A survey of building suppliers shows the cost of shipping a 40-foot container blew out between six and 12 times at the height of the pandemic, and is taking 8 to 11 weeks to arrive.
Builders and the companies supplying them will feel financial pressure from all angles over the next six months, according to an industry poll. The impact of the cost of materials will be particularly tough.
The EBOSS Construction Supply Chain Update found the price of building products sold in New Zealand had increased by 34 percent on average during the past 12 months.
However, the cost of materials to suppliers increased by 37 percent over that time, meaning suppliers have taken a 3 percent hit on their margins on average.
And the pain isn’t over yet. Suppliers are predicting the cost of building products will increase 11 percent in the next six months, according to the poll.
The cost of shipping a 40-foot container blew out between six and 12 times at the height of the Covid-19 pandemic, and although this price has stabilised more recently and freight lead times are also appearing to settle, building supplies are still taking an average of eight to 11 weeks to arrive in New Zealand.
Some products are taking six months to arrive.
EBOSS managing director Matthew Duder says the industry has adapted to this wait by ordering more and stockpiling goods, but this just adds to costs and shortages.
“We aren’t out of the woods. We’ve still got issues, particularly around plasterboard.”
“So we’ve not only got the hit of logistics, but we’ve now got the increase in the cost of the materials just due to global activity.”
EBOSS managing director Matthew Duder
Duder is predicting there’ll be strong global competition for materials across the board over the next year, as big players such as the US, China, and India gear up for their own construction booms.
“There’ll be huge demand on global suppliers – think tiles, steel, aluminium, tapware, toilets. They’re all coming from these large manufacturers in Asia and Europe, so our New Zealand suppliers now have to compete with this huge increase in global demand.”
He expects prices to increase in light of this.
“So we’ve not only got the hit of logistics, but we’ve now got the increase in the cost of the materials just due to global activity,” Duder says.
This will see New Zealand suppliers order even more and stock it locally, meaning they’ll have to shell out to buy in bulk at a higher rate.
“Suppliers have got a very stressful time coming up and they’ll need to watch their profitability as those cost inputs do change.”
One company feeling the ripple effect of this global tussle for supplies is aluminium cladding company Nu-Wall. The company is based in Auckland, while its manufacturing partner is in Taranaki.
One of the directors, Josh Henderson, says pricing pressure is coming from all angles, but the most acute pain is for raw aluminium, as this is impacted by international prices.
A year ago, aluminium was just under $US2,100 a tonne. Now it’s closer to $US3,250, a more than 56 percent increase.
“Even though we’re made locally, we still get driven by what’s happening globally.”
It’s hard to know what’s around the corner without a crystal ball, but Henderson agrees an double figure percentage increase in the future cost of building supplies is about right.
To add to the problems, rising fuel prices, inflation, and the flow-on effect to other goods like packaging, will have an impact on building products, he says.
Builders should keep tabs on prices
Duder says with such uncertainty around what’s going to happen to the price of critical supplies, builders need to be careful when they are planning and bidding on jobs.
Dave Kelly, chief executive of the Registered Master Builders Association, agrees.
Builders will get little notice of significant price increase, he says, and if prices go up part-way through a construction contract and they haven’t been able to get enough supplies to finish the job, this could lead to some difficult conversations with customers.
“Builders don’t particularly like passing on the cost, so they’ll try and absorb it. We are hearing of margins being squeezed,” Kelly says
The industry has made healthy profits over the past couple of years, but he’s expecting some companies will get caught out by the rapid increase in costs – and possibly go bust.
“The last thing homeowners want to be doing is changing the taps, the carpet, the window type or the roofing colour,” – Matthew Duder
“I do expect that will happen, sadly, because I think there will be builders who have not retained the money in the business, and who will be caught out because from a builders’ point of view, we haven’t seen this level of inflation and cost increases [since the 1990s],” he says.
“A lot of builders who are in business today won’t have experienced this and they won’t necessarily have full knowledge as to how to deal with it.”
To help builders out, Duder thinks homeowners should consider their budgets carefully, and factor in the potential for significant supply chain cost increases when they are starting a job. In normal times, a 5-15 percent contingency fund might be fine; that might look thin when considering the cumulative impact of across-the-board materials and other cost increases.
Taking land, consenting and other costs out, 55 percent of the price of a new build can be contributed to materials, and 45 percent is labour.
“On the product side, you’d have to think that people should be planning for at least a 15 to 20 percent contingency,” Duder says.
He thinks builders would be unwise to offer fixed-price contracts by default, and homeowners should be speaking to their bank about how realistic a particular fixed-price contract a builder is offering might be.
Duder says homeowners can help builders – and their own budget – by having a clear image in their mind of what they want right from the beginning – and sticking to the design.
Alterations to their plans could be costly.
“The last thing homeowners want to be doing is changing the taps, the carpet, the window type or the roofing colour,” he says.
“People need to provide some certainty and give clear instructions and specifications to the builder for them to be able to go and deliver.”