Many of you probably do not remember when a gallon of gas cost 10¢ or a loaf of bread cost 9¢. According to the U.S. Bureau of Economic Analysis, these were the numbers in 1930.
So what does gas, bread, and 1930’s statistics have to do with material costs in 2019? Over the years, price always trends up, it’s just the fact of the matter, and there is no getting around it. In the battle between labor and material costs, it’s a this or that kind of thing – sometimes both. For the state of the construction industry in 2019, the latter rings true.
Material Costs Declined in November 2018
Although material costs declined in November of last year (-1.8%), to bring the overall 2018 material cost increase down – it doesn’t appear that has affected 2019’s outlook. The main reason behind the last-ditch decline in 2018 costs was for shipping. Petroleum and crude were down meaning less cost to get commodities like steel, aluminum, lumber, and copper to the job site.
What’s Leading To 2019 material cost increase?
While many factors can lead to an increase in material cost, tariffs, labor, and crude are going to be the three most significant factors on material cost increase in 2019. As a result of continued tariffs, domestic suppliers can (and will – read already have) matched prices to meet the newly tariffed Chinese products. To be fair though, the shortage of labor is also leading to material cost increases because labor shortage is a massive issue amongst all skilled labor industries. What can you do? You should look towards futures, supply, and demand and read Ed Zarenski’s 2019 economic forecast for construction.
How can I be strategic about material cost?
If you’re looking at your material cost, you already know that price is going to go up. So how can you simplify your materials process from forecast to job completion and retain your margins?
- Be more stringent on issuing purchase orders and subcontracts at the beginning of your job
- Actively bring your subs and suppliers into your pre-construction process and get an accurate outlook on material cost
- Move to time and material billing. While not for everyone, you can use time and material billing to bill out your material and labor as you pay for it
- Implement lean practices and control your material flow on the job site
- Add material cost analysis to your leadership strategic planning sessions.
- Automate routine tasks so you can free someone up to track some of the above strategies