The construction industry is not immune to the challenges posed by inflation, labor shortages and supply chain disruptions. With terms like “recession” and “economic slowdown,” many contractors are worried about how these issues will affect their business in the coming months and into 2024.
Unfortunately, experts predict a continued slowdown in construction due to supply chain bottlenecks, rising costs and high interest rates. Since these challenges are not likely to be resolved anytime soon, the best thing contractors can do is to become aware of the major concerns in the industry and identify solutions to keep their projects on track.
Current challenges in the sector
The construction industry is an essential part of the global economy and has proven that it can endure and thrive even in the most difficult circumstances. The question is not whether the construction industry will overcome the difficulties it faces, but how individual companies will fare.
Fortunately, knowing what issues the industry faces can help contractors plan for success.
Lack of labor
Companies in all sectors are struggling to recruit and retain good workers, but the construction industry has been particularly hard hit.
The demand for construction workers is at an all-time high, but the number of skilled workers is lower than ever. This has been felt across the industry, with last year’s Associated General Contractors of America survey showing that 91% of contractors reported having trouble filling positions. In addition, the industry will need to hire an additional 546,000 workers to meet production demands between 2023 and 2024.
Supply chain disruptions
The supply chain is still recovering from the massive bottleneck caused by COVID-19. In addition, American contractors are feeling the strain of the Build America, Buy America Act, which affects federally funded construction projects and requires more parts and materials to be purchased in the United States. Unfortunately, many companies have had trouble obtaining materials made in the United States due to the current lack of manufacturing capacity for certain items.
Together, these issues are creating unprecedented material lead times.
Inflation and material costs
According to Associated Builders and Contractors, construction input prices have increased 37.7% since 2020 and since last year, they have increased 4.9%. While this may sound bleak, the year-over-year increase has improved significantly since 2021, which was up 23.1% from 2020.
Although the cost of some materials has fallen steadily over the past year, such as wood and softwood, by 12.3% and 44.1% respectively, other materials have seen a sharp increase in last months Concrete products are 14.8% more than last year.
Construction machinery and equipment is up 12.2% over last year, which has contributed to the growing popularity of construction equipment rentals.
Thrive in uncertain times
Conforming to the new standard is the only realistic option right now, which means contractors are looking for ways to cut costs, protect their assets and stay ahead of potential losses.
On the other hand, many economists and contractors have been through similar economic downturns in the past, and many believe the economy is still strong enough to keep the industry out of serious trouble. Their expertise can help others in the industry get a handle on what it takes to not only survive but thrive in today’s climate.
Stay informed
By staying abreast of industry issues and trends, contractors can stay ahead of challenges and adjust their strategies accordingly. Articles, analyst reports and newsletters help keep the industry informed and working together.
Plan for setbacks
Supply chain challenges mean that even the most diligent contractors are affected by parts shortages and delays. The following tips can help increase your chances of success:
- Order early to minimize delays.
- Develop a contingency plan for material shortages or delays to help keep projects on schedule.
- Search for security providers, subcontractors and better rates.
- Deploy security cameras and professional monitoring services to safeguard purchased materials.
Focused on workers
Keeping a business strong during these uncertain times depends on project completion, and those projects depend on workers. This means that finding and retaining qualified employees must be an important goal moving forward.
Tips for attracting and retaining good employees
- Offer competitive pay: Prospective employees are looking for a decent salary, but they also make judgments about the quality of the company based on what they pay. Expectations for highly skilled workers are higher, which means companies that offer competitive wages and benefits are likely to attract higher quality workers.
- Focus on diversity: Women, minorities and military veterans are underrepresented in the construction industry. Interestingly, a study by McKinsey & Company found that companies with greater gender diversity were 25% more profitable than less diverse companies.
- Look for new hiring opportunities: Participating in job fairs and trade shows can be a great way to attract workers from both inexperienced and skilled backgrounds.
- Create a supportive work culture: It’s simple: good employees stay at companies that are good to work for. Providing a safe and enjoyable work environment with opportunities for advancement is a good start. Workers want to feel like they are valued members of a cohesive team and will often thrive when they are set up to succeed.
Prevent loss
Preventing the loss of valuable materials is essential to maintaining a profitable business, especially when costs are so high. This means that once the materials are on site, contractors must ensure they are safe from theft and damage.
One of the easiest ways to prevent loss is to use cameras in the workplace. Many insurance companies offer discounts to contractors who deploy security cameras and professional security monitoring on their projects.
Ultimately, creating a safeguard against loss of profits is one of the most effective steps a contractor can take to protect their business.
Even in these uncertain times, the construction industry has staying power and so do the contractors who represent it. By staying ahead of the challenges, working together, cutting costs and maintaining hope for the future, the industry is likely to emerge stronger than ever.
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