It’s an understatement to say that the last year has thrown things a little out of whack. The cost of raw building materials, unfortunately, has not been spared, and prices are set to increase substantially over the next twelve months. If you are a building owner looking to begin a project, or you have already started a project, you’re probably wondering what this means for your business and your bottom line. So how do you know what to expect with price increases on the horizon? Here’s what happens during periods of rising prices from the perspective of your contractor:
What Causes Price Increases:
There are both supply and demand-side issues that affect price increases. When demand exceeds supply, prices tend to rise. The Wall Street Journal calls the events of the last year a “mess”, stating that the global supply chain has been disrupted in a way that is causing increases across all industries with several main factors.
The past few months [Feb 2021] brought severe hailstorms to Calgary and in the aftermath of this and other natural disasters, roofing materials become scarce as there is an outsized demand from the affected areas.
A large segment of the materials that we use for our roofing projects are made from petroleum derivatives. The rising cost of oil therefore impacts the costs of most roofing materials. Oil prices are subject to unexpected wide swings in prices because OPEC [“The Organization of Petroleum Exporting Countries”] is an oligopoly where the members collude overtly to fix the price of a barrel of oil. According to OPEC, their members control 81% of crude oil reserves.
Discontinued product lines from one manufacturer will allow the remaining suppliers to raise prices over time due to less competition.
The increase in construction during the pandemic contributed to an excess demand situation which affects material prices. The NRCA recently put out a notice regarding raw material shortages due to increased demand in the construction industry, stressing the importance of planning projects accordingly.
The cost of trucking has risen in the last year, which impacts our freight and crane lift prices. It is also difficult to find.
What Happens During Periods of Rising Prices:
In advance of periods of rising prices, our suppliers will often attempt to bring into inventory a limited quantity of materials in advance of escalating prices to help contractors “bridge the gap” and keep our short term costs lower for our customers. Unfortunately, some materials can’t be brought into inventory because of the limited amount of available storage space and the multiplicity of product codes.
Our goal in doing these things is to keep the cost of materials as low as possible for our clients so that their roofing projects are completed within their expected budgets. When pricing increases for raw materials occur, we work with our clients and our suppliers to ensure a mutually beneficial outcome.
How We Determine The Cost of Materials:
For Projects that have already Been Awarded:
When we start a project, we look first at the date that the roofing work will be done. Once we establish a project timeline and a plan for the materials we require, we do our best to lock in prices with our distributors as soon as possible. This ensures that the cost we have quoted the customer remains as such, with no surprise increases.
However, if the project is part of a larger scale renovation with multiple parts, the cost of materials may have to be reassessed depending on the anticipated schedule for delivery. We have been a part of large construction projects with multiple phases that include many different kinds of contractors, sometimes taking years to complete. In these cases, we do our best to lock in pricing for timelines that are within our control.
For Bid Tenders (New Projects):
In most cases when we submit a bid on a project, we first look at the date that the roofing is expected to commence. We do our best to anticipate any price changes and work with projections given by our distributors.
We also register the bid with our material suppliers and negotiate whatever limited price protection is available to us so that if the bid is accepted, there is no increase in material prices.
Some Examples of Items That Have Been Affected By 2021 Pricing Increases
- Rolled roofing membrane
- Sheet metal
To see a full breakdown of the price increases per material, click here.
Pricing increases are an unfortunate reality of the changing world we are all currently navigating through. At Elite, this has renewed our commitment to the highest standards, and the most effective processes in order to keep costs down.
We appreciate the work that our suppliers and manufacturers are doing, and strive to work together to keep costs low while providing a high standard of quality and service. At Elite, we operate with full transparency for our clients, and are here 24/7 to answer your questions. That’s the Elite Advantage.