Civil construction sector in crisis, new survey shows
James Paul talks to Jim French of Teletrac Navman about the state of the civil construction sector and why local supply chain challenges may persist.
The 2024 Construction Industry Survey, an annual collaboration between vehicle and asset management provider Teletrac Navman and industry association Civil Contractors New Zealand (CCNZ), reveals a civil construction sector in crisis, resulting from a lack of work in the market.
The first survey’s results since the 2023 election paint a landscape of uncertainty, driven by a dramatic increase in the lack of work and a decline in confidence regarding future pipelines and revenue.
Rising work shortages and compliance issues
The survey highlights a severe shortage of work in the current civil construction market, with 64 per cent of businesses reporting this as the main issue they face, a sharp rise from 29 per cent in 2023.
Additionally, 57 per cent of businesses face difficulties with local and central government procurement guidelines and work consent conditions, up from 36 per cent last year.
Supply chain disruptions continue to strain businesses, with 71 per cent citing rising compliance costs and 64 per cent reporting project cost overruns. These factors contribute to a challenging operational environment that impacts overall industry performance.
Jim French, Construction Industry Specialist at Teletrac Navman, says construction industry supply chain disruptions are multifaceted, stemming primarily from the availability and cost of essential raw materials like aggregates, steel and bitumen.
If a project is in a remote area with no nearby batch processing facilities, sourcing these materials becomes significantly more complex and expensive, he says. The need to transport materials like concrete or aggregate over long distances, such as from the North Island to the South Island, can increase both time and costs, complicating project logistics.
“Equipment supply is another disruption. For example, if a specialised piece of machinery is required for a project but isn’t readily available because the supplier hasn’t stocked it due to uncertain market demand, this can cause significant delays. This operational environment is challenging because contractors are often left at the mercy of fluctuating material costs and unpredictable lead times for equipment delivery.”
The impact of these disruptions is felt directly on the ground where projects can be delayed or experience cost overruns. Mr French says, that in some cases, if the contractor does not own the supply chain, such as a quarry, they are dependent on third-party suppliers.
“This dependency can result in being subjected to the whims of the market, where prices can skyrocket due to shortages, and delays in material availability can lead to project stalls. Companies that own a significant part of their supply chain have better control over these variables but still face challenges when dealing with items outside their ownership, like imported steel or machinery.”
Global supply chain disruptions could continue for several more years, affecting the New Zealand’s civil construction market for some time, depending on how quickly both global and local markets stabilise and how proactive governments are in addressing these issues. Photos: Civil Contractors NZ.
Unfortunately, the end of these disruptions is closely tied to global demand and infrastructure development trends. Globally, the demand for raw materials and construction equipment has been exceptionally high, driven by major infrastructure projects, especially in the U.S. and other rapidly developing regions, Mr French says.
As these projects eventually taper off, one could anticipate a reduction in supply chain pressures.
“However, given the continuous growth in global population and the demand for infrastructure development, it is unlikely that these disruptions will completely subside any time soon.
“In New Zealand, the situation is compounded by local factors such as geographical constraints and regulatory delays. Even as global demand decreases, local supply chain challenges may persist.
“The disruptions could continue for several more years, depending on how quickly both global and local markets stabilise and how proactive governments are in addressing these issues.”
Alan Pollard, CEO of CCNZ, says the industry’s landscape has dramatically changed in the past 12 months, with an acute shortage of work now being the primary challenge civil construction businesses face.
“If we conducted the survey again today, the response would be even more dire. Right now, I am fielding daily emails from our members, who are deeply concerned that their businesses may not survive. I can’t stress enough the importance of a well-defined, committed, and funded pipeline of work. The government needs to act quickly to restore business confidence. Promises alone won’t get things built.
“Only a committed and adequately funded programme of work will give businesses the assurance they need to invest in the people and technology required to get infrastructure works done,” says Mr Pollard.
Revenue growth and industry confidence slump
Only 37 per cent of surveyed businesses expect any revenue growth in 2024, a significant decrease from 47 per cent in 2023. Confidence in the industry’s outlook has plummeted, with only 20 per cent of businesses feeling optimistic about the future, while confidence in the ability to overcome challenges has declined from 62 per cent in 2023 to 57 per cent in 2024.
Confidence in the future pipeline of civil construction work is also bleak, with only 21 per cent expressing confidence, down from 28 per cent in 2023. On a slightly positive note, confidence in New Zealand’s infrastructure’s ability to handle climate change impacts has improved from 7 per cent in 2023 to 13 per cent in 2024.
Construction industry faces downsizing
The survey also reveals a noticeable softening in labour demand. A nationwide shortage of skilled workers has been the most significant issue in each previous edition since the Construction Industry Survey began in 2017. But that is not the case in this year’s results.
Only 39 per cent of businesses expect an additional requirement for staff, down from 54 per cent in 2023. This trend of downsizing reflects the industry’s response to economic conditions, operational uncertainties, and the amount of forward work currently available.
Mr Pollard says shedding staff is a tough decision for many companies.
“Given the amount of long-term infrastructure work projected, this is a poor time for the industry to down-size, but the current market means many companies are currently left with little choice,” he says.
Technology empowers businesses to win more work
Technology remains critical to enhancing efficiency and project outcomes. Key technologies such as fleet management (77 per cent) and machine control (63 per cent) are well-integrated on-site. Businesses are increasingly prioritising technology, with almost two in five organisations (39 per cent) now mandating specific technologies for bidding on projects, up from 27 per cent in 2023. Nearly two-thirds of businesses (62 per cent) emphasise the importance of onsite technology for securing contracts.
Significant erosion to about 136 metres of the Whanganui River bank threatened the integrity of the road. Waler beams were welded to the newly installed sheet pile wall along the Whanganui River to stabilise the area. Photo: Downer NZ.
Mr French says that the trends we’re observing in New Zealand’s construction sector are reflective of global challenges.
“In this environment of uncertainty, businesses must proactively accelerate their digital adoption to stay competitive. Advanced technologies such as fleet management, machine control, health and safety monitoring software are crucial allies – as they increase the chance of securing contracts and planning for the future,” he says.
Solutions: Strategic focus on technology and diversity
Addressing the current challenges requires strategic focus. A clearer pipeline of government projects is essential, with 56 per cent of respondents anticipating positive impacts from such clarity. Embracing diversity initiatives is also crucial, as 61 per cent of professionals believe diversity positively affects productivity.
Although areas like business intelligence and cost management are still underutilised, adoption rates are increasing. Cost management technology usage has risen to 67 per cent in 2024, up from 59 per cent in 2023, and location tracking has jumped to 72 per cent in 2024 from 53 per cent in 2023. This growing adoption demonstrates a proactive approach to improving operational efficiency and securing competitive advantages among businesses.
Exploring sustainable energy solutions, such as hydrogen, is also gaining traction. Over a quarter (26 per cent) are exploring hydrogen as a future energy source, aligning with broader sustainability goals and preparing for a multi- energy future within the industry.
Jim French
Jim joined Teletrac Navman as a Heavy Construction Application specialist. He has over 20 years of experience in the construction, mining and survey industries, with particular focus on GPS products, fleet and construction telematics systems and machine control and guidance.