In our tag line, we say “Results Driven. Risks Managed™” One part of that mantra starts with forward-thinking based on using historically aware strategies including monitoring material’s prices that we know will impact current and future projects.
We have created a proven approach to procurement that involves our whole team.
Our team advises on key decisions to hedge against rising costs and locks-in the best prices available. The staff keeps an eye on the various materials and labor markets to evaluate where they may be headed.
Over the past two years, the global supply chains have been severely impacted by the shutting down of plants due to Coronavirus, the deep freeze in Texas, back-ups at several coastal ports and shipping facilities, a container ship getting stuck in the Suez Canal, shipping container logistical issues, and other local and international events. All these events combined into a perfect storm of limited availability pressured further as demand rose quickly coming out of the Coronavirus situation. And while the extent of “back toward normal” differs by areas of the U.S., everyone is affected by higher prices.
Tony Forano, Real Projectives’® Senior Project Manager & Team Leader leads our procurement strategies. In this article he discusses how we are dealing more specifically with structural steel procurement for our current projects.
Mitigating Risk in Structural Steel
A good example of a best practice procurement strategy occurs when our client needs steel for an industrial warehouse or distribution development project. These projects usually have several essential and structural elements made of steel such as columns, roof beams or trusses, and metal decking. According to Forano’s research, steel supplier contracts bottomed out in May 2020 at around $460 a ton and as of July 2021 U.S. benchmark steel prices sit around $1,400 per ton— a record high that is nearly triple the 20-year average. Furthermore, U.S. steel producers have developed a sizable backlog, stating as long as 18 months to engineer and fabricate each order.
While we focus on the three main steel suppliers in the U.S., the shortages and rising costs have pushed us to look to neighbor Mexico for steel sources. Although per-ton prices in Mexico generally run about 30% less than U.S., those savings can be quickly lost when you factor in shipping costs and import duties. It is also important to have the structural engineer and owner’s material testing agency critique the fabricators quality assurance practices. We have recently been involved in a few projects where purchasing from a Mexican supplier has made sense.
While reviewing multiple sources of steel, preferably early in the design stages, we carefully evaluate lead times of the materials and potential further escalation of costs. We try to avoid making orders that are subject to future price increases unless they are capped. If we anticipate availability may tighten and/or costs will continue to rise, we either work with the general contractor or directly negotiate on behalf of the owner to lock into an agreement with a supplier for a determinable price and delivery date. And that usually means our clients must commit more deposit money up front to secure the order.
This early purchase approach can reduce both time and cost risk in a measurable way. Helping our clients and lenders sleep better at night.
We continue following the markets and global supply chains for building materials other than steel, including framing lumber, roofing, insulation, drywall, piping, and many other materials that have seen major increases in prices and longer lead time availability. We use similar strategies for each product on every project to assure the best possible outcomes for controlling costs and providing on-time completions.
Our proven experience, methodologies, and relationships built over the years, get jobs done on time and on budget with less surprises for our clients. Whether you are an investor or developer looking for procurement guidance, please contact us to discuss how you can leverage our knowledge, expertise, and ambition to drive your next project or real estate portfolio to success.