After flood control, contractors brace for war impact

It’s only been months since the dizzying and diarrhea-inducing flood control mess unraveled. Some contractors, even those with no involvement in flood control projects, are still dealing with the fallout.

And here goes another ugly crisis, the US-Israel war against Iran, still raging endlessly as I write this.

The result is a double-whammy for some contractors, who now see the war hammering the construction industry and the entire supply chain, which in turn will negatively impact the economy – from rising construction costs to a slowdown in related industries.

Price hikes

Some of the country’s biggest contractors, members of the Philippine Constructors Association Inc. (PCA), see up to 30 percent price hikes in construction materials such as steel, cement and fuel. This, in turn, would raise the general cost of construction in the country, according to a recent survey among PCA members.

PCA is the country’s trade organization focused on infrastructure development, sustainability and innovation in the construction industry. It is currently led by its president Jerry Pancho of CM Pancho.

Here’s what I gathered from the results of the survey, a copy of which I was furnished with.

“Construction, one of the most energy-intensive industries, is directly exposed to the closure of the Strait of Hormuz.”

How so? This is because fuel powers heavy equipment, logistics and the transport of materials, while imported steel, cement and other inputs remain highly sensitive to global price swings.

The survey reflects inputs from PCA members, with a majority of participants adopting a wait-and-see approach, as fuel and construction material prices continue to rise and they have not prepared for this type of situation.

Respondents note that price increases are inevitable.

“Most participants expect significant hikes in costs, with some estimating up to 30 percent increases. Rising fuel prices are seen as the main trigger, creating a domino effect across logistics, manufacturing and commodities,” it said.

They also see supply chain disruptions as they expect imports to slow down, which in turn would lead to longer lead times, possible shortages and risks of hoarding.

“Some distributors are even considering suspending operations,” the PCA survey noted.

On materials availability, many foresee scarcity and delays. A few believe availability may remain stable (particularly for imports from China), though costs will still rise due to peso devaluation and fuel increases. 
Overall, the construction industry faces higher expenses, tighter supply conditions and potential project delays, with unit rates of commodity items expected to climb significantly.

Higher project costs, delays

With uncertainty remaining high, several participants foresee one to three months of project delays, with some warning of delays of up to six months if instability persists.

Contractors also anticipate disputes over who will absorb the added fuel costs.

Because of these challenges, contractors expect an initial increase in project costs of up to 30 percent and even up to 50 percent if escalation continues.

This would be brought about by rising fuel prices, peso devaluation, higher logistics costs and limited supply of bulk fuel. Potential suspension of work and slower project growth could follow.

The majority of the respondents say they are unprepared if global supply chains remain disrupted.

“Most companies admit they are not prepared to adapt. They lack capacity to stockpile materials, remain heavily dependent on imports and have received little to no guidance from the government,” it said.

Some contractors have resorted to short-term measures such as advance purchases, locked-in contracts or current stockpiles, but these are exceptions rather than the norm.

Seeking government support

Overall, according to the survey results, the industry is largely unprepared for prolonged or severe supply chain disruptions, with only a few firms having temporary buffers in place.

As such, like many troubled or challenged sectors now affected by the lingering war in the Middle East, they are asking the government for support.

They believe the government can implement measures to protect the construction sector from global geopolitical shocks.

They would welcome government subsidies to offset rising oil prices, tax holidays on imported and local materials and lower interest rates to ease financing burdens.

The government, they said, can provide direct assistance to small and medium contractors, approve change orders to account for price escalations, create built-in mechanisms for price adjustments beyond inflation and ensure adequate local supply of materials and control sudden price spikes.

The immediate relief can be done by suspending or reducing VAT and excise taxes on fuel and construction materials, which could significantly lower their costs, they said.

Estimates show that diesel prices now cost an average of P104.04 per liter with excise and VAT. This, however, can go down to P87.55 per liter by removing the P6 excise tax and P10.50 in VAT at current levels. 
Until I read the PCA survey, I didn’t realize just how extensive and severe the impact of the ongoing war across industries is.

It’s easy to see the obvious – the jeepney and tricycle drivers, the poor and the marginalized and the average household struggling with skyrocketing prices of food and utilities.

But as the survey showed, construction will take a hit too and its impact will ripple across the economy.

The government must act fast to save our industries. Denying that there is a crisis doesn’t help at all.

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Email: [email protected]. Follow her on X @eyesgonzales. Column archives at EyesWideOpen on FB.