There’s Light at the End of the Supply Chain Tunnel
(Well, a little, at least)
Is there any good news out there about Supply Chain for our heavy engineering and construction projects industry, or even in general? Many have hoped that by Q1 2022, we would have seen improvement on many fronts, but the headlines seem to just keep coming:
“Massive Worker Shortage”
“Historically High Prices and Lead Times”
“Covid-Related Plant Shutdowns, Again”
“Nearshoring Not Working Fast Enough to Catch Up Supply Chains”
“Political Unrest and Related Trade Disputes Continue”
A recent survey from the Institute for Supply Management of purchasing managers in the U.S. makes the state of the times clear: “All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products”.
Entire projects are still at risk of getting cancelled or delayed due to investment decision price point overruns and the sticker shock of re-baselining. Not to mention extraordinarily long logistics transit times and rates. What to do? Are we getting any closer to getting relief from these pressures?
On some fronts, yes, we are seeing some relief. COVID-19 has caused action that will, at least in part, last and will positively influence our project performance for many years to come. Yet, some areas are slower to improve. This blog provides a brief insight into our current Supply Chain state, and where we’re starting to see some improvements.
Canada’s unemployment rate is projected to average 6% over 5 years, below a 50-year average of roughly 7.5%. The U.S. rate is now 4%, well under the 70-year average of 5.7%.  Great unemployment numbers, right? Yes, but our industry’s problem lies with people employed in skilled and unskilled roles and industries that don’t participate in the project ecosystem.
According to Associated Builders and Contractors, construction businesses will need to hire 430,000 workers this year and 1,000,000 workers within the next two years for the industry to keep up with demand. Where in the world are these people going to come from?
When the COVID-19 pandemic made its initial shockwave through the world in early 2020, the global workforce was instantly disrupted. Millions upon millions of trained workers retreated to their homes to work amid precautionary lockdowns. But for sectors where remote work wasn’t an option, like manufacturing facilities, the logistics industry, and construction jobsites, COVID-19 was far more disruptive. Couple worker shortage with an incredibly fast uptick in demand for products of all kinds once COVID-19 restrictions began lifting in 2021, and we see why today’s problems still exist. Seeing some kind of ending to COVID-19 may lure many who participated in the “Great Resignation” back to remote and in-person employment.
Some good news: “blue-collar” wages continue to trend upward, growing at a faster rate than wages for “white-collar” jobs and reversing a trend that had been in place throughout the past 30 years, according to data from the U.S. Bureau of Labor Statistics. According to a recent CNBC article, for workers in blue-collar industries such as construction, transportation, and manufacturing, they’ve seen the highest jump in wages in recent years, and they continue to rise. This should help in aiding to fill vacancies of all kinds, including links within supply chains, that serve the greater construction industry.
Figure 1 – Employment Cost Index (Wages and Salaries) Percentage Change 
A global semiconductor shortage has crimped the supply of new trucks and other automobiles, as much of their technology is made with critical computing hardware. Additionally, the economics of the trucking industry have made it difficult to attract enough people to drive trucks filled with goods once they’re unloaded from the major cargo ports.
News of cargo ships waiting to unload goods at ports worldwide grabs headlines. If there’s any way to summarize the current state of Logistics, and how it affects construction projects, that summary would be “it’s complicated”. Demand is simply far exceeding supply, from trucks and ships to people needed to work. Getting ships into ports and containers off those ships is one thing; getting those containers to their destination is another. It is a two-pronged problem; there is a shortage of both people and trucks and trailers.
A recent Bloomberg article notes that the American Trucking Associations issued a warning for how severe the trucker shortage is. The current shortage stands at 80,000 drivers and is set to surpass 160,000 by 2030. The nation will need to recruit almost 1,000,000 drivers in the next decade to replace retiring drivers and keep up with growing freight demand.  In 2021, trucking firm CR England announced its largest driver-pay raise in its history, and its third pay hike in three years. CR England said its pay has increased by more than 50% since 2018. 
Steps like this will attract more drivers, but this trend needs to accelerate, with the hope that logistics firms of all kinds aren’t simply pocketing the extremely high revenue and are instead using the profits to hire the people needed to ease the backlog of work.
Market Price and Leadtime Trends
Engineering News-Record states, “Steel prices are moving downward in much of the world. Global steel production is fully recovered and exceeds pre-COVID-19 output, and even the U.S. is back to 2019 levels.” 
Steel and copper are often used as benchmarks for the construction sector worldwide, and the London Metal Exchange is a go-to source for market intelligence and research. In the graphs below, we see North American steel pricing, as well as worldwide copper price trends; seeing both come down from their recent high is encouraging:
Figure 2 – London Metal Exchange Steel HRC North America (Platts) Closing Graph 
Figure 3 – London Metal Exchange Copper Official Prices Graph 
The following graph illustrates that while steel lead time has been markedly decreasing in recent months, steel pricing is following that trend, as supply capacity has increased dramatically. Good news!
Figure 4 – Hot Rolled Index vs Lead Times 
Lastly, Engineering News-Record and IHS corroborate these metrics with another look, plus a forecast of continued price drops through 2024:
Figure 5 – Structural Steel Forecast 
Another area that many companies have begun to embrace focuses on using supply chain data to influence strategic planning and decision making: Data Analytics. We simply must use supply chain data to inform our companies and projects, so we can plan for more success. The material and services that we acquire for our projects are more important now than ever, thanks in no small part to COVID-19. We must use the data we’ve had for many years, for the good of our performance. Thankfully, many are acting on this need:
Figure 6 – Planning for Investing in Analytics, by Industry Sector 
There’s really no excuse for being purely reactive to the ups and downs of wild labor and material market swings, both for price and lead time. Tools are widely available to consume and visualize supply chain and market data, to make our estimates and forecasts clear, and to benchmark our project financials. Supply Chain (the people and the process) must be involved to shore up the accuracy and impact of our decision making. Factors such as who and where we buy from, how goods should be moved, the price we should be paying and in which currency, etc., are more important than ever.
So, do the words “Supply Chain” still cause concern in our work (and personal) life? Sure. Are we still in “emergency mode”? Sort of. Will projects still get funded, designed, and built? Of course. We are in a great position to take advantage of the importance COVID-19 provided to supply chain. We have adjusted many links of the chain to make it more resilient, and we’re much more aware of events that can affect our success, which is a good thing.
Oxford Economics’ most recent Global Risk Survey indicates that Supply Chain disruption poses the greatest risk to global economic recovery. Businesses see persistent disruption as a greater threat to recovery than coronavirus developments.  Only 1-in-5 of those affected by disruption think the worst of the crisis is behind us. To see that it’s not 0-in-5 is a good sign!
We are starting to see the light at the end of the tunnel. We’re not out of it yet, but we’re on our way.
Author: Jeff Houtz – Constructing Supply Change
- U.S. Bureau of Labor Statistics – Employment Cost Index – December 2021 (bls.gov)
- London Metal Exchange (www.lme.com)
- Steel Market Update: Steel Prices, News, & Analysis – Steel Market Update
- Engineering News-Record and IHS Market: Forecast HIS Global Insight, Historical Data Platts
- McKinsey & Company: How COVID-19 is reshaping supply chains | McKinsey