Energy and Infrastructure Report 2022
Materials, labour and deliveries
Materials
Widespread issues with materials were seen during 2021, including:
● Price escalation ● Longer lead-in times ● Unavailability of specified materials/products ● Issues importing and distributing materials, including longer delivery times and increased cost of deliveries.
Data from the Department for Business, Energy and Industrial Strategy (BEIS) shows significant price increases compared to pre-pandemic (February 2020) levels.
Materials price escalation has impacted projects in the energy and infrastructure sector, mainly due to the nature of typical projects with large volumes of materials and long durations.
Materials price escalation had started to slow down towards the end of 2021. The BEIS ‘All Work’ Material Price Index showed no change in the month to November 2021 and a 0.4 percent increase in the month to December 2021.
Despite the reported improvements with deliveries and availability at the end of 2021, price increases and materials issues are expected in 2022 as challenges remain. The most significant driver is energy price rises which are continuing due to the Russia-Ukraine war.
Increased energy costs will impact the production of materials. In particular, rising natural gas costs will impact kilns and furnaces and, therefore, the production of materials such as bricks, terracotta, steel, glass and aluminium.
On 10 March, British Steel announced a £250/t increase on structural sections for new orders with immediate effect. The increase was attributed to extraordinary volatility in commodity and energy prices as well as significant disruption to international trade flows. British Steel also advised that it will be limiting the booking capacity available.
It is expected that widespread price increases will be seen, particularly for those products that are energy-intensive to produce.
Labour
The Office for National Statistics (ONS) shows that vacancies increased by 60 percent between December–February 2020 (pre-pandemic) and November–January 2022. Across many industries, including construction, vacancies in 2021 were the highest since records began in 2001.
Brexit has had an impact, with fewer EU construction workers now in the UK. For instance, ONS figures show that the number of construction workers in London from the EU fell 54 percent between April 2017 and April 2020. Data also shows that the UK-born construction workforce is ageing, with 10-20 percent reaching retirement age in the next five years.
As a result labour price increases are reported across most trades and consultancy roles, particularly for commercial staff.
Analysis from the ONS indicates that there has been a significant increase in infrastructure output, with a 44.7 percent increase registered between February 2020 and December 2021. Large energy and infrastructure projects, such as the Thames Tideway Tunnel, Hinkley Point C and HS2, will continue in 2022, along with further investment planned across other sector programmes. It is anticipated that all parts of the energy and infrastructure sector will be recruiting.
Deliveries
Shipping
Delivery issues contributed to the challenges faced with materials in 2021. The COVID-19 pandemic impacted shipping and delivery patterns, with outbreaks slowing down processing and lockdowns increasing demand. Out of the supply chain managers polled by the Chartered Institute of Procurement and Supply, 85 percent said they had faced supply chain disruption in 2021.
Port congestion continues to impact upon global shipping. Analysis from Sea-Intel indicates that congestion took out 11 percent of containership capacity in 2021, while volumes grew seven percent. In regular times, around two percent of containership capacity is tied up waiting at ports.
China’s zero-tolerance approach to COVID-19 outbreaks has added further pressure. Lockdowns were implemented to stave off the Omicron variant. Production was also halted in factories across 64 cities in Northern China, to ensure good air quality as China hosted the Winter Olympic Games in Beijing. These factors are likely to affect availability later in the year.
Driver shortage and Brexit
A shortage of heavy goods vehicle (HGV) drivers also impacted deliveries. As numbers had fallen during the pandemic, the government implemented various measures at the end of 2021 to improve the situation, including increased testing and additional funding for training and apprenticeships.
Further disruption from Brexit is expected. For example, the replacement of CE markings with the UK Conformity Assessed (UKCA) mark has been delayed until 1 January 2023. There is concern from many industry bodies that the UK does not have sufficient testing and certification capacity to enable the change, which could lead to issues later.
Full customs controls were introduced from 1 January 2022. The Staged Customs Control Rules, which allowed UK businesses to delay import declarations, have ended, and now declarations must be made and relevant tariffs paid at import. Goods from Ireland and Northern Ireland are exempt, which will continue for as long as discussions on the operation of the Northern Ireland Protocol between the UK and EU are ongoing.
Overall, delivery issues are expected to continue in 2022 due to strong global demand. Increased prices are expected to attract and retain workers and help with decarbonisation. The Russia-Ukraine conflict is also interrupting international trade and will impact deliveries and prolong lead-in times.