Labour-crunched contractors hit by a brick wall of rising material costs, supply chain disruptions
SINGAPORE: Construction firms, already lacking workers, are having to deal with more expensive building materials as both freight and raw material demand have shot up, creating a supply chain shortage.
For consumers, this has led to more costly renovation projects, as contractors and material suppliers struggling to stay afloat pass the higher prices down the chain.
The cost of building materials such as rebars and bricks has gone up by 20 to 40 per cent, said Mr Eddy Lau, the executive director of the Specialists Trade Alliance of Singapore, which represents about 1,300 member-companies, most of them specialist contractors and material suppliers.
For example, bricks that used to cost S$0.25 apiece are currently priced at S$0.35, he said.
With building materials typically making up between 30 to 50 per cent of a project’s total outlay, many contractors have had to dig into their reserves just to keep the business going, he said.
“Most of them, they are just trying to keep themselves afloat,” Mr Lau said.
“They have been pressed in all quarters - workers, then after that materials price went up (yet) contracts prices (were) already fixed but material (prices also) gone up,” he said.
Some contractors have had to decline projects because they are unsure how long the material and manpower shortages will continue for, he said.
For those bidding for new projects, they are apprehensive about passing the costs on as they could lose out to competitors, yet are also concerned that absorbing the costs would mean smaller profit margins, he added.
FACING A BRICK WALL
The industry is already plagued by firms that price their bids at extremely low prices, causing profit margins to fall from 10 to 15 per cent about three to five years ago, to zero to 3 per cent today, said Mr Winston Ang, the honorary secretary of the Micro Builders Association Singapore.
Mr Ang, who is also the director of construction firm Unicon Group, said his construction costs have increased by 25 per cent during this period, leaving him unsure of how to bid for six tenders he has his eyes on.
He suggested that the authorities set a minimum tender amount for all construction projects so that no one undercuts their competitors unfairly.
Mr Nelson Tee, the owner CHH Construction, said he is careful about picking up new projects right now. Existing projects are already making a loss because the contracts were signed before the "circuit breaker", when raw materials and manpower costs were lower.
Like many others, CHH Construction did not stock up on inventory because it did not know how long the circuit breaker would last and it did not want to risk piling up warehousing and depreciation costs.
It also has to contend with the current shortage of manpower. Unlike normal times, it is no longer able to rely on hiring sub-contractors to do some of the construction since everyone is short on workers.
Productivity is also down because of movement restrictions on worksites, he said.
“Can our workers do it? Do we have the internal capabilities? If we don’t, we can’t bid for the project,” said Mr Tee, whose company specialises in building bungalows, shophouses and security systems.
On Tuesday (Dec 15), the Ministry of Manpower announced that it had eased restrictions on new work permit and S Pass applications so as to address the current labour shortfall.
Adding to the industry's problems is a double whammy of raw material shortages and tight shipping capacity.
Strong demand for container cargo has been driven by limited air freight capacity, industries restocking their inventories after the initial lockdowns around the world, higher demand for stay-home goods and medical supplies, said Mr Hua Joo Tan, a container shipping market analyst at Liner Research Services.
This has led to a shortage of containers and congestion at ports, causing higher freight costs.
The price to ship a 20-foot container from Shanghai to Singapore jumped from around US$170 in October to US$798 as of Dec 11 - about 370 per cent - according to the Shanghai Shipping Exchange’s container shipping rates.
Mr Tan estimates that the situation could last through the Chinese New Year period.
Prices of raw materials such as steel and plywood have also increased amid a shortage of supply as builders worldwide gradually return to work. At the same time, safe distancing requirements at factories to stave off COVID-19 has limited output, said local building materials suppliers.
REJECTING ORDERS FROM CONTRACTORS
Plywood distributor Kiera Sim, who imports from China, Indonesia and Vietnam, said surging raw material and transportation costs have forced her to raise her prices by 10 to 15 per cent. The lack of wood panels in the market has made it hard for her to sell at the usual volume and price, the executive director of Vita Group said.
Ms Vivien Ngo, the marketing manager for Foresight Metal Engineering, a company that sells cable support systems to contractor, said her supplier in Malaysia has raised prices by 7 to 20 per cent. They told her steel supply from the mills have tightened, and social distancing protocols have halved their factory workforce.
Ms Ngo said she is afraid the higher prices of materials, coupled with steep manpower costs, could cause some cash-strapped contractors to fold, so she plans to impose stricter payment terms, such as rejecting new orders if the contractors had delayed their payment on earlier ones.
READ: Migrant workers stuck overseas amid border restrictions; contractors struggle with labour crunch
RIPPLE EFFECT ON HOME OWNERS
The construction sector’s woes have already hit consumers. Home renovation bills have risen by around 10 to 25 per cent, according to interior designers, as the costs trickle downstream.
Interior design firm Key Concept’s co-founder Kenneth Chang has increased his service fees for new contracts by 10 per cent, he said.
Icon Interior Design’s co-founder Max Lee said he will increase his fees by 8 to 12 per cent if the strain in construction does not ease after Chinese New Year. Both said they will honour existing agreements, rather than reprice them.
Previously, renovations for a four-room flat would cost about S$30,000, said Mr Michael Ong, the assistant secretary-general of the 115-member Singapore Renovation Contractors and Material Suppliers Association. This has risen to about S$40,000 currently.
With the lack of workers and building materials, home owners have to be prepared for longer renovation periods as well, the interior designers said.
Four-room flat renovations that usually take between eight to 10 weeks to complete are now expected to take 14 to 16 weeks, said Mr Lee.
“(Clients) might be surprised, saying ‘my friend could do it in two months. Why (do I) need three months?’ They (need to) realise that it’s still the COVID period,” said Mr Ong, who is also the director of TBG Interior Design.