Let’s be clear about one thing, we do not yet know what the end result of the coronavirus will be. What we do know, however, is that when we panic we create mass confusion and misinformation. Although it might be true that the World Health Organization has officially declared the COVID-19, a pandemic, and as a result, it is creating global upheaval that is having a devastating impact on the world economy.
Publicly panicking a world by stating that this is a pandemic isn’t going to solve the immediate problem the world is facing. We are already hearing China is reporting that its citizens are getting a better handle on containing the virus, which is great news from a human, public health, and economic perspective. Perhaps the biggest lesson, as I have stated in a column in Connected World, is that we need to get our own supply-chain house in order. Case in point: construction is instantly feeling the crunch.
No matter how much this industry is experiencing a boom, it only takes a blink of an eye to send it all spiraling out of control because like so many others it relies heavily on foreign suppliers and manufacturers for finished goods and materials. Construction has already been dealing with the worker shortage crises, but now a paid chain of events is occurring that is leading to supply delays and a rapid increase in material costs.
Reports show roughly one-quarter to one-third of all construction products in the United States are sourced from China. A slowdown in China may cause material shortages in the United States. Or it could lead to steady increases in construction materials for the next several months.
And a slowdown in China is what we are seeing. The Organization for Economic Cooperation and Development says the adverse impact on confidence, financial markets, the travel sector, and disruption to supply chains contributes to the downward revisions in all G20 economies in 2020, particularly ones strongly interconnected to China, such as Japan, Korea, and Australia.
Further, annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020. Yikes.
In JLL’s 2020 Construction Outlook report, it has widened its materials price forecast to account for this uncertainty—due to the fact it can’t accurately forecast the impact this virus will have on construction costs.
Looking back to 2019, the organization says construction material costs increased at a steady 3% growth rate, which is a modest slowdown from the 4% growth recorded in 2018. The materials with the largest percentage price drop in 2019 were steel and aluminum.
This is a discussion we were having more than a year ago with supplies and the tariff dispute in China. Back then I had a conversation with Bernie Markstein of Markstein Advisors on Constructech TV about the controversy surrounding trade issues.
The bottomline is this: construction companies need to source from local suppliers or leverage the IoT (Internet of Things) to lead the supply chain. I wrote a bit about this over on Connected World about how the IoT can help in the supply chain in six key ways:
Increase in revenue
reduce operational/working capital costs
The bigger question now is whether the construction community will take this opportunity to fine tune its technology investments to make the industry even stronger and healthier after it comes out of its delays. Come on; let’s work together to make you all stronger. In the long run, it just might reduce some costs and make you sharper than ever before.
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