The construction boom is leading to severe material shortages in Australia, and there’s no end in sight. Lecturer and researcher in supply chain management, Flavio Macau explores the factors contributing to the supply disruption and outlines a solution that’s in the hands of project managers.
Why we’re experiencing a timber shortage
Demand for building materials like timber and steel is skyrocketing while supply is dwindling, with the Australian Institute of Project Management’s (AIPM) recent report with KPMG, The state of project management in Australia 2022, finding that 51% of respondents faced rising costs of materials.
Australia is about to reach the lowest point in log availability in decades according to the Australian plantation statistics and log availability report 2021 by the Department of Agriculture, Water and the Environment.
Prices are soaring
The Australia Bureau of Statistics reports that the prices of reinforced steel, structural timber, and steel beam increased by about 40% in 2022.
Timber has a 73% market share in Australia, while lightweight steel beams feature in 14% of home construction projects (source: Forest and Wood Products Australia).
Average costs have been comparable, and the choice was more often about technicalities than price.
But the answer to the timber shortage isn’t a switch to steel because the steel industry is also going through a sharp increase in prices fuelled by low investment, troubled supply chains, high energy prices, and the war in Ukraine.
- BlueScope Steel prices are up by 38%: BlueScope Steel, the major player in the Australian light gauge steel framing market, increased prices by 38% this year, according to a report by Smart Company.
- Dumping duties add pressure: A decision from the Australian Government in December 2021 to impose dumping duties of up to 20.9% on steel imports from Korea and Vietnam put extra pressure on the market.
Before the pandemic, the ABS’ Construction Cost Changes report estimated almost half of new residential dwellings would cost more to build than they were approved for, and now that number is close to 100%.
What does the future look like?
Demand for house construction will keep its momentum, with the federal budget targeting one million new homes from 2024 to 2028.
Supply-side budget measures (measures that the government takes to increase the availability or affordability of goods and services) are:
- $100m investment in research and development
- $10m for skills and training
- $86.2m for plantation establishment
- $112.9m for wood processing innovations
Project management is central to these initiatives if the construction industry is to make good use of the money.
Steel supply will increase: BlueScope plans to reline its No.6 Blast Furnace at Port Kembla.
They are developing scope, cost, and timing with an indicative investment of over $700m. They are also working on innovative, sustainable alternatives.
A recent decision to cancel tariffs on steel pipes from China and South Korea opens the door for revisions of anti-dumping measures that can re-establish the flow of other steel imports.
What can be done now?
With no silver bullet on the horizon, project optimisation could be the key to mitigating the immediate problem.
While the future looks brighter, supply will continue to be constricted and prices will not ease in the short term. Building projects, which are taking an additional 10-12 weeks to be completed, will continue to face delays.
- Spending more time in the design process: While initially costly, design improvements can save tonnes of construction waste from going into skips. Many builders are locked in outdated practices focusing on implementation rather than planning, with little attention to waste reduction.
- Designing for efficiency must be the new norm: There is an urgent need for a better project material management process in the construction industry. New parameters are needed on the construction site to improve accuracy, so that procurement departments can stop over-ordering materials and start saving money.
- An increase in the use of prefab, size standardisation, and use of Design for Manufacturing (DFM) practices can significantly reduce the amount of timber and steel needed. Not only will these measures address the urgent need, but there will also be long-lasting benefits to the construction industry.
Flavio Macau is an Associate Professor from the School of Business and Law at Edith Cowan University and was recently featured in AIPM’s Paradigm Shift publication.
AIPM’s newly released annual report, the ‘State of Project Management in Australia’, is based on a survey of the profession conducted with KPMG Australia. The report survey was conducted from July to August 2022 amongst AIPM members with 329 respondents working in project management roles across a range of industries.