UK construction profits hit by supply chain woes

Three in five (59%) UK construction companies hit by supply chain issues over the past year have seen once profitable projects running into losses, according to research from business insurer QBE.

The insurer carried out a survey of senior leaders in the construction industry and found that 83% had experienced a problem with their supply chain over the past 12 months. Slightly more (85%) said they expect supply chain issues to pose a challenge in the next 12 months.

The same percentage said the cost of importing construction materials increased at a rate higher than inflation over the past year.

The Supply Chains and the UK Construction Sector report was published by QBE Business Insurance in partnership with Oxford Economics and Control Risks.

It found that the UK construction industry is likely to face severe disruption again this year. Geopolitics and domestic developments will continue to affect access to materials and their price, concludes the report.

Since the first pandemic lockdown, a shortage of materials has been the largest factor constraining construction activity in UK. Nine out of 10 (89%) respondents impacted by supply chain issues said they are currently experiencing a shortage of materials.

Andy Kane, portfolio manager, construction at QBE International, said: “Construction firms in the UK have seen continuing shortage of materials and supply chain disruption since the start of the pandemic. It is therefore no surprise that the majority of those we surveyed have seen disruption that has ultimately impacted profitability. With these challenges set to continue throughout most of 2023, now is the time to take action to limit disruption and protect profitability.”

Kane added: “There are steps that construction industry leaders can take to lower their supply chain risk. This includes shifting away from the ‘just in time’ supply chain model we have witnessed in recent years to a ‘just in case’ supply chain.”

QBE says that businesses can take steps like using technology to automatically order supplies when stock levels go below a certain point. They are also advised to diversify suppliers and, where higher input prices are the likely fallout from supply chain disruption, consider adding a cost escalation clause to future contracts.

Many of the construction firms surveyed said they are taking steps such as diversifying supply chains (42%), holding greater stocks of strategically important materials (31%), establishing robust monitoring systems of stocks and suppliers (23%) and nearshoring (17%). However, the survey found nearly a fifth (18%) have taken no action.

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