SUPPLY CHAIN Market Update Bulletin March 2024
Lead Author: David Hamilton, Vice President, Dir. of Strategic Sourcing Introduction With a continued choppy economic landscape, geopolitical pressures, and election-year turbulence, the construction industry is experiencing growth in most sectors, leading to a more stabilized and predictable supply chain. Labor availability issues, lending constraints, material cost increases, and persistent competition are all putting tremendous strain on subcontractors. For years, we've developed an unparalleled roster of top-performing trade partners. We pride ourselves on collaborating closely with them to navigate challenges and help us ensure that we meet the vision of our clients with the highest quality, within optimal timelines, and on budget. STO Building Group's extensive geographic reach and depth of resources position us as industry leaders, adept at steering through these dynamic times with both our clients and trade partners.
Economic Outlook
Despite continued volatility, we are holding onto a lens of optimism. Challenges remain and, in some areas, are growing in skilled labor scarcity, material cost increases, and the impacts of higher interest rates. Fuel costs, logistics challenges, and raw material increases all contribute to overall costs remaining high but not to pandemic levels. Construction spending is finding its footing, with sectors like mission critical, healthcare, and aviation still on the rise. In major cities along the East and West coasts, the shift towards more remote work is reshaping the landscape, leading to a flattening in commercial office interior construction as we adapt to new norms. A shift in volume in various sectors has had the effect of stabilizing most materials lead times, except for HVAC and especially electrical equipment.
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Subcontractor Impacts
With debt and credit requirements tightening from lenders, subcontractors are facing a tenuous position as material costs, insurance, etc. all increase. Cashflow – In order to maintain subcontractor financial health, timely payments and expedited approval of change orders is essential. These are the main cause of subcontractors defaulting in recent months. Competition nationwide has led to a challenging environment for subcontractors, with many reducing their margins to unsustainable levels to secure more work. This trend increases the risk of defaults. Subcontractor Default Insurance (SDI) becomes crucial under these conditions, as it helps mitigate project delays when a subcontractor fails to meet their obligations.
Manufacturer Relationships
Digital developments are transforming the fragmented construction supply chain into a more transparent, cohesive approach. Enhanced visibility and data gathering capabilities are adapting our manufacturer partnerships, with significant future advancements on the horizon.