In the month since the conflict in Ukraine began, global oil prices have skyrocketed, foreign companies have fled Russia, and Moscow faces the threat of default.
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Around 374,000 businesses around the world rely on Russian suppliers, with 90% of them in the United States.
According to Dun & Bradstreet, almost 241,000 businesses globally rely on Ukrainian suppliers, with 93 percent of them based in the United States.
Exposure of this scale will have consequences in the construction industry. We will see primarily these consequences in three areas: raw materials, transportation, and production. These are obviously key factors to consider while developing a subcontracting strategy.
Price Increase and Shortage in Raw Materials
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The following materials are likely to see price increases and supply shortages.
Petrochemicals and plastics
Nickel (alloys, stainless steel, batteries, plating, and some glass)
Timber (felt more in Europe but bound to affect the US price/supply, too)
Copper (for cladding, wiring, heating systems, oil/gas lines, rainwater systems, and roofing)
Tin (for solder, plating, and various alloys
Rare metals—used in computer memory, automobiles, batteries, fluorescent lighting, etc.
Russia is a major producer of aluminum and copper, both of which have had year-over-year price rises of 33 and 25 percent in the last two years, respectively. These effects will be besides the hikes this year.
Because Ukraine and Russia generate a major amount of the world’s neon, xenon, and palladium, which are often used to make computer chips, the current chip shortage is likely to intensify. HVAC equipment, appliances, and other items are all affected.
The price of oil affects everything because of its significance in production, transportation, and the various raw materials that are used in these industries.
For the past year, transportation costs have risen at an extraordinary pace, reaching new all-time highs.
Transportation costs have been rising steadily since June 2020, reaching new highs in the last year. Considering recent geopolitical events, experts foresee wide and extremely substantial upward pressure on transportation prices across the supply chain. To compensate, some industries are increasing prices, while others are imposing energy fees.
Besides the price of fuel/oil, the conflict’s disruption of trade routes has its own set of problems. Cargo ships in the area were halted or delayed, and some flights have been canceled or rerouted, putting a strain on cargo capacity and raising concerns about further supply chain delays, as well as increasing the danger of global product supply interruptions.
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Some factories in Europe, Ukraine, and Russia will have to close because of physical danger and problems with the supply chain. There are some situations where alternative suppliers can help, but they also have their own set of problems.
Russia and Ukraine are the world’s top producers of the metals above, and they are the primary source of metals for Europe. Other sources, like South America, China, or Japan, are far away, which could make it more expensive and time-consuming to get materials, overall.
Sometimes, there aren’t as many other suppliers as there used to be. Almost 90% of the neon that is used to make chips comes from Russia, and there aren’t many other areas to have it.
It’s critical for builders to know that subcontractors tied into lump-sum contracts may not bear these costs on their own. To assist them, the industry must work together. In many circumstances, collaborating rather than canceling a struggling subcontractor is preferable because the next subcontractor in line will probably encounter the same supply chain and cost issues.
There is no foolproof answer to this difficult problem, but communication and teamwork are essential elements of the most likely path to success.
- Hanes, C. (2022, March). Effects of the Russia-Ukraine Conflict on Construction Supply Chains. IRMI. Retrieved March 23, 2022, from https://www.irmi.com/articles/expert-commentary/effects-of-the-russia-ukraine-conflict-on-construction-supply-chains?msclkid=a31fc74caa6d11ec8ed111c3ff636326