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2018 Construction Industry Outlook

Tuesday, February 27, 2018 2:19 pm MST

By:

Kim Melton

As we move into 2018, the construction industry has its fair share of headwinds to tackle and tailwinds to ride. According to FMI, a forecasting firm dedicated exclusive to engineering, construction, infrastructure, and the built environment, there are a number of trends, ranging from a housing boom to inflation, that will impact the construction industry in 2018. Here is a quick look at what FMI has projected to impact the building industry for the next year1.

Proliferation of Megaprojects1:
A megaproject is a large-scale venture that typically costs $1 billion or more. They require extensive collaboration between public and private stakeholders and often take years to complete. That said, megaprojects also tend to influence the economy, environment, and society where they are located. These types of projects can range from infrastructure improvements, like building light rail transit, to commercial endeavors, like constructing new football stadiums.

In 2018, there will be a greater proliferation of megaprojects, and estimates indicate that infrastructure investments, like those we see in megaprojects, will double in the next 15 years2. The massive investment in these projects will offer opportunities for the construction industry for years to come.

One thing to keep in mind, however, is that megaprojects are notorious for exceeding their budgets and slipping on timeline deliverables3. The sheer size of megaprojects means that independent entities must work together to deliver on these huge initiatives. This offers a new opportunity for different businesses on the construction front to work together to help optimize the design, installation, and cost of the varying components of the project. A collaborative effort on megaprojects can help improve efficiency, reduce cost, and offer a competitive advantage.

Pre-fab and Off-site Construction1:
FMI is also seeing momentum build in prefabrication construction. This concept became more popular in 2017, and experts anticipate that that trend will continue in 2018. Prefabrication construction offers a variety of attractive benefits that are contributing to its popularity: eco-friendly (reduced jobsite waste), financially prudent (versatility to select the build that is appropriate for your budget), consistency (refined factory assembly reduces fabrication and installation inconsistencies)4. Additionally, prefabrication popularity is growing simply because it has the capacity to fill the gaps that are formed by the skilled labor shortage.

New Technology1:
New technology is hitting the market every day, making it easier to improve and optimize operations than ever before. Specifically, we are seeing a trend toward Building Information Model (BIM) technology, robotics, project management software, and safety technology5. The growing popularity BIM technology is a strong indicator that the industry is shifting toward a more collaborative approach to construction. More and more businesses in the construction industry are using the latest apps and software to make information more accessible and gather data to help drive key decisions. As technology continues to advance, we can assume that it will also help improve productivity, making us able to do more with less, faster than ever before.

While these trends are all boons for the building industry, FMI indicated that the advancements are tempered by some significant headwinds that are creating turbulence in what would, otherwise, be a very bright outlook.

Inflation in Transportation1:
2018 transportation inflation is unique in that it isn’t simply a result of the price of oil, which has historically been the driving cause of inflation in the transportation industry; instead, the inflating costs of transportation are being largely driven by a drastic shortage of truckers, compounded by strictly-enforced restricted driving hours. This is a one-two punch that is causing the cost of transportation to skyrocket.

New legislation limits the number of consecutive hours a trucker can drive in one sitting, and it has substantially extended the amount of time it takes to deliver goods across the U.S. Each truck is equipped with an electronic log device (ELD) that records a drive time of individual drivers. The drive time restrictions are limited to 11 hours, which equates to approximately 400 miles a day. As a result, a trip of 600 miles, which used to be achievable in one day, has now become a two-day trip. This increases costs for the additional driving time, and it can substantially lengthen the amount of time it takes to deliver goods.

These driving restrictions are exacerbated by a crippling shortage of drivers as many drivers are beginning to retire and aren’t being replaced by new drivers. There are an average of 5 buyers for every truck, and in some areas of the U.S., that average increases to 10 buyers per truck.6 The combination of these two variables has made the transportation market extremely competitive and caused substantial inflation in the cost of transportation across the U.S.

The inflation in transportation has the potential to influence the cost of the goods being transported, and, as a result, many industries, including the construction industry, are seeing the cost of products, materials, and shipping beginning to rise.

Labor Shortage1:
The labor shortage in the construction industry isn’t new news, and it is expected to continue into 2018. Where did the labor shortage come from? It’s a lingering aftereffect of the recession that hit in 2008.  At that time, the industry could not support the existing labor force, causing many skilled laborers to pursue other careers.

These laborers were never replaced, and now, when we are in a growth period, that lack of laborers is hitting harder than ever.  Compounding the shortage is the fact that many of the existing labor force are beginning to retire, leaving a gap not only in man-power but also in experience.

The National Association of Home Builders polled the industry and found that 82% of its members believe that the cost and availability of labor is the biggest issue they will face this year7. Similarly, a survey released by the Associated General Contractors of America and Sage Construction and Real Estate, found that 78% of firms are having a difficult time sourcing and hiring qualified workers8.

In this environment, the construction industry needs to ensure that it is maximizing the efficiency of its workforce. While sourcing new talent is a challenge that many face, educating the existing talent is just as important. Resources, like The Source from Johns Manville, or NIA’s Insulation.org, can be critical to equipping the next generation of skilled laborers for the construction boom of 2018.

The outlook for 2018 shows strong, forward momentum with a few hurdles that the industry will need to clear to successfully capitalize on the industry growth that we are seeing across the country. 

Sources:
1.“Past, Present & Future.” Presentation: Cynthia Paul, FMI. Jan 17, 2018, Denver, CO.
2. "The Construction Productivity Imperative." Sriram Changali, Azam Mohammad, and Mark van Nieuwland. 
3. "Megaprojects in Distress: Rethinking the Theory." Robert Prieto.
4. "7 Benefits of Prefabricated Construction." Construction Technology.
5. "Top 8 Construction Trends for 2018." Shaneel Akbar. 
6. Morgan Stanley, TL Sentiment Survey 02-21-18. Exhibit 59: Morgan Stanley Dry Van ONLY Truckload Freight Index.
7. "Construction Industry, Mid Boom, Can’t Find Eenough Skilled Workers." Patrick Sisson.
8. "Contractors Expect Growth in 2018 – Along With Worsening Labor Shortage." Joy Powell.

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