A huge spike in stockpiling ahead of Brexit shows that construction products firms are focusing on short-term flexibility and risk reduction at the expense of investment and profitability, according to industry economists.
The warning comes after Thomson Reuters published new data (see graph) showing that stockpiling in UK factories is running at its fastest rate in the history of the G7 countries’ Purchasing Managers Indices (PMI). The latest IHS Markit/CIPS survey of construction buyers also indicated a trend towards stockpiling.
Construction Products Association (CPA) economics director Noble Francis said: “Business planning for global firms in the UK is impossible at the moment and therefore the focus isn’t on investment, productivity and long-term profitability, it is merely on short-term flexibility and cost/risk reduction.”
A brief thread on Brexit & stockpiling of construction products. I recently presented at an EU company whose UK base is in Scotland & imports construction products… #Brexit #BrexitNoDeal #UKconstructionhttps://t.co/jQzLDhFw8B
— Noble Francis (@NobleFrancis) 1 April 2019
Francis highlighted the example of an unnamed EU company whose UK base is in Scotland, which acts as a distribution hub for the UK and Ireland. “Currently it has two months of stocks but this raises many issues given warehouse space and haulage capacity is limited and costly.
“In the case of No Deal, will two months be enough stocks and what will the haulage logistics situation (cost/availability) be, plus what would be the impacts of the Sterling depreciation that would occur (likely 15%-20% with No Deal)?”, he asked.
“In the case of May’s deal of a Customs Union going through in the next month then the stocks have been costly, will reduce margin as they are unwound, and reduce funding available for investment.”
Meanwhile, Duncan Brock, group director at the Chartered Institute of Procurement & Supply said: “Stockpiling of supplies is increasing delivery times and creating raw material shortages, all adding to the [construction industry’s] pressures.
“Given the lack of warehousing space in the UK and the difficulties of storing bulky items, it is evident the sector has pressed the panic button in its attempt to keep projects moving during the political impasse. It is unlikely that next month will bring about any positive news given the challenges of a weaker UK economy, volatile pound and intense competition for new orders, as Brexit continues to cast a long shadow over the sector’s future."
In the institute’s latest survey, buyers reported that construction activity fell for a second consecutive month in March, with a score on the adjusted IHS Markit/CIPS UK Construction Total Activity Index of 49.7, up fractionally from 49.5 in February but still below the 50.0 no-change threshold.
Commercial work and civil engineering activity more than offset a slightly upturn in residential building, while new business and employment numbers increased only slightly at the end of the first quarter, according to the survey.
