Supply chain issues – examining the changes and pressures

29th September 2021

This article was first published in Insurance Business UK.

Between Brexit-related HGV driver shortages, the strain caused by the Suez Canal blockage and the ongoing global disruption that is COVID-19, the supply chain is facing its most turbulent period in quite some time. Individually, any of these issues would present a significant challenge to the market, noted Russell Crewe, COO of Property Claims at Davies, but now they are all happening at the same time and are fortified by a massive uptick in the price of materials, which is creating something of a “perfect storm”.

Exploring this pricing concern, Crewe highlighted that timber, which has been well-documented as being in short supply, has seen pricing increases of between 25% and 40%. Meanwhile, cement which has been in short supply for a significant period of time, has seen price hikes in the region of 200%, with rationing put into place which is causing extensive knock-on effects.

Added to this, he said, during and post-lockdown there has been a massive surge in people wanting work done to their property – from the creation of “shoffices” to home modernisation efforts. The very tangible impacts of the concern around materials and labour shortages are already resonating across the UK, with home improvement projects being significantly delayed, while even global organisations such as McDonald’s and KFC have been impacted by supply chain and labour shortages.

“These shortages themselves are not impacting the claims mix, the claims mix has changed,” he said. “There are still quite a few people working from home but the frequency of claims for escape of water, for example, is now not much less than it was pre-pandemic. The problem is that the cost and the severity of those claims is being impacted by the return to normality and the increasing material costs and associated labour shortages.

“What we are seeing is that construction rates are being reviewed on a monthly basis, rather than on a three-monthly cycle. So, we’re seeing month-on-month increases, again exacerbated by those supply chain issues. We at Davies are offsetting that by sitting down with contractors and working out what their projects will be going forward. We’re working out how many instructions they are anticipated to receive and the most common materials that they’ll need, etc.”

Crewe and his team at Davies are resolute on taking the time necessary to carefully go through the requirements of their contractor clients in a bid to help them pre-plan and prevent cash flow from becoming a serious issue for their business continuity. The ambition of business continuity for clients is being further complicated by another pressing concern – the loss of talent in the trades which is leading to a substantially increased daily rate for workers and the pressure facing businesses with so much employee sickness and absence linked to COVID.

Crewe highlighted that a key concern for firms should be to plug the gap in trades that they are facing. These businesses are going to have to really push apprenticeships, he said, and explore a range of means by which to attract people back into the industry.

Of course, he noted, as a consequence of that, salaries will improve which will, in turn, drive costs  upwards. That, combined with the materials aspect of the crisis point the industry is facing, may encourage people to start looking at alternative materials. Rather than using solid timber joists, contractors might start to examine more pre-made, pre-cast solutions. But here the contradictory challenges of the “perfect form” being faced becomes even clearer as many of these solutions are reliant on concrete, which is facing its own pricing concerns and delays.

Read more: Davies reveals how COVID-19 has changed uptake and demand for virtual adjusting technology

“I’m hoping that we come out of this “perfect storm”, and we enter into a period of improvement as things move closer to ‘normality’,” he said. “I think we’re definitely going to see, for a while at least, the dearth of tradespersons affecting claims life cycles. And we are going to see certain claims impacted by the shortage of materials, which, is only improving in some circumstances – for instance, timber and adhesives are still a problem… So, I think we’re looking at phased improvements, but we will not get back to pre-pandemic stages for quite a few years.”

For Crewe, who has seen the industry through periods of both the rough and smooth, this is the most tumultuous external environment that clients have faced over the course of his career. However, having weathered similar (if not quite as riotous) storms before, he has seen for himself the way in which businesses need to react to counteract the challenges – chief among these is the need to look to the future in terms of what actions can be taken now that will have the greatest net effect going forward.

“There are so many unknowns and variables that are affecting where we are today,” he said. “Brexit will sort itself out. You’ll never legislate for something like what happened in the Suez, so that’s normalising. But one thing that isn’t normalising is the supply chain and the distribution because  lorry drivers are in such short supply so there is definitely going to be further stresses and strains.”

“So, the answer is not simply to look to the short-term but rather to actively work to pinpoint which factors will have the most momentous influence on business continuity and costs going forward, not with just the next year in mind, but over the next two to three years at a minimum.”

For more information, please contact Russell Crewe, Chief Operating Officer of Property Claims on russell.crewe@davies-group.com

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