Rising material and freight cost amongst growing woes for construction firms

18 Dec 2020

The construction sectors’ problems have also affected home owners as their home renovation bills climb by about 10% to 15%. Homeowners are expected to be prepared for longer renovation periods, given the lack of building materials and workers.

Aside from suffering from manpower crunch, construction firms are now faced with more expensive building materials as both raw material and freight demand have increased, reported Channel News Asia (CNA). 

Hua Joo Tan, a Container Shipping Market Analyst at Liner Research Services, said demand for container cargo had increased significantly as industries restock inventories following initial lockdowns across the world.

Tan also cited the increased demand for medical supplies and stay-home goods as well as the limited air freight capacity.

This eventually led to congestion at ports, shortage of containers and higher freight costs.

Based on container shipping rates at Shanghai Shipping Exchange, the price of shipping a 20-foot container to Singapore from Shanghai surged 370% to around US$798 as of 11 December from US$170 in October. 

Meanwhile, the Specialists Trade Alliance of Singapore Executive Director Eddy Lau said the cost of building materials like bricks and rebars has increased by 20% to 40%. The alliance represents around 1,300 member-companies, most of which are materials suppliers and specialist contractors.

See also: Singapore Property Market Outlook 2021 Overview

Prices for bricks, for instance, rose from $0.25 per piece to $0.35 currently, he said.

As building materials typically account for 30% to 50% of a project’s total cost, many contractors had to dig into their reserves to keep the business going.

“Most of them, they are just trying to keep themselves afloat,” said Lau as quoted by CNA. 

“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.” 

Prices of raw materials like plywood and steel also increased, on the back of supply shortage as builders across the world gradually return to work.

Local building materials suppliers noted that the safe distancing requirements observed at factories to curb the spread of COVID-19 has also limited their output.

With these, some contractors had declined projects since they are unsure when the manpower and material shortages will last, said Lau.

Those bidding for new projects, on the other hand, are apprehensive of passing on the costs as they may lose out to competitors, but are also concerned of absorbing the increased costs as it could mean lower profit margins, he added.

Micro Builders Association Singapore’s Honorary Secretary Winston Ang said the industry is already plagued by companies that bid at extremely low prices, causing profit margins to decline from 10% to 15% around three to five years ago to 0% to 3% today.

With construction costs up by 25% during this period, Ang, who also serves as Director of construction firm Unicon Group, is unsure of how to bid for six tenders that he has been eyeing.

To ensure that no one undercuts their competitors, Ang called on the authorities to set a minimum tender amount for construction projects. 

The construction sectors’ problems have also affected home owners as their home renovation bills climb by about 10% to 15%.

Kenneth Chang, Co-Founder of interior designer firm Key Concept, revealed that his service fees for new contracts are now higher by 10%.

Suggested article: Renovation Contractor Singapore Guide: Best Practices to Follow and More

Max Lee, Co-founder of Icon Interior Design, plans to raise his fees by 8% to 12% if the strain in construction continues after Chinese New Year. However, both firms plan to honour existing agreements and will not reprice them.

Michael Ong, Assistant Secretary-General of the Singapore Renovation Contractors and Material Suppliers Association, said the cost of renovating a four-room flat has increased from around $30,000 to around $40,000.

Given the lack of building materials and workers, home owners should also be prepared for longer renovation periods, said the interior designers.

Renovating a four-room flat would now take 14 to 16 weeks, up from eight to 10 weeks previously, said 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,” explained Ong, who also serves as Director of TBG Interior Design, as quoted by CNA.

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