The Construction Industry – Supply Chain and Price Increases – What’s Going On?
Over previous weeks, the building and construction industry has been hit with a number of challenges in terms of supply and demand, and increased prices for both merchants and consumers.
So, what exactly has been happening in the industry, and what’s the cause of all these issues?
PVC Price Increases and Supply Chain Issues - Why Are They Happening?
Raw Material Shortages
PVC resin, which is in our PVC products, is facing a shortage due to a range of reasons worldwide. This shortage further bumps the prices of this product up when demand is greater than supply, which is the main cause of price increases you may have seen recently.
The price of PVC has increased 98% since October 2020, so it is clear to see this is not a trivial matter and businesses are struggling to obtain the materials they need.
It’s not only PVC that is seeing increases, a number of other materials including steel and aluminium are also seeing big increases, alongside core building components such as sand – essentially all materials have seen some form of price increases.
Some reasons for this shortage are as follows:
Lockdowns relating to Covid-19 forced many businesses to close which in turn caused inventory levels of suppliers to fall. Although the construction industry may still have been allowed to operate, absences due to self-isolation or illness, and safety precautions like social distancing has slowed production and caused labour shortages, meaning products are not being turned over as quickly as we are used to. There have also been notable delays at ports, with imports now needing additional testing and extra documentation.
Further surges in demand for these products has come from the shift to home working during lockdown which has caused homeowners to rethink their living space. Many of whom have since been spending cash they would previously have spent on petrol, commuting or holiday costs on renovating their homes.
Some of the biggest production sites for PVC based products are located in the USA. Hurricane Laura ripped through factories in Louisiana and Texas in August 2020 causing 10% to 15% of US PE and PP production to stop, and just as production recovered from this, a freak storm hit Texas, which is home to the world’s largest petrochemical complex.
It is expected it will take at minimum six months for these sites to fully recover from this storm, which hit during February 2021. Naturally, this will further slowdown production.
Several big polymer producers in Europe then declared force majeure throughout the course of 2020 and 2021, effectively utilising a clause written into their contracts that relieves them of certain supply commitments due to conditions out of their control – much like a global pandemic, plant failures and freak weather. This has led to the loss of production capacity and contributed hugely to ongoing shortages of product.
Brexit and Port Charges
When Brexit was very first put in place, there were also hold ups at ports due to more regulations for those crossing the border and transporting goods to abide by. Some exporters in the EU temporarily stopped supplying the UK due to additional red tape, whereas others were forced to increase prices to cover new non-tariff barriers and unforeseen administrative costs.
Although the Ever Given, the huge container ship, was only stuck in the Suez Canal for a matter of days, it is crucial to remember that not only was the 18,300 container's worth of cargo on this ship delayed, as was the cargo on the 50 or so other ships that pass through the canal every day.
Although in the grand scheme of things this probably only resulted in a very small contribution to the supply chain, it was already fragile enough that any further delays could have had a colossal impact.
As demonstrated above, there are a huge number of delays contributing to the raw material shortage, which in turn causes even larger delays to the supply, and even higher prices due to the limited availability.
Please be assured that we are in constant contact with our suppliers to try and ensure all of our stock levels are accurately reflected online, and that any delays in delivery are communicated clearly and to the best of our knowledge.