SUPPLY CHAIN PROBLEMS PLAGUE CONSTRUCTION FIRMS: Shortages lead to skyrocketing prices for wide range of building materials, adding to insured values across sector.

AuthorLerner, Matthew
Position[COVER] MATTHEW LF.RNER

Construction and building materials are in short supply and have seen double-digit price spikes since the COVID-19 pandemic took hold last year, driving up project and rebuilding costs and affecting companies ranging from contractors to insurers.

Natural disasters, manufacturing and production setbacks, logistical bottlenecks, labor shortages and political instability have conspired to produce what several sources call a "perfect storm" of cost overruns, delays and frustration.

"Material cost inflation isn't driven by any one event; it's driven by all the events happening everywhere," said Anthony Hanson, Boston-based director of analytics for AIR Worldwide, a unit of Verisk Analytics Inc.

Hurricanes Michael in 2018 and Ida earlier this year destroyed timberland, and Ida also took down the electrical grid for the Texas petrochemical complex, a key provider of construction input materials, said Jon Tate, vice president for construction in Atlanta for Zurich North America.

While construction did pause at the beginning of the COVID-19 lockdowns, it was soon back up and running as an essential industry, Mr. Tate said. Many companies in the construction materials supply chain, however, remained shuttered, because they were either deemed nonessential or as the result of other restrictions. Construction activities, therefore, have been pulling on a supply chain that has been largely idle, depleting stock.

Jim Gloriod, St. Louis-based CEO of Aon Construction Services Group U.S., a division of Aon PLC, said increased prices for lumber and especially steel have continued to drive up input costs. In addition to construction materials, steel is also used for appliances, which can be in short supply for large residential projects.

Mr. Gloriod also pointed to the impact of overseas manufacturing of components. "There are literally shortages because of some of the challenges around overseas manufacturing, as well as transportation and supply chains."

The effects of tariffs instituted during the Trump administration also continue to plague markets. "Certainly, tariffs have put pressure on pricing and supply as well," Mr. Tate said.

Inflation and economic policy are also affecting the sector. "There's some inflation and there's likely to be some more inflation on everybody's radar," said Cheri Hanes, a construction risk engineer in Dallas with Axa Construction, which is part of Axa XL, a unit of Axa SA.

"The low finance rates we have right now and have...

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