2020 and 2021
The past 2 years have proven turbulent for industry. Supply chain operations have been impacted by global shortages of materials, staff shortages and transport delays, all occurring alongside a sharp rise in demand, particularly for consumer goods and construction materials. Many of these issues have stemmed from the COVID-19 pandemic, which has continued to create a state of uncertainty for businesses.
Brexit has caused further supply chain disruption for the UK and Europe specifically, with stringent cross-border checks and red tape causing lengthy delays at the border. The effects of this have been felt by individuals and industry alike, with supermarket shelves laid bare and raw materials becoming a scarcity. Brexit has also been an attributing factor to the skills shortage. Figures show that there has been a 42% decline in EU workers within the construction industry alone, with many returning to their country of origin on a permanent basis. The Office for National Statistics (ONS) also reported a record leap in job vacancies, which were estimated to be 1.2 million in September 2021 across all industries. This has left some businesses struggling to find the skilled workers that they need to fulfil their roles and fuel their pandemic recovery.
As well as a skills shortage, the diminishing supply of materials have also hit the construction industry hard. The materials shortage can be partly traced back to the first lockdown, where people were spending more of their time at home. This led to a spike in demand for housebuilding and home improvements. Since this point, material supplies have remained stretched. COVID-19 has severely disrupted the global supply chain, with restrictions slowing down raw material production. Brexit has caused further issues, considering that approximately 60% of imported materials used in UK construction projects come from the EU (CLC). A wide range of materials have been impacted, namely steel, timber, cement, and roof tiles. This led a lot of construction activity to grind to a halt, as firms struggled to source materials and faced long lead times. Increasing scarcity also resulted in material costs rising every month between September 2020 and September 2021. Small builders and specialist contractors were hit hardest by these increases, with less financial resources to cope.
Sustainability is also playing an increasing role in how supply chains operate, with governments around the world pledging their net-zero commitments. This focus on sustainability was at an all-time high when the COP26 summit took place in Glasgow in November. The summit had a clear focus on transport, which included freight and logistics, with greater responsibility being placed on industry to monitor and reduce their greenhouse gas emissions. It’s not just governments that are applying the pressure, with the public being more aware of environmental issues than ever before. This means that firms must adopt more sustainable operations if they wish to maintain a good reputation.
The Way Ahead
Although some supply chain issues have eased, industry still faces a multitude of challenges in the year ahead.
Into 2022, the Building Safety Bill is expected to have a widespread impact on the construction industry’s supply chain. The bill, which is expected to receive Royal Assent between April and June 2022, will include regulatory reforms on fire safety and the quality of construction products, it will also introduce a developer levy. This means that there will be increased liability on the industry when it comes to using the proper materials, and increased penalties for those who do not follow the safety regulations.
The skills shortage is also expected to continue, with the decrease in EU workers looking to be a long-term problem for firms. There is also increased concern surrounding the age of construction workers, with a lack of young talent in the sector. A challenge for 2022 will be creating a perception shift, making the industry more attractive to younger workers. This is vital for the sector so that there are enough new workers to replace those who are reaching retirement age. Labour rates have also increased due to demand outstripping supply, which poses another financial issue for smaller businesses. There is also the ongoing issue with HGV driver shortages, meaning that the delivery of materials may continue to face delays. The UK government has offered 10,500 visas for overseas lorry drivers to remedy the issue, however take-up of these visas has been low. This proves problematic for the supply chain, considering the construction industry’s reliance on EU imports.
Although some material shortages have eased, timber prices remain relatively volatile. Rising energy costs are also playing a role, with products such as bricks, glass, cement and concrete being particularly exposed due to the high energy intensity involved in their manufacturing process. The average cost of paints and varnishes have increased by almost a third and structural steel also faces price hikes, with British Steel imposing a £50 a tonne increase on steel sections for all new orders with immediate effect. In addition to this, price inflation is also causing concern within industry. The latest forecasts are anticipating 2022 price inflation from 7-10%+, with multiple increases expected for some products.
COVID-19 will also remain an issue that is unpredictable into 2022. The risk of new variants emerging is unforeseeable and could cause countries to re-impose disruptive restrictions and border controls, as seen with Omicron. Fragmented responses between countries results in confusion for businesses and supply chain disruption. Industry must continue to monitor the pandemic situation closely so that they can adapt and respond as seamlessly as possible.
Another challenge which will shape the industry supply chain is sustainability. Green innovations such as electric delivery vans are expected to become increasingly common, as well as a greater focus on sustainable materials. There will also be a big focus on waste reduction, both due to material scarcity and sustainability. This is particularly significant for the construction industry, which generated 62% of the UK’s total waste in 2018. Businesses will face an adjustment period as these new practices are implemented, and resistance to change will need to be overcome.
Diversity is an issue which is becoming more prominent and into the forefront of the supply chain agenda. Customers and the public as a whole are expecting businesses to take a stronger stance on this issue and to show that they are fostering diversity within their workforce. Businesses are expected to have a clear Diversity and Inclusion strategy which aims to create a positive workplace environment, where everyone is treated fairly and reasonable adjustments are made based on individuals needs. This might involve making adjustments for employees who are disabled or those that have varying work/life commitments.
Innovation also looks to be a key driver in 2022, as industry looks to learn from a turbulent and disruptive 2021 for the global supply chain. A survey of 100 UK manufacturing leaders showed that over half said that building increasingly data-driven supply chains was the key opportunity to build resilience. This relates to sustainability, with green innovations such as hydrogen fuel cells and the electrification of industry equipment being adopted to revolutionise operations.
Overall, industry has faced an extremely difficult 2 years, with the supply chain being hindered by several factors, namely the COVID-19 pandemic and Brexit. The way ahead in 2022 remains challenging with a number of unforeseeable risks. However, a focus on sustainability, diversity and innovation looks to revolutionise industry for a greener and more resilient future.
If you are a business facing shortages, here at Fairwayrock we provide a digital procurement solution allowing customers to browse multiple suppliers hosted on one platform. We stock a wide range of industry goods including PPE, tools, heavy duty industrial equipment and materials. Please don’t hesitate to get in contact with us at [email protected] if you have any enquiries.Tags: 2022, brexit, construction, covid, industry, maritime, oil and gas, supply chain