This year the construction industry has gone through a growth phase never seen before, yet it is one of the most challenging periods for the industry. As companies and individuals keep building not only in Australia, but also around the world, each day it becomes more difficult to satisfy the industry needs creating a supply shortage and so inflating the prices of the materials, but there is much more to it. The Haggarty Group created this article to better explain the causes of the high prices in some materials; rest assured we are doing our very best to procure those supplies you need!
Infrastructure as an economic driver
There is a well-known concept in macroeconomics, the branch of economics that studies the behaviour and performance of the aggregate economy (nations), that states that through infrastructure investment governments can stabilise countries’ economies as infrastructure contributes to economic development and keeps people at work.
Therefore, in an attempt to rebuild the world in light of the economic impact derived from the COVID-19 pandemic, governments around the globe, including Australia, created attractive stimulus packages to keep tradies in work, and to encourage construction for both commercial and residential sectors, and in so, counteract the economic slowdown derived from the pandemic; similar to what the U.S. did to address the great depression of the 1930s
This resulted in an increased demand for construction materials and supplies worldwide, and in producers being incapable of fulfilling orders since they were out of their operational capacity, which leads us to the second point.
Supply and demand theory
Probably you have heard about this in the past. In simple words, this economic theory explains the relationship between the price of a product/service and the willingness of people to buy or sell it. Generally speaking, when there is lots of supply for an item, the price of such item tends to be low since you can buy it anywhere; on the contrary, when there is a supply shortage of a product or service, the price tends to rise as this good/service is difficult to procure, as it is happening now.
To make this scenario even more challenging, some supplies are not produced in Australia and need to be imported from overseas, steel is a prime example of this, which now leads us to the third point.
Logistics and supply chain
Bringing a product from overseas 90% of the time increases the price of products as now there are more operations involved like insurance, international transportation, taxes, etc. Australia’s location is inconvenient from a logistics perspective as the only way to transport merchandise, in and out of the country, is in planes – high costs and weight constraints – or ships, cheaper than planes but it takes a long time to transport so it depends on the nature of the goods; if we take steel, for example, the most viable way to import steel is in ships and as explained before, it can take multiple days even months in some cases.
On top of that, with more people shopping online, as a consequence of covid, logistics companies are operating at nearly full capacity making it difficult to find available ships for transportation, and once again the supply and demand theory plays a vital role, do you remember what happens when there is a supply shortage of a product or service? The price of the good and/or service goes up, making it even more difficult to find products at reasonable prices!
As stated at the start of this article, this year the industry has seen one of the most significant growth in decades, yet it is incredibly challenging as supplier and distribution channels are operating overcapacity. Even with all these issues, we are working extremely hard to get the very best products at competitive prices, please bear with us during this shortage and remember that at Haggarty we will always work to find the very best for you so that we continue to be your one-stop-shop!