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May 13, 2022updated 27 Jul 2022 5:20pm

Eastern Europe expected to be hit hard by supply chain disruptions in 2022

Throughout 2021, the impact of rising construction costs was felt more severely in Eastern European countries, in which prices tended to rise faster than the EU average.

By GlobalData

The impact of the war in Ukraine on construction supply chains in Eastern Europe has been profound, with the region being heavily interlinked with the Russian economy, and therefore at greater exposure to the backlash of sanctions imposed on the country by Western governments. Global construction costs have already risen rapidly in the last year, owing to supply chain disruptions following the sharp post-pandemic rebound in demand. This led to shortages in the supplies of raw materials, which caused lead times to extend and prices to rise.

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Throughout 2021, the impact of rising construction costs was felt more severely in Eastern European countries, in which prices tended to rise faster than the EU average. Construction costs among the 27 EU countries rose by 9.3% year-on-year (YoY) in December 2021 while costs in Romania, Estonia, and Hungary rose by 19.1%, 17%, and 16.3% over the same period, respectively. The war in Ukraine is putting further upward pressure on lead times and input costs in 2022, increasing the risk of a more severe deterioration of supply chains over the year. Moreover, the energy crisis resulting from the war is putting additional pressure on supply chains by raising production and transportation costs of key materials. Despite the whole of Europe facing significant disruptions in 2022, the divergence of construction costs in Eastern European countries from the EU average is likely to increase.

Disruption caused by material shortages has exacerbated since the imposition of Western sanctions restricted trade flows between Europe and Russia, which is a major exporter of energy and raw materials used in production. As a result, lead times for supply deliveries in the eurozone increased significantly between February and March, and the deterioration of supplier performance was the most severe in nine months, according to Construction PMI data for March 2022. By material, the impact is being felt most profoundly on the availability of bricks, timber, and roof tiles, with lead times for the latter extending up to six months. The impact on lead times in Eastern Europe as a region is likely to be more severe, as heightened dependence on Russian trade will increase the disruption felt by neighbouring countries.

Moreover, material shortages and soaring energy costs owing to restricted trade with Russia is pushing up production prices of key construction materials. The price of steel has increased rapidly, owing to rising costs for input materials such as zinc, which reached a 16-year high in April, and coking coal used in the production process. The increase in the price of coal alone has increased the price of steel produced through the basic oxygen process by 40%. Furthermore, rising energy costs have contributed to an increase in the prices of other energy-intensive key materials, such as cement and bricks, by 36% and 15%, respectively, with energy costs accounting for a quarter of overall production costs for both materials, according to Arcadis. In addition, high energy costs feeding into the price of fuel will increase the delivery costs of materials along the supply chain, putting further financial strain on construction contractors and sub-contractors.

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3 Key Tips for a Successful Design Build Project

With supply chain disruptions and inflation creating new challenges for delivery teams, design-build projects are booming. This e-book looks at the 3 essential tips a project delivery team must consider when delivering a successful Design Build project.
by Oracle
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