Industry’s triple cost whammy not relenting
- December 22, 2021
North American engineering and construction costs rose for the fourteenth consecutive month in December, according to a report released today by IHS Markit and the Procurement Executive Group. North American economies continue to face the triple whammy of surging material, shipping and labor costs.
“Amidst the limited availability for certain input materials, their high prices and logistic constraints, electrical machinery manufacturers are now struggling to negotiate supply contracts with steel mills for 2022, particularly for electrical steel,” said John Anton, director, pricing and purchasing, IHS Markit. “Producers have been notified that they will be on allocation, essentially rationing, for electrical steel for all of next year, with most expecting to get only 80 to 90 percent of purchase requirements. The impact of the electrical steel shortage could potentially be as damaging to the global economy in 2022 and 2023 as the semiconductor shortage is this year. If electrical machinery companies do not get the electrical steel they need, buyers will have to deal with much longer lead times and higher prices.”
Electrical steel, usually manufactured in cold-rolled strips less than 2 mm thick, is key to production of the laminated cores of transformers and the stator and rotor of electric motors.
The December 2021 headline IHS Markit PEG Engineering and Construction Cost Index rose from 67.4 in October to 75.2 in December;. The sub-index for materials and equipment costs drove the increase, rising 7.8 index points to 73.6. The electrical equipment sub-index increased from a sub-index reading of 59.1 in November to 86.4 in December. The sub-index for copper-based wire and cable prices rose to 62.5 from 55.0 in November.
Shipping rates also rose for the sixteenth consecutive month in December; the sub-index for ocean freight costs from both Europe and Asia to the United States rose once again, to 85.0 from 77.8 last month.
According to survey responses, labor costs continued to rise in all regions of the United States and Canada.
Survey respondents reported less shortages for materials this month, but still cited tight availability for input metals and tubing for equipment. Proposal activity remains high, as the index reached 75.0 in December. This reading is lower than November’s 81.8 total.
The IHS Markit PEG Engineering and Construction Cost Index (ECCI) is a diffusion index based on data independently obtained and compiled by IHS Markit from procurement executives from leading engineering, procurement, and construction firms. Each survey response is weighted equally for every $2 billion in spending in North America.