Inflation isn’t just increasing the cost of everyday essentials. It’s also raising prices on most things that businesses in the bridge inspection, maintenance, and construction industries need to get the job done.
It’s one thing when the price of your favorite brand of chips goes up. It’s another when the costs of steel, asphalt, fuel, and construction equipment skyrocket to unprecedented levels.
In this article, we explain all the factors that are fueling inflation and what businesses can do to get a handle on the increasing cost of doing business.
Factors fueling inflation.
The current inflationary economy results from many factors coming together in a perfect storm.
- COVID-19-related shortages. Manufacturers all over the world produced fewer goods during the pandemic. Production is still lower than usual in many parts of the world, where COVID-19 has continued to keep people away from work. Supply and demand is a fundamental economic principle. Fewer goods and average-to-higher demand result in increased prices.
- Trucker shortage. There aren’t enough truckers available to fill open positions right now. Therefore, many products already manufactured are sitting on docks or in warehouses. This dearth of truckers contributes to the shortage of products, which is a primary cause of inflation. Also, the fact that truckers can charge more for their services because they’re so in-demand means that anything carried by trucks (almost everything these days) is much more expensive.
- Low unemployment. Due to the current high demand for workers, people can demand more money from their employers. Salary increases get passed on to consumers as higher prices.
- Higher gas costs. Like everything else, petroleum prices are rising. That means anything produced with petroleum or transported in vehicles fueled by gas will cost more.
- Increased demand. Decades of inadequate infrastructure spending have resulted in a pent-up need for new bridges and roads, along with improvements on existing ones. The recently passed infrastructure bill will provide the funding to take on this work. The issue is that all this funding will be competing for the same construction resources, which will further drive up prices.
- Computer chips. Everything uses computer chips these days, and they weren’t being made during the pandemic. Any piece of equipment or vehicle run by a computer costs more now than two years ago.
- Money to spend. Pandemic-era government stimulus payouts and higher salaries have given many people extra cash to spend. However, they’re spending it on a limited supply of goods, creating a bidding war for them and making prices rise.
- Global instability. Russia’s invasion of Ukraine and other instability worldwide makes it more likely that prices will continue to rise in the foreseeable future, and the increases could escalate.
Inflation is a bigger problem for bridge and road businesses right now than it would usually be due tothe current financial condition that many find themselves in. The pandemic, despite government support, has left them strapped for cash, which gives them less ammunition to fight against inflation and compete for higher-priced goods, supplies, and equipment.
How bridge-related businesses can overcome inflation.
So, what can bridge and road inspection, maintenance, and construction firms do to compete for more expensive materials and equipment, comply with contracts, and remain profitable now and in the future? Here are a few things that could help.
New rules
Stop following the rules that you usually follow when inflation is low. If you typically order materials and supplies as needed to limit warehousing costs, rethink the practice. When you sign contracts, figure out whether it makes sense to order materials right away. There’s a chance that warehousing costs could be lower than the future, inflated price of items.
Go local
If you purchase things from faraway vendors, figure out if working with nearby suppliers might make sense. They may charge higher prices, but that could be offset by lower transportation and delivery costs. Plus, it could reduce the risk of not having project-critical elements delivered on time.
Plan ahead
Build out contingency plans. It’s no longer good enough to have one plan. You need to prepare for how to handle anything that could go wrong during these challenging times, when things are in a constant state of flux. The worst time to figure out how to deal with inflated prices, a missed delivery, or employee salary increase demands is as they’re happening. A little foresight will help you make things right when they go wrong.
Cut undercutting
Of course, these are competitive times in the bridge industry. You may be tempted to undercut your competitors to get work. But this may not be a smart move during inflationary periods. Your undercut could be magnified by inflation, which could cause you to lose significant money on a job. If that happens enough times, it could put you out of business. You’re better off not getting a job than losing money on it.
Update contracts
It could be a smart idea to work with your lawyer on adding inflationary pricing clauses to your contracts. If your clients agree to them, they’ll be partially or fully responsible for unexpected price increases related to their jobs.
Rent instead of buy
Figure out whether you really need to purchase new tools, equipment, and vehicles over the next few months or years. Would it make more sense to rent? This could be a complicated thing to figure out on your own, but your accountant can help you determine whether it could be a smart move to rent things like lifts from a company like Bridge Masters.
Be the employer of choice
Finally, treat your employees right. It’s expensive to replace workers who leave to work for companies that pay better or meet their salary demands when they threaten to quit. Take proactive steps to make your organization one that people want to work for. Add things like new benefits that are cost-effective but meaningful to your workers. Improve your workplaces and implement sound safety practices. Recognize people who do great work. All these things will help you avoid being forced to pay higher salaries or the expense of having to find qualified workers and training them.