Faced with unprecedented market and economic conditions, construction companies through the UK and Ireland face extreme challenges to remain viable companies.
Beleaguered construction industry
battling on all fronts
The beleaguered construction industry in UK and Ireland is having to face battles on many fronts. Contracts are significantly down and more companies are chasing the little work that is available. This means tendering is very competitive and profit margins as low as can be economically sustained.
That, in itself, is a challenge for contractors looking to keep costs down. However, they are also having to cope with rising fuel costs compounded by the different types of fuels required for new machines to that used in older machines.
New equipment costs have risen substantially, by as much as 25% according to one leading plant hire company able to negotiate bulk purchasing discounts.
Plant hire companies are faced with a similar dilemma - many companies are struggling to keep their heads above water by hiring machines at minimal rates. But some, as reported in the next issue, some are finding that the situation is more positive than many would say. Unfortunately, as plant hire companies replace their fleet, the high unit cost invariably means that for contractors wanting to hire new, reliable and well supported plant and equipment, they are now having to pay more.
The costs of employing people has also risen, Now to compound it all, the Construction Products Association (CPA) has published a dismal report on material prices.
Sharp Material Price Rises Add to Construction Woes
Prospects for the construction industry during 2011 are looking increasingly bleak as sharp increases in material prices during the final quarter of 2010 exacerbated problems created by falling workloads, according to the latest Construction Trade Survey. Furthermore, with no expectation that material price inflation will fall near term, product manufacturers and contractors anticipate that sales and workloads will decline in 2011 due to economic uncertainty and falls in public spending.
Noble Francis, Economics Director at the Construction Products Association
Speaking about the survey, Noble Francis, Economics Director at the Construction Products Association said: ‘The Construction Trade Survey for 2010 Q4 highlights the effect of the poor weather in November and December, which combined with falling demand across the industry and sharp rises in costs during 2010, such as the 46% price increase in copper and 80% in iron ore, are exacerbating problems for the industry.
Although January probably saw a slight upturn due to a degree of ‘catch-up’ work lost during the poor weather in Q4, this is likely to be shortlived and firms across the whole industry are pessimistic looking forward. We have not yet seen the full impact of the public sector spending cuts and without a considerable improvement in private sector construction, a recovery in the industry as a whole will be delayed; as construction accounts for around 9% of GDP, this will inevitably hinder growth for the economy during 2011.
‘With 70% of light side manufacturers and 56% of heavy side manufacturers experiencing a fall in sales in Q4 compared to a year ago along with 22% of building contractors also reporting a fall, there is great uncertainty regarding economic activity during the coming year.’
Commenting on the survey Stephen Ratcliffe, Director UKCG, said: ‘Whilst most UKCG members are reporting good order books for 2011, there is real uncertainty about the future especially in relation to public sector investment. For example we are still awaiting the conclusions of the James review of school building and many other public sector forward lines of investment remain unclear. UKCG has called on the government to clarify infrastructure investment opportunities as a top priority in its growth strategy’
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