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If you could sum up the construction supply chain in one word, it would be “unpredictable.” Commercial construction companies and their customers have dealt with ongoing challenges since 2020, leaving everyone wondering if they will ever see a light at the end of the tunnel. Though the supply chain remains volatile, 2022 brought some changes that indicate we’re heading in the right direction, albeit slowly.
Experts from Mortenson’s estimating and construction management teams provided insight on U.S. trends they’re observing in Q4 and what they anticipate happening in 2023.
Factors Affecting the Construction Materials Supply Chain and Prices
Numerous factors can cause construction material supply chain disruption. Here are some of the variables that influenced the supply chain in 2022 along with local and global supply chain predictions for the coming year.
Skyrocketing fuel costs affected transportation costs in the summer of 2022, but fuel prices have stabilized and are anticipated to remain stable or decrease in 2023. However, the logistics of transporting materials will likely remain a challenge due to driver shortages, especially for construction sites in more remote areas of the country.
Labor shortages had a significant effect on construction material cost and availability nationwide. For example, a supplier might have access to raw materials, but lack labor to process and transport them. These shortages, combined with an uptick in construction, have resulted in trade partners being more selective in which projects they choose to work on.
Going into next year, workforce shortages will continue to affect different levels of the supply chain, from collecting and processing raw materials, to production, manufacturing, and transportation.
Extreme Weather Events
Flooding and catastrophic weather events caused major supply chain disruptions in 2021 and 2022. With Hurricane Ian devastating areas of Florida in late September, we could see price increases and material shortages for timber, drywall, roofing insulation, and other materials utilized in both residential and commercial construction projects. It’s tough to anticipate when this will happen and to what extent the construction supply chain will be affected.
Russia is a heavy copper producer and Ukraine is a major exporter of metals and other raw materials. The war in Ukraine both created supply barriers and triggered an increase in the export prices of materials like copper and aluminum. As the war continues, we can expect continued shortages and price increases for these and possibly other commodities.
Alternative Material Use
Alternative material use ramped up when we experienced shortages of steel and other critical construction materials. Unfortunately, that caused additional supply chain issues. “Scarcity of one material requires you to seek alternatives. Then you’re placing stress in other spots and causing a ramp-up in demand there. If suppliers aren’t prepared for that increase in demand, then you start seeing shortages in certain alternative materials,” explains Josh Rudolph, a senior planning and scheduling manager.
The popularity of alternative materials has caused prices of products like steel to trend down in an effort to sell more product. And we’re likely to see that trend continue into 2023. Clark Taylor, VP of estimating explains that “commodities don’t want to price themselves out of the market—the availability of alternative materials in the marketplace is one pressure they often respond to.”
Construction Material Supply Chain Projections
“Supply chain is a commodity-by-commodity discussion,” says Clark. “A lot of materials have stabilized in terms of pricing, but we anticipate seeing continued upward pressure on some material prices because demand is still strong. However, as kinks in the supply chain begin working themselves out, it will help tap some of those prices down a bit. As prices stabilize, we expect year-to-year inflation to settle closer to historical norms of 3-5% per year—in 2023 we should plan for around 6%.
The past few years of the supply chain in the construction industry have shown us that nothing is guaranteed. A single event can further disrupt an already volatile construction material supply chain. However, we as an industry can make predictions based on patterns and trends over the past year related to construction material costs, availability, and lead times.
Steel and Structural Steel
Steel is starting to look better in price and availability, including a reduction in the cost per ton for structural steel. Even with these improvements, prices will remain higher than what they were pre-2020. “I believe we’re starting to see steel trend down because people started seeking alternatives. If the prices come down, more people will start using more steel again,” says Dave Green, estimating manager.
Aluminum and Copper
While copper supplies were relatively stable throughout 2022, there are indications of a copper shortage, which would cause prices for that material to go up in Q4 and heading into 2023. Copper’s volatility stems from multiple factors; not just the war in Ukraine, but also instability in China. Aluminum will remain a high-demand commodity but is showing signs of stabilization.
Mechanical and Electrical Products and Components
Strong demand stemming back to 2020 caused semiconductor and material shortages that heavily impacted lead times on generators, switch gears, and electrical components. Expanded production and efforts to reshore some semiconductor manufacturing will hopefully help stabilize the supply for 2023, but it will take a while to recover.
“Lead times for many mechanical and electrical products are still several months to a year or longer out,” says Jessica Rabbach, senior superintendent. "It will take time for things to turn around and unfortunately, we anticipate these challenges continuing into 2023.”
“These electrical component shortages and long lead times were unheard of in previous years,” explains Josh Rudolph, senior planning and scheduling manager. “We’re seeing 80-week lead times on 2MW generators, which until recently, weren’t even a commonly used product outside of hospitals and large medical facilities. It’s likely to get worse before it gets better.”
Wood and Timber
Lumber appears to be under control, and we don’t anticipate seeing another price spike as we did a year ago. However as indicated earlier, rebuilding efforts after Hurricane Ian could affect supply levels and pricing due to demand.
Roofing Insulation and Materials
Commercial roofing materials like insulation and fasteners were difficult to get and had long lead times in early 2022. Things have now stabilized, and we anticipate that continuing into the next year.
Forecasting Supply Chains in the Construction Industry
Dealing with a volatile construction material supply chain adds another layer of complexity to projects. There’s no room for error in scheduling and builders need to take the initiative in managing not only their own procurement schedules but those of their trade partners.
Construction jobs have also been substantially over budget due to price fluctuations. As a result, builders and their trade partners must find creative ways to bring costs down through value analysis and identifying alternative materials. However, sometimes, added expenses are necessary to meet tight project deadlines.
Despite everyone’s best efforts, we are all at the mercy of 2023 supply chain activity. As commercial builders, the best we can do is take a proactive approach to procurement and scheduling. We must remain flexible and understand that sometimes, delays will be completely unavoidable.
Mortenson project teams pride themselves on finding creative ways to navigate complex supply chain challenges. By staying on top of industry cost trends and implementing best practices, we help keep our customers’ projects on schedule. Learn more about our process!
Supply Chain Insights From Mortenson Professionals
Mortenson is a Minneapolis construction company experienced in navigating supply chain issues to keep large-scale projects on schedule. Connect with one of our Minneapolis commercial construction experts to discuss your next project!