MATERIAL PRICE ESCALATIONS AND SUPPLY SHORTAGES IN THE COVID ECONOMY
As the coronavirus pandemic continues to affect the global economy and lockdown precautions disturb the labor supply, increased material prices and longer lead times have become increasingly disruptive from subcontractors and vendors across the board.
ARCO’s industry knowledge and expertise allow us to monitor these volatile trends to keep our clients informed and well prepared to navigate challenges in the months ahead. In addition, our design/build methodology puts projects on the fast track for success with buyout beginning as early as the proposal phase through advanced material purchases with LOAs in place. National buying power and bulk pricing can also reduce industry-wide price increases for ARCO’s clientele.
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Vice President & Operating Partner
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INCREASED MATERIAL DEMAND
Increased construction and COVID-19 induced supply chain impacts have put a strain on the availability of a variety of resources including steel, lumber, precast concrete, fire protection piping, and underground piping and conduit. The high demand for these materials is expected to continue into 2021 as the construction industry maintains a promising forecast, which means lead times and prices will continue to be affected.
In spite of the many negative effects that the COVID-19 pandemic has had on the economy, both residential and logistics construction has been on the rise. E-commerce and last mile distribution, as well as cold storage facility construction, continue to grow at a staggering rate. Residential and multifamily construction starts steadily maintain high levels of activity amidst a variety of disruptions in the lumber supply chain. As demand for new projects has mounted, the supply of materials required to build these projects has failed to followed suit.
STEEL: 50% INCREASE IN 2020 AND RISING
Structural steel prices increased dramatically throughout 2020 and continue to rise with unrelenting demand. Shown here: 400,000 square feet for Scannell Properties in Cromwell, Connecticut.
Steel prices continued to climb throughout Q4 of 2020 despite some predictions that they would reach their peak during the tail end of the year. Experts now say rates will likely continue to rise into 2021 as there is little supply relief in sight.
Steel joists and decking faced some of the greatest impacts on price last year, undergoing a 50% increase since early 2020. Beginning in March, domestic and international steel mills were forced to reduce work capacity and even shutter some production lines to comply with COVID-19 shutdown orders, and they have yet to return to their full capacity. The resulting limited supply only further contributed to the already existing shortage from the high demand.
LUMBER: 20-30% PRICE INCREASES, LENGTHY LEAD TIMES & LIMITED SUPPLY
Lumber materials have also seen significant price increases over the past few months – between 20% and 30%. Like steel, the already existing high demand was exacerbated by COVID shutdowns reducing the manufacturing and supply of lumber products.
As we move into 2021, it will become increasingly difficult to find materials being produced that are not already earmarked for a project. The resulting lengthy lead times will continue to affect multifamily projects. ARCO’s multifamily division, ARCO Living Group, has assisted customers in navigating price increases and material shortages by constantly monitoring market conditions and early buyout.
ADDITIONAL DISRUPTION EXISTS IN A VARIETY OF COMMODITIES
ARCO has seen disruption in a variety of key commodities in addition to the widely known shortages and price increases in steel and lumber. Precast concrete adds yet another line to the list of materials causing project delays. As of January, orders for precast have been averaging 3-8 months to fill in most locations, up to a year in others, and are increasing along with costs as panel beds are at or over capacity in all major markets. Fire protection piping and underground piping and conduit are trending similarly with long lead times and steadily rising prices.
MOVING FOWARD WITH THE RIGHT CONTRACTOR
When it comes to navigating the volatile markets for essential materials, it’s important to partner with a contractor that is actively engaged throughout the earliest stages of a project. ARCO’s extensive preconstruction services, comprehensive due diligence and accelerated project delivery make us expertly capable of providing solutions for these challenges.
ARCO’s tried and true design/build approach allows for us to determine construction cost significantly earlier than the traditional design/bid/build method. By working directly with the architect to ensure feasibility and design efficiency, all decisions can be made with full knowledge of their impact on cost and schedule at a much earlier date. ARCO can help reduce the impacts of rising material prices as early as the proposal stage by working with our client to obtain an LOA and contract for materials on hold as soon as possible.
per the Design-Build Institute of America
With more than 175 million square feet of industrial construction under our belt, ARCO’s industry knowledge and expertise allows us to provide creative solutions for even the most difficult challenges that our customers face. We are proud to be a trusted advisor to our clients as we prepare to navigate these challenges in the months ahead.
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