QBE urges UK construction firms to "take action" amid profitability woes

“Now is the time to take action to limit disruption and protect profitability.”

Those were the words of QBE International construction portfolio manager Andy Kane, who wants construction firms in Britain to take the steps they can to remain profitable despite the impact of supply chain issues.

Supply Chains and the UK Construction Sector, a six-page report from QBE Business Insurance in partnership with Oxford Economics and Control Risks, found that construction output is likely to decline for the first three quarters of 2023.

The report noted that the biggest factor constraining construction activity in the country is a shortage of materials. In a survey carried out by Opinium in partnership with QBE in February, 89% of respondents impacted by supply chain issues said they were experiencing a shortage of materials.

Other findings include the following:

• 59% of construction companies hit by supply chain issues last year are seeing previously profitable projects as no longer profitable;
• 85% said the cost of importing materials increased over the past year at a rate higher than inflation;
• 83% experienced an issue with their supply chain in the last 12 months.

“Construction firms in the UK have seen continuing shortage of materials and supply chain disruption since the start of the pandemic,” commented Kane in an emailed release. “Therefore, it is no surprise that the majority of those we surveyed have seen disruption which has ultimately impacted profitability.

“With these challenges set to continue throughout most of 2023, now is the time to take action to limit disruption and protect profitability. There are steps that construction industry leaders can take in order to lower their supply chain risk. This includes shifting away from the ‘just in time’ supply chain model we have witnessed in recent years to a ‘just in case’ supply chain.”

Other steps cited by the report include using technology to automatically order supplies when stock levels go below a certain point, diversifying procurement to build relationships with a number of suppliers, and considering adding a cost escalation clause to future contracts to provide the option of sharing expenses if they rise uncontrollably.

While many firms are acting in response to the challenges, QBE’s poll found that 18% have not responded in any way. Some steps being taken, meanwhile, include establishing robust monitoring systems of stocks and suppliers and holding greater stocks of strategically important materials.