Amazon disrupted the way people shop; now its rapid expansion is disrupting the construction industry, contributing to supply chain delays.
While building a medical facility last year, Andrew M. Smith, president of Dallas-based McRight-Smith Construction reached out to a national supplier of steel joist and deck materials, Bisnow reported.
“Sorry, I can’t help you,” the supplier told him, “Amazon has bought everything in production for the next six months.”
When Smith sought out a smaller company for the materials, his company was able to shave 24 weeks off the delivery time, but the labor costs of buying handmade materials pushed the total price tag from $65,000 to $99,500, Smith told the publication.
“That’s the choice people are having to make,” he said. “Are you willing to spend more money to go an alternate route, or do you extend the length of the construction project?”
Supply chain snags have plagued the construction industry for several years now, driving up prices and wreaking havoc on work schedules. There’s a long list of factors causing these bottlenecks, including the shuttering of factories overseas, backups at U.S. ports and global labor shortages. Tariffs issued by the Trump administration that are still in place also play a role and inflation has only made things worse, said Smith.
However, few things have been as disruptive as the pandemic-driven explosion in online shopping, a trend dominated by Amazon.
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“When you’re talking about fulfillment centers, think of them as cash registers,” said Marc Wulfraat, founder and president of supply chain consulting firm MWPVL International Inc. “If you’re going to increase product sales revenue because you are selling more stuff, then you need more square footage.”
Almost 60 percent of all online retail purchases in the U.S. were done on Amazon in 2021, according to data from PYMNTS.com. The pandemic-driven demand for online shopping allowed the company to embark on a massive spending spree, Wulfraat says. The latest data cited by Bisnow show an increase of 370 percent in the company’s real estate footprint since the end of 2016 and is set to hit a total of 457.3 million square feet of warehouse space by the end of this year.
Known as a market disruptor for its domination of the e-commerce industry, Amazon’s rapid-fire warehouse expansions put critical pressure on the supply chain for building materials. In a recent Colliers report, an unnamed U.S. steel producer claimed orders for construction projects related to Amazon comprised about 33 percent of its national capacity, pushing lead times to a 20-year high.
When supply chain crunches first arose, only some institutional giants like Amazon had enough capital to stockpile materials. This gave Amazon and the other big guys a serious advantage, said Fred Ragsdale, an associate with JLL Dallas’ Industrial Services group.
Prior to the pandemic, Smith’s company was accustomed to cost increases for steel of between 3 and 5 percent over one or two quarters. Now, the price of steel is likely to double within that same time frame.
While there are a number of factors contributing to the supply chain mess, the deceleration of Amazon’s fulfillment center growth should provide some relief to the supply chain of building materials, says Wulfraat.
Amazon didn’t respond to Bisnow’s request for comment.
[Bisnow] — Maddy Sperling