It is no secret that the upturn of construction activity in 2021 (home improvement projects surged during lockdown in the UK and abroad) has led to a shortage of construction materials and an increase in prices. Earlier this year global logistics issues and widespread demand saw timber supplies particularly affected.
The continuing timber shortage is indicative not only of nearly two years of significant upheaval due to Covid-19, but also of the importance of decarbonising the construction industry. The timber supply chain is particularly at risk of disruption as a result of climate change, as we explore further below. Developers and contractors need to factor supply chain vulnerabilities and potential overseas policy change into upcoming projects.
The big picture
It was reported in June that companies are unable to build up stocks of timber – it is arriving in the UK pre-sold, having already been allocated to customers. The effects of this shortage are borne out in the government's latest figures, which show a decline in construction output for three consecutive months – for example, in June 2021 we saw a decline in monthly construction output of 1.3%. Private housing has been particularly affected. These figures are being attributed to the shortage of materials including timber.
While timber supply has been disrupted by the Covid-19 pandemic and a surge in demand for construction materials, the effects of climate change are compounding the industry's vulnerability. Timber yields are increasingly threatened by a rise in pests and wildfires as a result of climate change. As extreme weather events proliferate, calls to overhaul the timber industry and forest management are only set to increase.
Yet timber can offer a less carbon-intensive alternative to materials such as steel and concrete, and so it is an essential material in the construction industry's efforts to decarbonise. The competing environmental and sustainability objectives affecting the timber industry have come to the fore this summer as the extent of the timber supply chain's weaknesses have emerged.
The UK relies on imports for the vast majority of its timber supply (80%), and on Sweden for nearly half of the structural timber used here. As a result, the UK construction industry is vulnerable to any ripple effect caused by fluctuations to timber supply and forestry policy in overseas markets.
Potential forestry policy shift in Sweden
Sweden is the third largest exporter of sawn timber, paper and pulp in the world and is sitting at a cross-roads between the diverging interests of a decarbonising construction industry experiencing a boom, and competing sustainability objectives. The ongoing debate in Sweden was sparked by the EU's publication of its Forest Strategy, which aims to prevent logging in old growth forests and to enhance biodiversity. Supporters of the strategy point to the role that forests can play in reducing flood risk and CO2 levels. After a summer of extreme weather events in Europe and North America, there is a strong incentive to ensure the sustainability of the timber industry.
The mounting calls to revamp forestry policy in this way are being countered by Swedish forestry companies. Other affected countries are also vocally opposing the new strategy (read more here). The SCA Group (the largest private forest owner in Europe) has argued that managing forests "in an active way" is key. The company highlights that timber is often a more sustainable alternative to other products such as steel, and that their trees sequester CO2 while growing. Forestry policy is set to be a hotly debated topic at the Swedish election scheduled for next year.
Climate change's impact on timber supply and pricing
The effects of climate change on timber supply and pricing can be seen clearly in British Columbia, Canada (BC). BC is a major supplier of timber to the US in particular and has declared a state of emergency in relation to recent wildfires in the region. This has had a major impact on the price of timber in the US market.
Next steps – UK government response and contractual mitigation
In response to the current timber shortages architects are emphasising the importance of strengthening domestic supply and supply chains. This makes the UK government's commitment to support the use of timber in construction by trebling tree planting rates by 2024 extremely significant.[1] The 25 Year Environment Plan also sets out the government's support of the use of English grown timber in construction.[2] However, the government has been subject to intense scrutiny in recent weeks as tree planting rates for 2021-22 in England are set to be at a three-year low. Officials maintain that the tree planting goals will be reached.
As the government seeks to strengthen domestic timber supplies in years to come, developers and contractors may consider how they can mitigate supply chain issues now. We have written previously about the contractual mechanisms included in most construction contracts that are designed to manage such volatility, and what project-specific risks should be considered.
While the shortages of timber and other construction materials may last the rest of the year, forestry policy and the use of timber in construction are a key element of the UK government's environmental objectives, brightening the long-term outlook for the UK's timber supply chain.
This article was written by Genevieve Vaughan and Sophie Smith.
[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/987432/england-trees-action-plan.pdf
[2] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/693158/25-year-environment-plan.pdf