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Hurricanes strain construction industry resources

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Existing labor shortages could be exacerbated by the impact of hurricanes Harvey, Irma and Maria, while managing materials will be key as rebuilding efforts get underway, according to industry sources.

Robust construction activity in Texas and Florida had already strained the regions’ labor supply, even before rebuilding efforts and even more demand loomed after the three hurricanes, sources said.

“Prior to the hurricanes making landfall in the U.S., if you look at the macroeconomics of areas like Texas and Florida, there has been a shortage of skilled labor, particularly in construction,” said Christian Ryan, head of the U.S hospitality and gaming practice for Marsh L.L.C. in Dallas.

“We have jobs on the east coast of Florida and some on the west coast that had (labor) challenges prior to this,” said Jim Richert, head of risk engineering in the subcontractors default insurance group for XL Group Ltd., which does business as XL Catlin, in New York.

“Construction demand for areas impacted by 2017 catastrophes including hurricanes Harvey, Irma and Maria and the California wildfires could push up construction costs nationwide,” said Moody’s Investors Service Inc. in an Oct. 30 note, “P&C Insurance – US, FAQ: High losses from California wildfires.”

Labor supply within the construction sector has been an issue for some time.

“We’ve been worried about that for at least two years now and have been working with contractors,” said Gary Kaplan, president of the North America construction practice for XL Catlin in Chicago.

For one source, the shortage even touched home — literally.

A homeowner in the Dallas area, Mr. Ryan and his contractor have had difficulty retaining labor, who have migrated to Houston since Hurricane Harvey, drawn by more and better-paying work. Skilled trade for one task had to be sourced from Oklahoma, he said, as the net is cast wider for available talent.

The shortages may become more of a strain as rebuilding gains momentum.

“Now we are turning our attention to the long-term demand as rehabilitation jobs come online, and the labor demand is expected to spike and become a real issue,” Mr. Richert said.

Material issues have also developed in the wake of the storms, making material management all the more necessary.

“Whenever you have events like these, it naturally creates issues because there’s more work than can be done with the local workforces that are there,” said Mr. Kaplan.

“When that happens,” continued Mr. Kaplan, “that’s when bad things happen. Things don’t get done with the right people, with the right skills, with the right materials.”

Successful material management should include things like understanding your subcontractors and their supply chain and the proper verification and inspection of materials to insure “that it’s the right stuff,” Mr. Richert said.

Contractors should further make sure all needed materials are tracked, he added.

“We advise folks to start pushing down through their supply chains to find out where issues may be,” Mr. Richert said.

As one major supplier to the building and construction sector, The Home Depot Inc. takes steps to mitigate materials issues, staging supplies in distribution centers around the country in advance of hurricane season, according to a spokesman for Home Depot in Atlanta.

In this instance, the company went further than that, leasing 300,000 square feet of extra warehouse space in Houston to provide additional storage and staging space, he said: “We knew from experience we would need more space.”

Home Depot also opened its hurricane command center at its store support facility in Atlanta, where operations, merchandising and supply chain teams work with vendors, and where the company even monitors weather conditions and changes, the spokesman said.

As rebuilding comes online, material demand will rise, sources said.

“There are certainly concerns around framing and drywall, those sorts of things. Just about every rehabilitation job will need those materials,” Mr. Richert said.

“We’re certainly seeing high demand for building materials like plywood in the impacted areas,” said Home Depot’s spokesman.

Anecdotes of price movements also have emerged.

“One example we received post-Harvey was conversations with clients which sustained losses which suggested there was a huge demand for sheetrock, and prices had spiked,” Mr. Ryan said.

For its part, Home Depot freezes its prices once a state of emergency has been declared, the spokesman said. Commodity price fluctuations such as those for lumber may be reflected in retail prices, but the company does not expand margins, he said.

The demand for housing has also risen.

“Our real estate clients which had multifamily apartments that weren’t impacted or flooded immediately saw their occupancy rise to almost full occupancy within 24 hours,” Mr. Ryan said. “All the vacant hotels and rooms were quickly gobbled up after the storm by those residents impacted.”

Puerto Rico’s problems

Separate from the mainland but sharing its problems, Puerto Rico faces an even greater hurdle as an island.

“Puerto Rico is an island dependent on people and materials coming in and out of the country fluidly and easily through shipping channels, the airport, etc.,” Mr. Ryan said, adding there has been anecdotal evidence of delays and congestion among inbound materials.

Worsening the problem, existing stocks were wiped out in the storm.

“Much of the materials that were there to support day-to-day living and construction were lost” in the storm, Mr. Ryan said.

The acute and potentially growing people shortage on the island is not limited to building and construction.

“Our clients, such as hotels, are dependent on people to run and maintain them,” Mr. Ryan said. Many people have left the island, he said, or are tending to their personal situations as they recover from Maria’s devastation.