Help wanted
Construction industry struggles with higher costs, labor shortages and Hurricane Katrina

by Bob Antrobus
for Virginia Business
October 2005

When mill prices for steel beams skyrocketed 60 percent last year, Ed Jennings's company took a big hit. "We got killed on several projects," he says. For instance, his business, Liphart Steel Co. Inc. - a metal fabricator and erector in Richmond - had to swallow a $200,000 price increase from the mill after he secured the contract for the steel work on a large, commercial retirement home. And that was before Hurricane Katrina wiped out thousands of homes and businesses, placing even more pressure on what already was a strong-demand market for key building materials.

Liphart's experience is typical of cost pressures in the construction industry as businesses face strong demand here and abroad. With thousands of homes and businesses needing reconstruction in the hurricane-damaged states of Louisiana, Mississippi and Alabama, builders expect tight supplies on items such as plywood and prices increases on top of what they've already seen.

When contractors struggle with ballooning costs on fixed-price jobs, they try to pass them along later, causing a ripple effect in the cost of public and private construction. And the ripple extends to state budgets, leasing rates in office buildings and higher prices of new homes. Here's a brief look at what's happening with several key materials:

• Concrete Prices for ready-mixed concrete increased 14 percent during the past year. Through July of this year, Virginia's consumption of concrete rose by 8.7 percent, 25 percent faster than the U.S. average. With domestic plants straining to meet rising demand, imports of cement - the chemical agent used in concrete - have shot up as well, by about a third since 2002. The growing reliance on imports increases vulnerabilities to international market risks, says Ed Sullivan, chief economist of the Portland Cement Association, a national trade group.

• Steel After the disastrous increase in steel prices last year that threatened to drive many steel fabricators out of business, costs softened in the first half of this year. T. Joe Crawford, president of Roanoke Electric Steel Corp., says demand for scrap metal drives the volatility in steel prices. Although the price for scrap metal was down 34 percent in the 12 months through July, scrap prices took a big jump in August, says Crawford. As a result, two large steel mills, Chaparral and Nucor, increased prices in September in the 7 to 11 percent range. Jennings says the mills are warning customers to expect an additional increase of about 4 percent each month through December. This would boost year-end steel prices 122 percent higher than at the end of 2002.

• Petroleum Contractors are feeling pain as the price for number #2 diesel fuel increased 54 percent in the 12 months through July. From transporting building materials to powering heavy earth-moving machines, most construction jobs can't get done without diesel, and prices have jumped as a result of Hurricane Katrina, which devastated Gulf Coast ports.

In addition to higher costs, the industry struggles to find enough skilled workers. A new task force on work force development for the construction industry estimates that the industry needs 8,000 to 12,000 new, skilled employees annually. "There's a huge 'help wanted' sign on this industry," says Angie Lynd, vice president of the Associated Builders and Contractors of Virginia.

Hispanics are filling much of the gap and account for half or more of the workers at some construction sites.