New Atradius Report Examines Supply Chain Risks in Global Construction Sector

Global supply chain managers seeking to understand the current construction sector may wish to consult the latest “market monitor” recently issued by Atradius – a consultancy specializing in trade credit insurance, surety and debt collections.

Analysts warn that “elevated credit risks remain.”

“There are certain issues and patterns that construction industries have in common in any country, regardless of their performance in individual markets: a high level of competition, low profit margins, the fact that public buyers generally pay late and that there is a higher than average proportion of business failures,” states the report.

Long payment duration and cash flow problems/weak financials of smaller construction players are an issue in almost every market.

After the major shake-up of the global construction industry caused by the 2008 financial crisis a return to economic normalcy has become visible, however, the rebound in some countries like Belgium, France, Italy and Spain remains modest compared to pre-crisis levels, as the decline in building activity during the recession was very steep.

The recent sudden failure of a major British construction company highlights again the elevated credit risk level for businesses in the construction industry, where thousands of smaller businesses are typically at the back of the queue for payment.

In 2017 the US construction industry continued to expand, with a value added sector growth rate of 2.3%. It is estimated that private residential construction spending increased more than 7% and non-residential construction about 4%, while public con- struction spending decreased 4%-6%.

U.S. construction expansion is set to continue in 2018, under- pinned by robust economic growth, with building businesses profit margins expected to remain stable, as price increases are offset by higher costs. Construction starts are expected to increase about 5% in 2018 with commercial construction forecast to pave the way with a double digit growth rate. Construction spending is expected to increase 7%, mainly due to a surge in the private residential segment.

However, despite repeated announcements by the US administration that it will invest in infrastructure improvements, a public construction spending increase remains uncertain, as political gridlock and shifting priorities have so far stifled promises to boost infrastructure spending…until recently.

Kris Stahle, Underwriter, Risk Services – Americas, shared this insight with Supply Chain Management Review:

The White House released the administration's proposed infrastructure program, which seems primarily focused on upgrading roads, bridges, and airports.

Further, grants would be provided to states and localities upon application with a heavy incentive placed on those with non-Federal revenue commitments, and very little focus on those with plans to incorporate new and evolving technologies.

From a Federal standpoint, the proposed plan does little to address climate change concerns. It may be that certain state or local applications address those concerns, so long as they are coupled with the necessary funding, though that is not a priority in evaluation.

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