The impact of Brexit on the supply chain
Whilst the Coronavirus pandemic has dominated the news cycle over the last year, it was only a matter of time before Brexit took its rightful place once again as the hot topic in the construction industry.
The UK’s transition period ended on 31 December 2020 and the rules governing the new relationship between the EU and the UK took effect on 1 January 2021. As many of you are aware there has been a soaring increase in the prices for goods and materials since then and shortages in essentials such as timber, steel and concrete.
Construction companies who price jobs in advance have been in the difficult position of either shouldering the burden of these costs, or having to increase prices of jobs, potentially causing conflict with clients.
A recent survey carried out by IHS Markit and the Chartered Institute of Purchasing Supply UK shows there has been a boom in the construction market during the pandemic, but input-cost inflation had increased for the seventh month in a row to its highest level since the survey began in 1997. The IHS noted that there have been record surges in the price of timber, bricks and steel which they believe is attributable to the combined impact of Brexit and the pandemic, causing supplies to be held up on their way to the UK.
The following are just a snapshot of materials which are in short supply and have been subject to significant price surges:
- Timber – 80% price increase in the past 6 months
- Copper and Steel – 40% price increase
- Paints and Varnishes – 30% price increase
- Polymers such as polyethylene and polypropylene - 60% price increase
- Timber battens, steel beams and plastic insulation for roofing - 50% price increase
- Cement - Supplies of bagged cement have been strained since late last year and cement prices have risen as much as 30%. Travis Perkins recently reported that the price of bagged cement will rise again by 15%
- Chipboard – 10% price increase
- Electrical components - The Construction Leadership Council said in May that shortages of certain electronic components are becoming a "growing area of concern"
Earlier this month Travis Perkins warned of further considerable price increases affecting several key materials, so watch this space.
Why materials are in short supply
In addition to the increased building and home improvement activity during the pandemic, Brexit has played a significant role in supply chain issues in the UK.
According to the Construction Leadership Council roughly 60% of imported materials used in UK construction projects come from the EU and increased congestion has been reported at UK ports since the turn of the year, leading to delays.
The Timber Trade Federation said in May that Brexit-related complications have squeezed UK timber stocks, as 80% of the softwood used in building comes from Europe, and 90% of the softwood used for new build homes comes from the continent.
The Timber Trade Federation conducted a survey earlier this year and noted a range of ongoing logistical and administrative difficulties related to Brexit, which have led to supply problems and price rises. In particular they note the following three areas of concern:
1. Inflated costs and reluctance among hauliers to bring goods in and out of the UK
Quarter 1 of 2021 has already brought multiple reports of haulage and freight companies rejecting jobs and hiking prices to travel to the UK amid long waiting times at British ports.
Construction companies have reported the following issues when attempting to engage haulage companies to transport goods in and out of the EU:
- Haulage companies are charging increased rates
- Many haulage companies are simply rejecting requests for delivery in and out of the UK
- A lack of truck availability due to the trade barriers introduced by Brexit
2. The burden of enhanced due diligence
Brexit has led to additional administrative and due diligence procedures being introduced. This increased paperwork has contributed to rising costs and has often meant each shipment must go through double due diligence. Stock going into the EU undergoes due diligence and then when it has been purchased by a UK trader, due diligence on the same product has to be undertaken again.
As part of the new due diligence, a material’s supply chain must be mapped. However, construction companies are finding that many European suppliers were unwilling or unable to share details of supply chains to help UK companies complete the necessary due diligence. There are often several supply chains involved in one shipment and every chain has to be risk assessed despite already being risk assessed when entering the EU. European suppliers do not appear to want to risk revealing their supply chains for orders to the UK when information requests are being made by UK companies.
3. Lack of infrastructure and man-power at ports
Finally, the staff at UK ports are under increasing pressure as they are having to process many more vehicles than they can handle. Many ports have found they lack the infrastructure required to impose the necessary custom checks on materials and there are mixed skill levels at different ports.
All of these factors compound to cause a slowdown of imports of building materials and other goods, as border officials grapple with new paperwork covering trade between the EU and the UK, putting more pressure on prices and fuelling a building materials shortage in the country.
Whilst many of the above issues can be resolved by increased infrastructure and training at the ports, some of the issues clearly require a political solution being agreed between the UK and the EU and so we may be in for a long wait before they are resolved (if at all!).
So whilst the UK construction market is currently booming, there is no clear end to the price increases we see and more are on the way.
Get in touch
If you have any queries relating to this article, or require any advice on issues you may be facing in the construction sector, please contact Clare Reed.