Construction Cost Impacts Report - May 2023

Overall inflation rates and economic growth have cooled, while congestion at West Coast ports has eased. These changes have led some to assume that construction costs and completion times must also have improved. Unfortunately, this is not the case for many projects, materials, and subcontractors. Prices continue to remain volatile for many key construction materials. Bidding multi-year projects is still problematic for subcontractors. Although some materials have decreased in price recently, they are still year-over-year increase in excess of 10%. Russia’s ongoing attack on Ukraine and Western sanctions against Russia have disrupted production and transport of dozens of commodities. The economic slowdown is expected to continue in 2023. The CPI all-items index increased 4.9 percent for the 12 months ending April; this was the smallest 12-month increase since the period ending April 2021. The 2023 CPI is expected to average 4.3% and will lead to a push for higher wages.

Primary Causes

The primary underlying causes of these issues include:

• Labor shortages – continuing issue of attracting and retaining workers
• Raw material shortages – shortage of one ingredient can stop or limit production.
• Transportation issues – demand for container shipping and trucking have outstripped supply, together with truck driver shortages.
• Production times – just-in-time production has been severely impacted.
• Energy disruptions – the rapid rise in the cost of diesel fuel.
• Ukraine/Russia War – both countries are major suppliers of base metals to the world market and the supply of these metal has been severely disrupted.

Supply Chain Impacts (as of May 2023*)

There are signs that portions of the supply chain has improved, but there are still products that are in short supply, cement and electrical transformers as two examples. Even if materials are available, subcontractor bids are still short-lived. Managing supply chain has now become routine on project sites.

Read the full report here: XL Construction_Construction Cost Impacts_ May 2023 Issue 21