Low Stocks Levels Affecting Pricing In The Construction Sector
As specialists in the construction sector, the single biggest issue at the moment is not one that is specific to any one individual client, it’s the same issue we hearing time and time again – “the cost of materials has gone through the roof due to a serious lack of supplies!”
The shortage of materials applies across the board and includes cement, timber, steel, paint, and some electrical components. The main reason for these shortages is the unprecedented increase in demand. To try and avoid issues from these shortages and price increases, ensure that you have an efficient supply chain to reduce costs and ensure the supplies arrive in time, along with forward planning. Brexit has also had an impact on delivery time and cost of the materials, meaning that although there isn't too much you can do about this, you should ensure that you keep in constant communication with your suppliers and if you have cash or credit in hand, pre-order your materials to prevent disappointment from late delivery.
These shortages have had a knock-on effect on pricing. The cost of timber has increased by 80% in the past six months. Warmer winter has affected timber production in Scandinavia, which has contributed to these price rises. But it’s not just timber - copper and steel prices have also jumped by 40% according to Noble Francis, economics director at the Construction Products Association. There have also been price increases in chemicals, plastic, polymer and shipping costs.
Therefore, it’s vital that you have all the facts and figures to hand. These price rises could affect current projects that you are already tied into, resulting in a reduction in your margins. There is no doubt that I am sure you would need to make up the difference from your reduction in margins. To do that I suggest you compile a thorough review of all business costs and contracts as there will always be a bit of ‘meat on the bone’ that has built over the years, which you can cut back in the short term - this is a process that all businesses should have undertaken last year during the pandemic. This is why up-to-date management information is so important, so you can react to these changes now, rather than weeks down the line when it may be too late.
If you are selling these materials you may wonder what position you are in. If you already have contracts with clients that have been signed before the prices of materials have increased, it may be hard for you to increase your prices. It also depends on your relationship with said, most clients will hold firm in their original contracts but it is always worth trying to renegotiate with them. This time can be extremely stressful to the business owners out there, as there are many contractors on the market willing to lowball in order to gain contracts with little or no margin in the short term which undermines the tendering process.
There is no knowledge at the moment when this shortage will end. I can’t stress enough how important it is that you are communicating with your suppliers or clients and keeping yourself in the know.
If you would like to discuss any aspect of this article or for any other construction, business, or accounting advice, please email Andrew Coney at andrew.coney@raffingers.co.uk or click here to get in touch.