There seems to be no quick resolution in sight for the Ukraine/Russia war with over a million people already fleeing Ukraine and Russia’s Putin holding fast on his intention of winning.
Tied very closely to what is happening there is the impact it is already having on the US economy and the offsite and modular construction industry.
If the price actually reaches a $200 barrel of oil, which some oil industry advisors say is inevitable, costs will climb above $7 at the gas pump with most Americans willing to let environmental targets go on the back burner if it means holding the price at the pump down.
But gas and diesel fuel prices are just the tip of the iceberg that could begin hurting the construction industry.
As a result of Russia’s actions, supply chain disruption and the reallocation of certain types of materials will intensify the situation, with oil, steel, aluminum, timber and copper all set to be some of the worst affected.
Lumber is about to hit new record pricing with lumber from Europe to the US and with a two or three, or four week transit time, many offsite factories worry builders and developers also forced to pay exorbitant freight surcharges may begin to cancel orders.
Russia and Ukraine have been critical pig iron suppliers to the US for years, comprising more than 60% of the imports coming in since 2018.
US steelmakers rely on Russia and Ukraine for shipments of pig iron and steel slabs, used to produce raw steel at electric arc furnace (EAF) steelmakers and for rerollers to make flat-rolled products.
Brazil, which until now, has provided 20% of the pig iron used in the US will become our major supplier but their pig iron is typically higher in phosphorus, making it less desirable to steelmakers in general.
Look for costs to begin rising for the light gauge steel modular factories as our steel mills are forced to source pig iron while playing the “supply and demand” game with Europe.
The conflict is also very likely to drive copper and aluminum prices higher.
There are so many components built for the offsite industry that will see higher prices, longer lead times, and yes, increased shortages. Each of these alone could mean developers, builders and government housing authorities could suspend projects. Add in $7.00 a gallon fuel costs, the shortage of transportation and truck drivers, warehouse and production line workers and increased costs for maintaining the offsite factory itself and it could be rocky times for construction over the next year or more until things begin to stabilize, even if it means prices will remain high.
Look for affordable housing projects to begin taking casualties in the offsite construction industry as rising costs and many contractors and subcontractors closing their doors for lack of work.
England just saw 31 contractors and offsite factories file for bankruptcy in February with many more contemplating it later this year. The US may soon be facing the same dilemma.
Sourcing materials, looking at alternative materials and transportation problems are quickly becoming the new norm for our industry.
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Gary Fleisher is Editor in Chief of Modular Home Source and the Offsite Builder. Email at [email protected]
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