Andy Williamson is Commercial Director at SIG, a building products distributor
The speed at which products and practices will change in the construction industry is set for an exhilarating acceleration, but it will not be without pain, as the driving forces are price inflation, energy insecurity and chains. global supply disruptions.
If the past two years have taught us anything, it’s how quickly businesses can adapt. Unprecedented and potentially catastrophic events can trigger a creative approach that abandons incremental change and instead opts for reinvention.
We thought 2022 would see a return to “business as usual”, but the extraordinary inflationary pressures affecting the supply chain could – and perhaps should – force drastic changes.
Skyrocketing Energy Costs
Entrepreneurs will be all too familiar with rising commodity prices, and there were some truly startling examples in the first quarter of this year. The most important cause is spiraling energy costs.
All energy-intensive products are concerned, including insulation for example. Glass wool prices have doubled in one year, as has the cost of PIR insulation, with mineral wool increasing by around 70% over the same period. Plasterboard and aluminum cement are also increasing rapidly.
We have been adjusting to these price increases for months, but the full effect of the current cost of energy is only rippling through the supply chain. Product manufacturers will have covered their energy costs, effectively buying in advance on agreed tariffs. We may see a plateau in manufacturer prices if energy costs begin to fall rapidly, but would you bet on them falling?
In addition to energy costs, there are supply problems caused by the disastrous situation in Eastern Europe. The interconnected nature of supply chains means that some of these consequences will be unexpected.
“Russia is an important source of aluminium, nickel and copper, but who knew that Italian ceramic manufacturers imported their clay from Ukraine”
We are probably all aware that the effective ban on timber exports from Russia and Belarus will put pressure on supply. As the second net importer of forest products in the world (after China), the United Kingdom is very exposed.
Russia is a major source of aluminium, nickel and copper, but who knew that Italian ceramic manufacturers import their clay from Ukraine or that much of the semiconductor production is dependent on ukrainian neon? A shortage of these components is already causing problems in the manufacture of boilers, fire protection systems and heat pumps.
Even if energy costs stabilize at their current rates, we still have a considerable amount of inflation built into the manufacturing cycle, and we must anticipate that product prices will continue to significantly exceed the national inflation rate. around 8% for the next 12 months. month.
Running any type of business with this level of inflation is going to be difficult, and I think it will force three fundamental changes that could ultimately be positive.
As a first step, the package offers will be reviewed. No one in the industry will benefit from further compression of already tight margins and the supply chain must work together to reframe the way contracts are negotiated.
Second, the interest in moving towards alternative energy sources, and increasing recycling and reuse is no longer exclusively an environmental imperative, but also an economic imperative. Most of our suppliers have produced some sort of zero carbon roadmap and the current energy crisis may well see these turn into fixed plans with an unanswered financial case.
Finally, there certainly needs to be more focus on constructing buildings that are of the highest quality, energy efficient in operation, low in embodied carbon and making full use of the latest technologies – such as phase change materials, warmth and natural ventilation – as standard.
I hope I’m wrong about the level of inflation I’m anticipating, as this will lead to turbulent times, but if not, we all need to focus on opportunities for change.