There is little doubt that the COVID-19 pandemic, currently ravaging the world, will have far-reaching consequences on various industries, especially on the materials industry. And it is not only the difficulty in the procurement of materials that poses the clear and present danger but also disruption of materials supply chain, labor shortages and shut-down of sites using materials.
Take construction materials, for example. China supplies around 30% of the US’s construction materials, and up to 80% in some other countries. The pandemic has forced many China-based international suppliers and logistic companies to cease operations, thereby affecting the materials supply chain.
Effect of the pandemic on materials
Most developed countries, including the US, rely on international shipment of materials. These materials include aluminum, copper, steel, stone, and others that are primarily sourced from all over the world. The shutting down of manufacturing facilities due to the pandemic crisis has reduced materials imports – in particular from China, but other countries too. Even where the suppliers have resumed operations, the reduced workforce and slowdown in orders have seriously undermined meeting targets. What’s more, with a depleted workforce, even with fewer overall orders suppliers could be left with backlogs of orders that they cannot fulfill.
There will likely be other knock-on effects. As businesses start to open again, demand will increase. This is certain to result in fierce procurement competition, driving up the demand for materials, and consequently, their cost. There is already a spike in the prices of aluminum and copper, and other materials are sure to follow suit. Ultimately, the progress of projects may be stunted if it is not possible for suppliers to meet demand.
To counter this, some countries have implemented supply chain strategies, such as outsourcing, offshore production, and lean manufacturing. However, there is no denying that the COVID-19 pandemic has resulted in severe disruptions in global supply chains.
Effect of the pandemic on workforce
Tied up with materials is the workforce that uses these materials. Most of the countries have resorted to lockdown, where only the essential services are allowed to operate. Since construction is usually considered a non-essential activity, the engineers, contractors, suppliers, and those associated with construction work are denied access to their workplaces, thereby stalling the construction work.
Even in countries where construction activities are allowed, the lockdown of cities and countries has brought transportation to a halt. This has had an adverse effect on materials industries, which have temporarily shut down or are on the verge of shutting down. The ban on public transport, restricted use of private vehicles on the roads, and restricted movement of people is preventing the workforce from reaching construction sites in full force. This has started to impede the progress of construction work in those countries.
Effect of the pandemic on contracts
Since the COVID-19 pandemic was unforeseen and has caused delays, contractors remain contractually responsible for delays and cost overruns on current projects undertaken by them. This is leading to needless confusion and requires both contractors and owners to sit down to review contracts and see what contractual rights and duties come under conditions caused by the pandemic.
Such a review of contracts will highlight any force majeure provisions that permit work to be suspended or terminated due to circumstances beyond control. The possibility of opportunistic claims, especially concerning supply chain disruptions, may be upheld since the contractual provisions are broad enough to include disruptions caused by the pandemic.
The overall effect on the material industry
The COVID-19 outbreak is hurting global economies, which may ultimately result in a worldwide recession. The fallout of this for the materials industry is postponement or cancellation of projects due to reduced market activity. But in the medium to longer term, demand should pick up again – it is, of course, hard to know for sure what will happen though.
Another impact on the materials industry could be a change in how buyers and suppliers do business. Until the crisis, many companies relied on ‘traditional’ ways of doing business, such as trade shows for marketing and frequent travel to meet customers. But the crisis has forced them to adopt more digital tools and approaches, and platforms that bring together materials suppliers and customers online (like Matmatch) could offer a solution.
The true impact of the crisis will only start to become clear in the coming months. But one thing is already clear: companies that fail to adopt digital solutions may well be left behind.