Rapid escalation of materials prices is causing contractors some headaches but the availability and delivery of fabricated materials is a migraine. “The ability to deliver is of greater importance than the cost of materials and equipment,” says Jim Scotti, vice president and chief procurement officer at Fluor Corp., Irving, Texas.
Many owners understand the spike in material prices but will not accept longer timelines and that makes “the shop space with our fabricators our biggest concern,” Scotti says. Most fabrication shops are running over 90% capacity and are booked far in advance., he notes.
Steel fabrication is especially difficult to come by. Indiana Bridge-Midwest Steel, Muncie, Ind., a structural steel fabricator, has been running at full capacity for two years, says general manager Robert Heapy. “We’re at 100% capacity through the first week of December and I’m turning work down every day. There’s more work than can be built,” he says.
Fabrication shops are not the sole bottleneck in the supply line, says Heapy. His company’s turnaround time is up because of a shortage of materials coming out of the mills, he says. “Right now, the mill rolling on jumbo columns is 16 weeks,” he says. “Until you get your materials out of a mill, you can’t do any work.” The fabricator has sought foreign sources of steel, but most steel companies are too afraid of dumping lawsuits to enter the U.S. market, he says.
Contractors are finding ways to manage the problem. “One of the things we are doing to help mitigate this risk is to buy earlier,” says Scotti. “Successful contractors are leveraging their procurement capabilities and getting suppliers involved earlier. We let them help us design what needs to be done.” Advance purchases of materials and engineered equipment, sometimes even before design is completed, carries risks, but “it guarantees schedule and delivery,” says Scotti.
Heapy agrees. “Companies are bringing us onboard earlier in the jobs than they have in the past. Some of the large companies are buying the steel before the job is even bid,” he says.
The tight market does not seem to be loosening any time soon, says Scotti. “The suppliers are not expanding capacity in order to keep up with the demand,” he says. Their unwillingness to expand can be attributed to excess capacity in the previous decade, he explains. “With the last project boom 10 years ago, they did expand and were left with their shops only 60% full, so today they are more than happy to have their shops 90 to 100% full,” says Scotti.
Once materials are fabricated, getting them delivered has become a more difficult process. “Logistics suppliers are just as booked as material suppliers,” says Scotti. Space has become very tight on ocean-going vessels. “We have to book space for cargo months in advance, before fabrication takes place,” he says.
As the margin for error in shipping shrinks, contractors are taking on more of the responsibility. “We don’t leave delivery up to the supplier anymore. We control the delivery risk,” Scotti says. This “is important when owners are more concerned with staying on schedule” than the cost, he explains.
The U.S. trucking industry is continuing to meet the market demand, though its excess capacity is diminishing, according to a Fluor procurement report. Most truckers are booked at least two days in advance and specialized equipment at least a week out, it says.
Linehaul costs are up more than 5%, a paltry increase compared with fuel surcharges. Escalation of diesel prices has led to delivery fuel surcharges of up to 22%, the report says.