Looking to 2020, the anticipated theme of the global economy is uncertainty, as countries around the world wait for clarity over future trading arrangements. Construction activity will slow as long as these geopolitical discussions linger. 

Impacts of Tariffs, Brexit Felt Globally

Trade relationships are shattered across the world, and manufacturers are paying the price. In the U.S., we are seeing contractors willing to hold material quotes for only 20 days due to pricing volatility. With U.S.-imposed tariffs undergoing continuous revisions, some owners are postponing projects in the hope that tariffs will be lifted and steel and aluminum prices will drop. We anticipate this “wait and see” trend will continue as owners await developments in trade discussions between the U.S. and China and the result of the 2020 presidential election.

In the U.K. and Europe, concerns remain around the impact of Brexit and material transport between countries, specifically Great Britain and Northern Ireland. According to my colleague, Richard Hill, a senior director in Currie & Brown’s London office, “It is unclear how the trade relationship will unfold between Great Britain and Northern Ireland under the terms of the proposed withdrawal agreement, but companies across the industry are now factoring these risks into their business plans going forward.” Tariffs imposed between the U.K. and Europe and delays due to increased administration at border checks are concerns for the U.K. and European construction markets.

Despite U.S. steel tariffs, Chinese steel producers are struggling to keep up with demand. While inventory falls and demand grows, prices have experienced surprisingly modest increases. Demand is expected to plateau in 2020. There is, however, a risk of price increases across neighboring markets should inventories continue to decline.

Labor Shortage Concerns Continue

Regardless of trade relationship ambiguity, the skilled labor shortage will be the biggest concern for cost increases globally throughout 2020. Across the world, contractors are offering incentives to attract skilled labor, particularly in busy mission-critical, manufacturing and infrastructure sectors. In the U.S., contractors are working to attract labor from out-of-union jurisdiction by offering additional incentives such as per diems, guaranteed overtime and bonuses. This trend is similar in the U.K., where the reduced presence of European migrant labor has stalled project timelines and productivity while increasing costs. 

According to Robert Fuller, senior director in Currie & Brown’s Tokyo office, “The lack of younger talent in the construction industry, and the inability to hire lower-cost labor from other markets means this will continue for some time. In 2019 alone, the cost of labor in Japan for mechanical and electrical works has increased by 20%.” He notes the potential for the Japanese construction industry to change as off-site manufacturing becomes increasingly attractive to owners, and talent remains hard to come by. 

Simon Andrews, Currie & Brown’s chief operating officer in the Middle East, highlighted this same problem in the UAE: “Attracting and retaining staff across the region is critical, as the opportunities at home versus the cost of living in the region present a continuing battle. Hiring and training local staff is now a requirement and those who ignore this will miss out on projects over the next few years.”

What To Expect in 2020

The two major economic story lines, Brexit and the U.S.-China trade relationship, will be talking points this year but are not likely to have drastic impacts on construction costs until late 2020 or 2021 at the earliest. The key cost concern in 2020 will be managing the skilled labor shortage, with labor escalation expected to outpace material escalation. 

Alex Johnson is a location intelligence analyst at Currie & Brown, and is based in Minneapolis. Johnson can be reached at Alex.Johnson@curriebrown.com.