The first in a series of BMBI virtual meetings on Thursday 1 July 2021 saw four leading figures debating key issues affecting the building industry and its suppliers. Chaired by Tim Wood, Editor of Builders’ Merchants News, the first topic to be discussed by the panel centred on supply chain issues, capacity and product availability.

Derrick McFarland provided the opening comment, when questioned on the demand on the supply chain due to Covid, by admitting the biggest challenge was the availability of material coming through from the steel mills.

There was also the challenge of the furlough scheme, self isolation due to Covid issues and not having the manpower to make the steel and get it shipped across to the UK.

“We’re feeling the pinch big time,” said McFarland. “Unfortunately, our customers are also feeling the pinch of it as it goes through the builders’ merchants to the builders.

“Large infrastructure projects may not have a big direct effect on our material, but the automotive industry coming back on stream in the second half of last year put extra demand on steel manufacturing and availability.”

Williams said demand for Pavestone came from people staying at home and wanting paving products to redo their garden, driveway or anything else in the house.

The number wanting to do garden work put an enormous amount of pressure on the supply chain and Pavestone was seeing orders of 120-130% up on 2020 and very limited ways of being able to bring products in.

“People think there’s no product available but the reality is there is far more product coming into the UK than ever before. We can’t keep up with that level of demand and that’s the issue,” admitted Williams.

Unprecedented times

Morgan echoed much of what had been said before, but stressed that lead times have now become unprecedented from a manufacturing perspective with PVCU windows and doors seeing six week lead times across the board. Crystal Direct has also experienced price increases and surcharges from the main system houses across the board.

The availability has been sporadic as well. So as they’re manufacturing the profile, for example, they have to choose which colour ways to go with, and which is more in demand, and that creates problems for the end user, the customer, and in managing their expectations.

“We’re seeing regular use of force majeure in terms of unprecedented supply chain issues,” said Morgan. “We are 25% up in half one, which is a fantastic place to be, but it really is a challenging time for us as a UK manufacturer and we are almost working on a day-to-day basis.”

Newcomb said that it had been really interesting to hear from three very different sectors and to learn that they were all had the same issues and the same problems.

“First of all, it is a case of having to use the word unprecedented,” he said. “And that is a word that I hear over and over again. I think as a construction industry we have never been in a situation where we’ve seen so many issues across so many different materials.

“It’s not like we haven’t had material shortage issues before, because certainly in bricks and obviously last year in plaster, we had some fairly serious issues around availability.

“But we have never seen the construction industry in a situation where there were so many issues across so many different materials – whether it be timber, steel, glass, landscaping products, or screws and fixings, all of which could be found within a merchant’s product portfolio.”

Newcomb praised manufacturers for an amazing job in terms of trying to meet demand from merchants, from an allocation point of view, “because they’re trying to be as fair as they can in terms of allocating that product across a number of customer bases”.

Newcomb also shared his wish that the SME businesses, small and medium sized builders are treated fairly “because they are the lifeblood of a merchant’s business” and must make sure that the allocation system works across the board.

Newcomb added: “Whether you’re in France, Ireland, Portugal or Spain, this is a global demand and supply issue that we are facing. It’s not a UK specific problem, and it’s not only an issue for UK manufacturers or UK merchants. What is important is that we work collectively, not just in our sector, but collectively across the construction industry to try and get ourselves through the situation that we’re all facing.”

Material shortages and project completions

The next part of this debate was material shortages and the longer term implications on supply and project completions.

Wood referred to Construction Leadership Council advice on how the sector can get through the current crisis, including allocation systems being transparent as possible, customers being treated fairly, accurate communication by all parties, customers not over ordering and manufacturers not giving delivery dates that are unobtainable.

Newcomb believes that most of the large house builders and large contractors have not been impacted by availability issues. It’s predominantly the smaller merchants and the smaller builders that are a concern because 99% of the construction industry is made up of SME businesses.

Projects were either being cancelled or delayed, while others were being deferred because of availability of materials and because the original price that the consumer expected to pay for that project has now gone up substantially.

“If that continues to escalate and we see more projects cancelled, then we’re going to see the opposite effect. You’re going to see demand start to drop. And I think the biggest concern for merchants is actually the potential deflation, because a lot of them are carrying a lot of stock right now. Price deflation won’t be an issue for the next three or four months, but it could potentially in the last quarter of this year,” said Newcomb.

Pavestone has faced real challenges because the Ministry of Transport has asked all major liner operators to add more calls to Chinese ports, meaning they are moving lines away from India to China.

The MoT is saying that was down to the coordination of shipping goods needed for pandemic prevention and control, but Williams thinks it’s because you can get $10,000 a container out of China, where is it has been around $3,000 for India over the last six months or so.

“This means we will only have 25 to 40% of the stone that we placed orders for actually delivered into the UK so this is going to affect every one of our competitors as well as the whole market,” she added.

For Morgan, from a raw material perspective, everybody should recognise the need to be able to negotiate upwards in your supply chain. In order to get the allocation of the extruded product, Crystal Direct has negotiated really hard based on its previous run rate.

As long as the resin continues to come into the UK, at the allocated amount, Crystal Direct is in a really good position based on its previous negotiation to continue to make sure its own plastic supply chain  comes through.

“We’ve decided to back the company that we’ve been using for the last couple of years and give it a long term commitment based on our customer base, which is, obviously, merchants,” added Morgan.

“When the world goes back to normal, I think the demand for certain things that are on the home improvement category will go down slightly, certainly in Q1 next year and there’ll be a rebalance. People can spend their money on cars and holidays again, and so on and so forth.”

McFarland admitted it’s not easy managing allocation as Keystone Lintels has never had to do it, and it had to learn very quickly because it was ramping price increases into the market.

“What would normally happen with price increases, people buy extra, they get the benefit,” said McFarland. “We didn’t have the material to be able to allow that to happen. So as much as we wanted to sell the steel lintels we were just not able to.

“But we are dealing with allocation. Our salespeople are spreading it equally, across all our customers as best we can. And everybody knows what they’ve got.”

Pavestone hasn’t gone down the allocation route, but Williams admits it might have to come if there is only 25% of the product that people need available. “It is just really hard when everybody has different demands,” she added.

Newcomb argued that there are some sectors where allocation traditionally has never been used.

“For example, roof tiles is one area where obviously we’re experiencing a lot of issues currently. And one of the biggest problems is because there is historically no allocation system,” he said.

Sea freight costs impacts

The impact of inflated sea freight costs on shortages, lead times, cost inflation and surcharges was the next topic to debate.

McFarland said that Keystone Lintels was having to pay extra to get what you want done.

“Whereas the supplier would normally deliver, we are actually doing the internal supply ourselves,” he said. “So ultimately we’re about shipping things back and forth around the place, but that leads to issues of staff availability and working hours.”

Williams said Pavestone had noticed that surcharges were being applied to literally everything, and that some have stuck and some haven’t.

“It’s really challenging as a supplier to try and keep up where prices have gone up so much over this last year, giving notification for increases, and you seem to be forever chasing that price increase,” she said.

“So if we get given a surcharge, then that’s a surcharge from tomorrow. It’s not a surcharge from a month’s time. However, if you’ve got orders on the system that you’re delivering out in a month, it then becomes really problematic trying to adjust those.”

Morgan said that from a shipping perspective Crystal Direct has seen costs go up.

“For us it is a steel issue again and composite slabs. Most composites in the world come from Korea, so there’s definitely a supply chain issue there,” he said.

“One week in June, it felt like there were price increases coming left, right and centre daily, it’s almost instant. It’s annually for us in our sector, you’d expect one increase a year.

“It is unprecedented, to go into our industry and say here’s a price increase. And by the way, we’re going to be talking about surcharges on 1 July, 1 August and 1 September.

“We try to do all we can to be transparent with our own customer base and expect the same across our supply chain, but we are all experiencing the same thing.”

Newcomb said that the industry is not as reliant on imports as many other sectors as 76% of the products used in the UK are manufactured in the UK.

Container prices

He added that container prices are monitored and shared with the Government. The figures all across the board are about four times the cost for a 40 feet container now compared with about 12 months ago on average.

Brexit also had an impact because there was an awful lot of people trying to bring containers in prior to Christmas and before the start of Brexit, resulting in lots of congestion at ports.

The final question was what are the potential solutions of some of these current challenges?

Wood asked was it a case of riding the storm and trying to come out the other side, because we don’t know how long these problems are going to go on for? Or do we need more support for the industry?

Newcomb believes that all the measures on the Government’s commitment to long-term build strategy, retrofit and net zero carbon, illustrate that we should all be very positive about the future of our industry.

“We’ve got issues that certainly will be with us for the next six months,” he said. “I don’t see demand continuing at this level. We’ve still got one and a half million people on furlough right now. There’s going to be a mass exodus from this country over the summer once the travel restrictions are lifted and when we get back and there’s no social distancing in restaurants and cinemas you will start to see a shift away from home and gardening expenditure to other areas.”

And Newcomb’s answer to what we should do to get through this?

“For me, it’s collaboration, collaboration, collaboration. We started working together as an industry back at the start of Covid. It’s unprecedented to have contractors, housebuilders, merchants, manufacturers, engineers all around the table, which we do now on a regular basis through the CLC. The product availability group that meets every month is a very powerful group. And I would urge anybody that’s not involved in that to get involved.

“And we need to move away from a blame culture of this manufacturer’s profiteering or that merchant’s profiteering to a general understanding of these genuine issues that impact not just on the UK, but  globally.

“The only way to resolve these issues is, as we’ve been working for the last 15 months, the industry coming together collectively to talk about it openly and to work to find solutions.”

McFarland believes communication is key.

“We’re certainly looking at how we trade with our steel suppliers for our future and making sure that  we’re number one on their list so we can pass that on to our customers,” he said.

“We have to keep talking to our merchants, our builders, about availability and lead times and the challenges of getting extra people in to keep the industry moving. What we used to do two years ago isn’t normal anymore. I know it’s mind blowing for the people who work in our company, not to be able to get stuff made quicker that they have been used to for the last 30 years. So mentally it’s a challenge, but everybody has to communicate.”

Morgan agreed, stressing the importance of communicating to your customers and your suppliers.

“There is an element of riding the storm. But if you have got your finger on the pulse, your team in the right place and your key people doing what they’re there to do, you will ride that storm,” he said.

Morgan revealed that The Crystal Group had always taken the proactive approach throughout the pandemic, investing a lot of money in new machinery and coping with additional capacity where you need more people. Shift patterns were changed and there was also investment in outsourcing logistics to cope with that increase in output.

“We are always trying to look around corners, as I would say, and just continue to be collaborative again, be collaborative in both directions, with the suppliers. Stay close and communicate to your customers.

“If we can get through this pandemic and get the world back to normal over the next couple of months, then the future could look quite good for our industry.”

Williams believes that Pavestone has to look at other products and that will heavily influence the way the market goes over the next six to 12 months.

“What I’ve always said since we started in this and what I keep saying to all of our staff and all of our customers is how we behave now will be how people remember us going forward,” she said. “If we can come up with options for customers through this, then hopefully when we get out of it, that’s what will be remembered.”

This article first appeared in the July/August issue of Builders’ Merchants News.