While order books and confidence is sky high, there is a nasty problem brewing for small trade firms.
Encouraging signs with a sting in the tail
We are hugely encouraged by the most recent IHS Market / CIPS data that shows UK construction output growing at its fastest rate since September 2014. This confirms news we have been hearing from the thousands of small and medium sized trade and construction businesses that use Powered Now, business is booming.
However we are cautious, while growth projections are upbeat there is a sting in the tail - the difficulty of sourcing materials and price inflation is punishing SMB trades companies more than ever before.
At best this is a minor hiccup in supply lines, at worse it threatens to derail the good work of the past month. In this blog post we look at four core reasons why building material supply is the new gold rush
Supply lines have not recovered from multiple lockdowns
You can be excused for forgetting, but the initial Covid lockdown both in the UK and Europe was considerably tougher than the most recent events.
In March 2020 the entire UK material supply lines were put on pause for a number of weeks. While the press was obsessed with toilet paper and pasta, for the trade and construction sector this was plasterboard, cement and many other essential materials. The prices of these products shot up as availability decreased.
This was twinned with (in hindsight) an overly cautious initial approach to store closes for a number of major merchants.
Sam Genkins from Westacre homes comments:
"The first lockdown was a nightmare. We had major projects nearing completion but getting our hands on the products we needed was almost impossible. If we could get it the price was often three times the usual cost."
"It was really frustrating as our usual supplier had everything we needed, but they were closed. We ended buying products from B&Q and Amazon while builders yards were full to the brim!"
While this constraint on supply started to ease as merchants opened up throughout the year it really demonstrated flaws in the just in time approach to stock management.
Covid-19 has hidden Brexit supply issues
While it's easy to blame the pandemic for these supply constraints, there is another fly in the ointment, Brexit. Without passing judgement on the decision to leave the EU, Brexit has lengthened the supply lines for a number of core supplies from Europe.
A significant majority of materials required by UK trade and construction are manufactured or processed in mainland Europe. As the pandemic swept the continent almost all major countries suffered shortages in stock, however manufactures are refilling the supply chains that are closer to home first with the UK falling to the back of the queue.
While this should ease over time and we are encouraged with a number of efforts to reshore material production to the UK, there is no quick fix.
Larger businesses are stockpiling, hurting smaller companies
After a year of getting hammered by the pandemic and the storms to global supply chain as detailed above, larger businesses have started 2021 with a different strategy.
Many major homebuilders and civil engineering firms are deciding that securing their supply lines is the most pressing order of business. As usual these large sized businesses always benefit the most from economies of scale. These companies have buying power and resource capacity advantages over smaller businesses.
This focus on supply lines means these larger businesses are stockpiling huge amounts of building supplies, often breaking with norms and going directly to producers to cut out the middle man. Ultimately this hurts the hundreds of thousands of small and medium sized businesses in the trade sector who simply can't compete.
Sam from Westacre homes comments:
"We just can't compete with major house builders. A good example is celotex insulation, the lead times for this is now heading into months, not weeks."
"All major supplies that come into our local builders merchant are going straight out the door to a much larger firm that has pre-purchased. They are sitting on huge reserves of it while smaller companies have to wait."
At Powered Now we are delighted to read the increase in both order books and confidence. Higher demand for construction and trade services has a real world trickle down to small and medium trade businesses.
However we are very worried about the implications of stress on the UK supply chain. While some of these issues will naturally clear as the threat of covid and Brexit reduces, the short term impact on the smaller contractor market threatens to derail these good weeks of growth.
We are especially critical of larger firms choosing to stockpile. The industry is only as healthy as the workforce within it, these larger companies rely on much smaller contractors to operate who are being unfairly penalised. It is incredibly shortsighted of larger firms to use their leverage over smaller ones. Not only does this hurt the economy but will eventually catch up with them due to their reliance on the SME sector for contract staff. We hope this practice, like covid, can eventually be eliminated.