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Supply chain problems plague construction companies



Construction and building materials are in short supply and have seen double-digit price increases since the covid-19 pandemic took hold last year, increasing project and remodeling costs and affecting companies, from contractors to insurance companies.

Natural disasters, manufacturing and production setbacks, logistical bottlenecks, labor shortages and political instability have conspired to create what several sources call a "perfect storm" of cost overruns, delays and frustration.

"Material cost inflation is not driven by a single event; it is driven by all events that happen everywhere," said Anthony Hanson, Boston-based chief analyst for AIR Worldwide, a unit of Verisk Analytics Inc.

Hurricanes Michael 201

8 and Ida destroyed timberland earlier this year, and Ida also took down the electrical network for the petrochemical complex in Texas, a key supplier of building materials, says Jon Tate, vice president of construction in Atlanta for Zurich, North America.

While construction was paused in early covid-19 locks, It was soon up and running again as an important industry, said Mr. Tate, but many companies in the building materials supply chain remained closed because they were either considered insignificant or as a result of other restrictions.

Jim Gloriod, St. Louis-based CEO of Aon Construction Services Gr. oup US, a division of Aon PLC, said higher prices for timber and especially steel have continued to drive up input costs. In addition to building materials, steel is also used for appliances, which can be a scarce commodity for large housing projects.

Mr. Gloriod also pointed to the effects of foreign component manufacturing. "There is literally a shortage due to some of the challenges surrounding foreign manufacturing, as well as transport and supply chains."

The effects of tariffs imposed during the Trump administration also continue to plague markets. "Of course, the tariffs have also put pressure on pricing and supply," said Mr. Tate.

Inflation and economic policy also affect the sector. "There is some inflation and there will probably be a little more inflation on everyone's radar," said Cheri Hanes, a construction risk engineer in Dallas with Axa Construction, which is part of Axa XL, a unit of Axa SA.

financing interest rates that we have right now and have had for quite some time – there are political reasons to believe that they may increase ", said Hanes, which could stimulate more construction activity before interest rates rise.

The shortcomings have led to some construction. companies are moving supplies to different locations to avoid work delays and some to stockpile materials to avoid shortages, sources said.

“They hoard materials instead of relying on just-in-time delivery. Workplaces I go to are full of materials that are bought proactively because they simply do not know what will happen next ", said a source.

Such storage of materials can give rise to safety problems, and carrying bearings increases costs, sources agree.

Ms. Hanes said that the demand for building materials has increased because companies have changed their office concepts and in some cases moved to new locations. "There is a lot of construction associated with it," she said. strained supply chains.

The events have wreaked havoc on the pricing and availability of building materials, resulting in an average increase of 26% in the cost of construction projects so far this year.

Among the worst price increases, wood has risen 101% compared to the previous years, while steel prices have risen by 88%, copper has risen by 61% and aluminum has risen by 33%, according to figures from the 2021 Construction Inflation Alert from the Associated General Contractors of America. The price of certain individual raw materials, such as timber, has slowed down from month to month, but futures contracts for materials show no long-term relief.

AIR: s Mr. Hanson said that actions by traders and speculators have contributed to price increases and volatility. -based CEO of Aon's US Real Estate Risk Advisory Group, which handles property claims for large commercial policyholders.

If that baseline has been changed by covid 19-related restrictions, such as shutdowns, claims for business interruptions may be more difficult to calculate and require more documentation and time. "COVID has made it more challenging because you do not have the historical results to look at," Dalton said.

In some cases, increased repair costs can leave a policyholder underinsured, she said.

Twane Duckworth, CEO and Chief Risk Officer for the City of Garland, Texas, and a member of the board of Risk & Insurance Management Society Inc., said price fluctuations and construction delays can affect insurance structures.

A construction project may disappear from the city's risk policy for builders and enter into its $ 1 million inventory of insured structures, but the value may rise to $ 1.5 million due to delays and cost overruns, which could have coverage effects, Mr. Duckworth said.

In addition, it may be wise for policyholders to take a more frequent inventory of their insured structures and assess whether replacement values ​​may have changed due to market fluctuations in building material costs, he said.

"Risk professionals should remain aware of how routinely they value and evaluate the values ​​associated with their stocks, especially in a market like this when it can change so rapidly," Duckworth said.

Pandemic likely exacerbates supply chain and market problems

"COVID-19 caused people to change their behavior and that can be translated into how they work in the market, so I see it as an economic disruption because people do things differently" , in AIRs Mr. Hanson.

"Coviden's influence was to take a bad situation and make it worse," said Tate of Zurich.


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