Material Shortages Threaten Completion of Infrastructure Projects

Manufacturers continue to struggle with completing projects on time due to the tightening of supplies such as cement—the second-most widely used material in the world after water. The aftermath of supply chain issues has caused inflation and shortages in not only retail-focused industries, but machinery and non-residential construction as well.

Shortages cause delays in project completion—and delays in project completion affect the timeliness of payments. "It's a trickled down, domino effect," said Chris Ring of NACM's Secured Transaction Services. "Cement is one of the first elements that goes into any kind of construction project, whether residential or commercial. With a shortage of any materials, the project will automatically run behind schedule."

Construction loans and commercial jobs are typically geared through deadlines created by banks who need projects built in a certain timeframe. The obligation of new projects needs to be fulfilled in order to generate income. "Until a project is finished it doesn't generate revenue and many contractors feel the pressure from banks to get the project done," said Ring. "A lot of owners and general contractors don't want to take the blame based on the amount of money they may or may not make from a project, so they'll pass it down to subcontractors and suppliers of materials to back charge profitability."

Coupling the shortages of products, cement prices are up 15% year-over-year, along with prestressed concrete products at their highest spike of 32.1%. "Building contractors who hoped they'd seen the back of input-cost inflation—steel and timber prices have fallen a lot lately—must instead endure another year of rising cement prices, or face going without," reads an article from The Washington Post.

Market contraction is expected this year after high demand in the winter as companies struggled to build sufficient inventories, Ed Sullivan, chief economist at the Portland Cement Association told ENR. Sullivan estimates the cement market to pull back by 3.5% in the second half of this year, being first decline in 14 years.

"The problem with inflation on top of the shortage is that a general contract could be signed 6-12 months before the customer breaks ground," said Ring. "The contracts are signed with the assumption of certain materials costing a specific price—and if there's no way to edit the contract from a pricing standpoint, it can be very problematic for the general contractor."

The global shortage of cement could cause a slowdown in federally-funded infrastructures. "Decreased demand may free up some inventories, and we fully expect imports will be at a very strong rate next year," Sullivan said. "In terms of that dynamic, there's a greater likelihood that if this market tightness doesn't disappear, it will at least lessen."

-Kendall Payton, NACM editorial associate

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Saturday, 13 April 2024

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