Embracing technology and new materials: Constructing the supply chains of the future

The construction sector has been experiencing record demand for new projects across the built environment spectrum. With the ‘levelling up’ agenda, the New Homes target of 300,000 homes per annum, investment in crucial infrastructure such as HS2 and delayed projects because of covid, the sector has seen significant output growth. 

However, with the current geopolitical context and access to labour issues, coupled with global supply chain issues, it is not all plan sailing for the industry. 

If we look at the sector’s direct exposure to the Russia-Ukraine conflict, in 2018 construction businesses imported just 1.5 per cent of goods and services from Russia. This is compared to an average of 4.39 per cent in the Euro zone, with percentages hitting 5-7 per cent from eastern European nations . While businesses and the sector are thankfully not directly dependant on Russian markets, there remains uncertainty in supply chain networks due to longer lead times, soaring energy prices, inflation and interest pressures and repayment of various government funding related to the pandemic. 

How is the sector performing?

The construction sector has proven itself resilient in its delivery and operations over the course of the pandemic so far. However, the sector is not immune to macroeconomic forces, such as inflation and the threat of economic recession. In June 2022, the volume of monthly construction output decreased by 1.4 per cent, following an upwardly revised 1.8 per cent increase in May 2022. This is the first decrease since October 2021 (0.9 per cent) following seven consecutive months of growth, according to the latest Office of National Statistics figures.

Despite the monthly decrease, construction output increased 2.3 per cent in Quarter 2 (Apr to June) 2022, with increases seen in both new work and repair and maintenance (3.3 per cent and 0.8 per cent, respectively).. However, we are now seeing a fall in housing transactions as well as a decline in overall output, suggesting the “cost of living” and general market uncertainties are now being seen in the sector. While we should not overreact to these figures, it is certainly true that the bounce back from lockdowns is slowing down, in part due to the aforementioned headwinds.

As well as these headwinds, the supply of labour for the construction sector is under considerable strain. Over 2019-2021, the number of migrants working in construction has fallen by 15 per cent from over 326,000 to 280,000. With large public infrastructure projects commencing the loss of migrant workers has been felt by the wider ecosystem. With an aging workforce, the sector continues to grapple with attracting new talent. However, some improvement has been seen as a result of businesses requiring new skills in the development of IT and embracing Modern Methods of Construction.

A combination of migration policy changes and lockdowns have further exacerbated a key challenge for the sector. While government funding has increased in apprenticeships and skills investment, it will take time for these investments to bear fruit, leaving construction businesses struggling to access the necessary on-site labour.

Material inflation

The availability and supply of materials for construction purposes has been inconsistent, at best, over the last two years. What has been consistent, unfortunately, has been the rise in cost of crucial materials which have been exacerbated by global crises impacting supply. For example, since April 2021, the price index for fabricated structural steel has risen from 157.2 to 262.1, with cement, plywood and concrete reinforcing bars also seeing dramatic price rises.

The trade deficit of construction materials has risen from £9.2m in 2020, to £11.6m in 2021. The deficit in Q1 2022 is also significantly ahead of Q1 2021, rising from £2.6m to £4.1m, so this gap is expected to widen further still over the course of this year.

Interestingly, there has been a marked rise in import values of prefabricated buildings materials, with an aggregated rise across all materials for prefabricated buildings of 47 per cent in two years from 2019-2021. In the context of disrupted supply chains, this represents a change of approach from some construction businesses.

Future predictions

The increased demand for prefabricated materials follows hot off the heels of the recent announcement of a modular housing developer, who are planning to construct a housebuilding mega-factory in the UK, which will eventually be able to produce 4,000 homes a year, as reported by the Financial Times. The facility, once constructed, will be Europe’s largest modular housing factory, which is a huge vote of confidence in the appetite for innovative building methods in the UK. 

Another primary advantage of modular build in relation to supply chain difficulties is that these prefabricated buildings use a greater proportion of recycled and reclaimed materials than conventional construction methods. As well as this, a recent partnership between a modular builder and Haringey council delivered 33 homes for homeless people in the area. In the context of record-high energy costs, the operating costs of these prefabricated are a much more affordable option compared with all existing UK housing stock.

Looking further ahead on the construction materials themselves, there is a noticeable determination from the industry to tackle the supply chain problems in parallel with net-zero carbon ambitions. The Concrete Action for Climate (CAC) initiative is a coalition of organisations that support the objective of delivering net-zero concrete to the world by 2050. Seeing as the production of cement, the key ingredient in concrete, accounts for c.7 per cent of global carbon emissions, this would be transformative for the industry. By shifting energy use in the production of cement from fossil fuels to a mix of other energy sources, including the use of co-processing with industry waste, concrete emissions could drop by up to one-third.

As inflation continues to rise and market uncertainty begins to impact decisions around investment the construction sector is likely to see a slow in activity. However with pipelines remaining strong post-pandemic and large infrastructure projects progressing, there is still optimism and resilience in the sector. To make this optimism a reality, construction businesses must continue to invest significant time and resource into future-proofing their supply chains.

There is a commitment from the sector to drive the Net Zero agenda and look for alternative ways to deliver, build and maintain buildings bringing many opportunities to create new materials and skilled workforce for the future.