Most conversations in the construction industry go something like this these days:
"How is work going for you?"
"Great! I'm booked for weeks and have never been so busy. Except I cannot always find material, and when I do, it's really expensive."
Officially in January, every engineering and construction material category had a price increase for the first time since July 2018, according to a January 2021 IHS Markit report. The report showed categories were inching up for the prior three months before they all jumped. Those of us in the trenches of construction do not need a report to tell us this news; we feel it—every day. But we share this with you because it never hurts to have more information about what is trending and how to navigate the new terrain.
Construction cost statistics
The U.S. Bureau of Labor Statistics' Producer Price Index report in January showed iron and steel scrap prices were up 50.8% since January 2020. The same report showed lumber increased 73% in a year. From Spring 2020-Spring 2021, the National Association of Homebuilders says there has been a 180% price increase for lumber. That has made the cost of single-family homes go up by about $24,000. Steel Market Update's benchmark price for hot-rolled coil steel hit $1,350/ton as of April 8, topping the previous record from 2008 by about $300/ton (it was $1,070/ton in 2008).
The prices of steel and lumber have trickled down throughout the construction industry because they are the basis of so many other products. The impact can be seen in every subcontracting market, from HVAC to electric, and it continues into appliance manufacturing and interior design.
We can attest to the fact that framing has been affected. We have been hit in two ways—the price of steel, which we use to make our curvable framing products, and lumber, which creates our shipping crates. As a result, we have bumped up our prices twice since January, which is unprecedented for our company in such a short time. While cost pressures continue to mount for us, we hear from our distributor network that our increases do not compare to other products, which have been going up by larger monthly percentages.
The way out
The construction industry got into this situation via a combination of events, with the pandemic being the biggest cause. With the spread of COVID-19, shipping restrictions were put in place, and production decreased for some manufacturing facilities because of local outbreaks and safety mandates. In addition, supply and demand became wildly out of sync as the DIY crowd began renovation and building projects that far exceeded market predictions. Throw in some tariff wars, a container ship blocking the Suez Canal at the cost of about $15 million per day, and other major events, and we have these wacky 2021 market conditions.
Market leaders predict that supply should pick up and regulate prices in late 2021 into 2022. What are we all going to do until then? We are doing our best to work smarter. Some design and construction professionals have changed their approach to project management, and you can consider a few options too. Speak with your lawyer about adding an escalation clause into a contract. Essentially, such a clause allows you to renegotiate a contract based on price increases. It also might be a good time to review your construction practices and go lean. In construction, this means maximizing value and minimizing waste. Review your projects for the first half of 2021, and look at what you could have done differently to save time and money.
Also, take advantage of the news that manufacturers and distributors are putting out to you, like in this blog and other newsletters, social media posts, virtual lunch and learns, and trade shows (which are starting to happen again). They will keep you informed about pricing trends and other market indicators to watch. We will continue to share our news because we all have to weather this storm together.
We look forward to enjoying the sunny skies on the other side of this with you!