Andy Williamson is commercial director at construction products distributor SIG
The speed that products and practices will change in the construction sector is set for an exhilarating acceleration, but it won’t be painless, because the driving forces are price inflation, energy insecurity and disrupted global supply chains.
If the last two years have taught us anything, it is how quickly businesses can adapt. Unprecedented and potentially catastrophic events can unleash a creative approach that abandons incremental change and opts instead for reinvention.
We thought 2022 would see a return of ‘business as usual’, but the extraordinary inflationary pressures affecting the supply chain may – and perhaps should – force some radical changes.
Energy costs spike
Contractors will be all too familiar with rising product prices, and there have been some truly startling examples in the first quarter of this year. The most significant cause is the spiralling cost of energy.
All energy-intensive products are affected, including insulation, for example. Glass wool prices have doubled in a year, as has the cost of PIR insulation, with mineral wool rising by about 70 per cent over the same period. Plasterboard and aluminium cement are also rising quickly.
We’ve been accommodating these price rises for months, but the full effect of the current cost of energy is only just feeding through to the supply chain. Product manufacturers will have been hedging their energy costs, effectively buying in advance on agreed tariffs. We may see manufacturers’ prices plateau if energy costs start to fall quickly, but would you bet on them falling?
On top of energy costs there are the supply problems caused by the disastrous situation in Eastern Europe. The interconnecting nature of supply chains means that some of these consequences will be unexpected.
“Russia is an important source of aluminium, nickel and copper, but who knew that Italian ceramics manufacturers import their clay from Ukraine”
We’re all probably aware that the effective ban on timber exports from Russia and Belarus will cause pressure on supply. As the second-largest net importer of forestry products in the world (after China), the UK is very exposed.
Russia is an important source of aluminium, nickel and copper, but who knew that Italian ceramics manufacturers import their clay from Ukraine or that much of the production of semi-conductors is dependent on Ukrainian neon? A shortage of these components is already causing issues with the manufacture of boilers, fire-protection systems and heat pumps.
Even if energy costs stabilise at their current rates, we still have a considerable amount of inflation built into the manufacturing cycle, and we need to anticipate product prices continuing to run considerably ahead of the national inflation rate of about 8 per cent for the next 12 months.
Running any kind of business with this level of inflation is going to be challenging, and I think it will force three fundamental changes that could ultimately be positive.
Firstly, fixed-price tenders will be re-examined. No one in the industry will benefit from a further squeezing of already tight margins and the supply chain must work together to reframe the way contracts are negotiated.
Secondly, the case for moving towards alternative energy sources, and greater recycling and reuse is no longer exclusively an environmental imperative, but also an economic one. Most of our suppliers have produced some sort of zero-carbon roadmap and the current energy crisis may well ensure that these develop into fixed plans with an unanswerable financial case.
Finally, there surely must be a more secure focus on building the highest-quality buildings that are energy-efficient in operation, low in embodied carbon and fully exploit the latest technologies – such as phase-change materials, heat pumps and natural ventilation – as standard.
I hope I’m wrong about the level of inflation I’m anticipating, as it will make for turbulent times, but if I’m not, then we all need to focus on the opportunities for change.