price index and London Metals Exchange give a high level picture, but doesn’t get into the detail on products used in the finishes and interiors sector.

The RICS publish the annually the BCIS Material Price Index

Probably the best reference is via the merchant groups, for example :

For the sake of balance, if you publish a similar index, please don’t hesitate to pop a link over by email or in the chat and we’ll include it here.

Information on price of paint from the British Coating Federation

FIS track labour prices on a half yearly basis with information available to contributors.  If interested in learning more email iainmcilwee@thefis.org.

 

Top tips for contracting in a high inflationary market

FIS have produced a new factsheet for members looking at some standard clauses to include with quotations and top tips for contracting at a time of high inflation.

Build UK have also produced information to inform the entire supply chain on how to manage relationships in an uncertain inflationary environment 

Bring your concerns to FIS

If you feel you are being treated unfairly, talk to us, we will do what we can.  We can, through our own contacts in the industry, the CLC and contact with the Small Business Commissioners Office and Civil Service shine a light on negative trends and poor behaviour, it can be done anonymously and handled sensitively so as not to damage your relationships.

FIS is urging the supply chain to heed the advice of the Construction Leadership Council and adopt a collaborative approach and ensure that there is ongoing and open communication through the supply chain and we are doing all we can to work together rather than tearing lumps off of each other.

Too often construction get contractual and adopts a siege mentality, parcelling up and firing risk out hoping it sticks elsewhere.  The much talked about transformation must start now, rather than pushing risk down the supply chain, we need to be communicating with clients, helping them to understand that these events are beyond the control of individual companies and we need to work together to resolve and manage.

Our supply chain has had an unprecedented and difficult year, we need to nurture it back to health, not return to old and punitive ways that will ultimately drive people out of business to the detriment of all.

Useful links:

FIS Webinar: Managing your business in a time of shortage – Listen again here

You can access the latest Construction Leadership Council Product Availability Statement here (27 July 2022).

Construction Product Availability Statement from the CLC

Latest Construction Product Availability Statement from the CLC

Against the backdrop of ongoing volatility, we today received the latest update from the CLC Product Availability Committee.  From an availability perspective the overall tone is positive.  The specific challenges in Northern Ireland aside and despite ongoing reports of chaos at the Ports, the decision to delay the latest round of post-Brexit customs checks means that general product availability continues to improve across virtually all categories.

The Statement also identifies that inflation associated primarily with the ongoing conflict in Ukraine appears to have stabilised, with softening demand, particularly in the retail end of the market contributing.  The underlying conditions remain concerning, however, with many UK manufacturers purchase energy on forward contracts to help manage risk. The current extreme price volatility means that some firms are experiencing electricity cost fluctuating by up to 300% on a day-to-day basis, which may affect the financial viability of some energy-intensive manufacturing particularly during the winter months.

One area for FIS Members to be wary is glass.  There are fresh concerns over the availability and cost of imported glass later in the year, with European plants anticipating reduced production stemming from uneconomic energy costs.

You can read the full statement here.

For all the work FIS is doing around inflation and availability click here

 

Price inflation: we all need to play our part

Price inflation: we all need to play our part

A statement from Build UK Chair Paul Cossell

As an industry, we are currently facing inflationary pressures not seen in the UK for 40 years. The latest update from the CLC Product Availability Group confirmed that average inflation for products and materials this year has been around 23%, with further increases expected, particularly for energy intensive products.

We know that cost escalation, closely followed by a lack of skilled labour and material shortages, is now the key issue for businesses across the supply chain. As we did during COVID‐19, Build UK is bringing its members together to coordinate a collective response. With the support of Wedlake Bell LLP, we have published comprehensive guidance on Managing Price Inflation, which includes advice on fluctuations clauses, negotiating new and existing contracts to take inflation into account, and how to mitigate its impact on projects. Most forms of contract have standard provisions for sharing the risks associated with price volatility, which should be used appropriately and fairly and in a spirit of collaboration.

With businesses across the industry under pressure, we all need to play our part. We often talk about the better industry we want to see, where risk is allocated fairly and projects are delivered more efficiently. How each of us responds to the current challenges will determine how quickly we can realise this vision.

An enduring commitment to prompt payment must remain a priority, and a number of Build UK Client and Contractor members are reducing their payment terms to support the cash flow of their suppliers. The Welsh Government has provided advice to its public sector bodies on how to manage the unprecedented pressures on materials, and Build UK will be meeting with key Government departments to discuss a collaborative approach to managing inflation to the benefit of all parties.

We learned the value of collaboration during the pandemic and showed that we perform better as an industry when we work together. Where businesses, programmes or projects are struggling due to materials shortages and price inflation, we need to discuss the issues openly and find creative and innovative ways to mitigate these risks in the interests of our clients and the supply chain.

I firmly believe that by doing the right thing over the coming weeks and months, we can achieve our shared ambition of being a productive and profitable sector.

Mitigating the impact of inflation

Mitigating the impact of inflation

The latest statement from the CLC Product Availability Group confirms that average inflation for products and materials so far this year has been around 23% with further increases to come, particularly for energy intensive products. Cost escalation is now the key issue facing Build UK members across the supply chain. To help address this, Build UK has piblished comprehensive guidance on Managing Price Inflation with the support of Wedlake Bell LLP, which covers fluctuations clauses, negotiating new and existing contracts to take inflation into account, and how to mitigate its impact on projects. All members are encouraged to find ways to work together to manage the current pressures in the interests of projects and the supply chain.

The changes within Government this week have included the resignation of Construction Minister and CLC Co‐Chair Lee Rowley and the sacking of Michael Gove, Secretary of State for Levelling Up, Housing and Communities, who had oversight of building safety and the response to the Grenfell Tower fire. Following the appointment of new Chancellor Nadhim Zahawi, it remains to be seen what actions will now be taken by the Government to tackle rising inflation.