Supply Chain Fragility

As the construction industry looks to power the post-Covid economic recovery, a new report by Turner and Townsend highlights that embedding sustainability strategies will be critical to strengthening the supply chain and achieving the country’s net zero targets.

The global professional services business’ latest UK Market Intelligence Report (UKMI) shows a cautiously positive outlook for the construction industry tempered by risks of inflationary pressure. But core to the sector’s medium and long term success will be how it deals with the need to decarbonise and build back greener.

The report argues that a concerted effort by the industry to focus on decarbonisation will not only support the environmental imperative to reach net zero, but it will also create a commercial case to do so too.

Looking specifically at the residential sector, the report suggests that there will be large scale options for cost neutral net zero retrofit schemes by the end of 2023. The challenge must be for new housing schemes to achieve the same targets where the marginal cost will effectively be nil, creating a major scale-up in delivery.

The UKMI also assesses the forward outlook for inflation. Showing that while inflationary pressure was balanced in 2020, with deflationary constraints on demand and construction activity offsetting the productivity impediments of social distancing and rising material costs, 2021 is due to tip towards inflation.

This is down to the expected increase in construction activity this year – though predicted demand is not evenly spread. High government infrastructure spending is behind Turner & Townsend’s prediction of a 1.5 percent increase in infrastructure tender prices in 2021 (up from 1.0 percent in 2020). But for real estate tender prices, a 0.0 percent inflation rate is expected (up from -2) as new orders remain weaker.

On its own, a quick uptick in inflation in an era of fragile finances could frustrate a build back better recovery, but the fragility of the wider supply chain and an industry still heavily propped up by government support are also cause for concern. With demand and output both set to increase, clients must therefore closely monitor their exposure to further supply chain disruption, insolvencies and cost increases. Resilience and capacity can be built into the supply chain with the right investment and innovation into green technologies, retrofitting and sustainable building to capitalise on the business opportunity around net zero.

Michael Grace, director in the Leeds office of Turner & Townsend, said: “The construction industry has a pivotal role to play in delivering a net zero carbon future in Yorkshire. We need to drive change, working with our customers and the supply chain to deliver sustainable outcomes.”

Source: The Business Desk