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1、2023 engineering and constructionindustry outlook About the Deloitte survey To understand the outlook and perspectives of organizations across the engineering and construction industry,Deloitte fielded a survey of more than 100 US executives and other senior leaders in August 2022.The survey capture
2、d insights from respondents in five specific industry segments:residential construction,institutional and commercial construction,industrial construction,infrastructure and heavy construction,and engineering services.ContentsGrowth to continue amid increasing challenges 3 Trends to watch 1.Market dy
3、namics Industry segments experience different growth trajectories and increased competition 4 2.Supply chain Increased lead times and volatile material costs pressure margins 5 3.Future of work Talent pressures and shifting talent models lead the industry to rethink workforce strategies 6 4.Emerging
4、 technologies Developers and contractors further invest in emerging technologies to drive efficiencies 75.ESG and sustainability Industry evaluates new practices to deliver positive societal impacts 8 Preparedness could be crucial to navigate volatility 9 Lets talk 102 22023 engineering and construc
5、tion industry outlookGrowth to continue amid increasing challengesThe US engineering and construction(E&C)industry began 2022 on a bright note after achieving strong growth of 8%in construction spending in 2021.1 While the value added reached$1 trillion in Q2 2022,gross output stood at$2 trillion in
6、 Q2 2022 compared to$1.9 trillion in Q2 2021.2 But a closer look at current market dynamics suggests that 2023 will likely experience differentiated growth rates across different industry segments.On the one hand,the nonresidential segment is likely to be buoyed by funds entering the market from the
7、 Infrastructure Investment and Jobs Act(IIJA)and the CHIPS and Science Act of 2022.The CHIPS and Science Act provides$52.7 billion for American semiconductor research,development,manufacturing,and workforce development and is expected to drive construction in 2023 and beyond.3 On the other hand,resi
8、dential construction companies are relatively more pessimistic about the industry outlook for the next year compared to other segments.The residential segment may witness sluggish growth due to weakening consumer demand.So,while some segments may be more bullish than others,there are headwinds,such
9、as inflation and supply chain issues,which may continue to affect the industry overall in the coming year.The construction industry is expected to continue feeling the effects of increased pricesfrom the rising prices of steel,lumber,and fuel to the increased cost of skilled labor.As a consequence,t
10、he industry could experience project completion delays,increased construction costs,and reduced profit margins.2023 engineering and construction industry outlook3Industry segments experience different growth trajectories and increased competition2023 could be a different year for the industry,with h
11、eightened uncertainty due to high inflation,rising interest rates,and bifurcation across various industry segments.Companies are keeping an eye on how their backlogs will play out in 2023,especially during the second half of the year.While many companies have substantial backlogs,specifically in ene
12、rgy-related construction(e.g.,liquefied natural gas LNG facilities)and data centers,as they get through the back half of 2023,they may see a potential impact of economic slowdown on their deliveries.Construction activity has broadly started declining due to rising interest rates and deteriorating fu
13、ndamentals for commercial real estate.An uptick in interest rates raises project costs as input prices increase.Also,an increase in material and compensation costs reduces contractors profit margins.These dynamics will affect some sectors more than others(figure 1).For example,home builders,infrastr
14、ucture contractors,and industrial plant developers will have different growth trajectories.For instance,the Dodge Momentum Index(DMI),a monthly measure of the initial report for nonresidential building projects issued by Dodge Construction,fell 1.2%in August 2022 to 171.9.While the commercial compon
15、ent of the index increased by 1%,the institutional component decreased by 5.6%.4Figure 1.Changing market dynamics to affect industry segments differentlySource:Deloitte analysis.Housing construction in the United States slowed down in August primarily due to high interest rates,supply chain constrai
16、nts,and decreased housing affordability.According to the US Census Bureau,building permits fell by 10%to 1.5 million in August 2022 from the previous month.5 With the Federal Reserve further tightening interest rates to combat inflation,housing construction and permits will likely remain volatile.6
17、Additionally,mortgage rates remain high.The average rate on a 30-year fixed-rate mortgage was 6.3%in mid-September 2022,the highest since late 2008.7 Home builders will likely experience sluggish demand as real consumer spending is forecast to fall in 20238 amid an uncertain economic environment.By
18、contrast,companies building infrastructure projects are likely to remain relatively insulated from the economic slowdown,driven by strong infrastructure buildouts,and the substantial project backlogs developers and contractors have in their pipeline.In addition,the next round of$1 trillion in IIJA f
19、unding enters the market starting October 2022 for several projects.9 However,labor shortages,wage inflation,and ongoing supply chain constraints may slow this growth.10Moreover,developments in the global E&C market,such as how companies deliver projects and what regulations and standards they use(e
20、.g.,Building Information Modeling,or BIM,standards),are likely to impact the US market.Since the International Organization for Standardization(ISO)published its first global BIM standards in 2019,several countries have made the use of certain BIM standards mandatory.11 As standards,such as ISO 1965
21、0(an international standard for managing information over the whole life cycle of a built asset using BIM),become more consolidated and widely adopted,they are expected to drive growth in the US market when US companies adopt those standards from regions such as Europe,Australia,and Canada.There is
22、also an ongoing shift in mergers and acquisitions(M&A)with increased activity by private equity(PE)investors to buy subcontractors and form synergies and economies of scale.M&A activity by PE investors in construction registered a deal value of$11.8 billion in 55 acquisitions between January and Aug
23、ust 2022.The number of deals increased by around 6%compared to the same period in 2021,while the deal value soared by 297%.The industry could experience mergers and acquisitions of material suppliers and allied service providers to build local capacity and promote supply assurance.Market dynamics1Ma
24、rket uncertainty:InflationHigh interest ratesRising costsSupply chain constraintsMaterial and labor shortageDecreasing housing affordabilityHigh mortgage ratesSluggish demandResidentialNonresidentialSubstantial blacklogsGovernment projects2023 engineering and construction industry outlook42Increased
25、 lead times and volatile material costs pressure marginsSupply chainOver the past two years,the COVID-19 pandemic,transport bottlenecks,and geopolitical uncertainties have exposed vulnerabilities in the E&C supply chain.These disruptions have raised material costs,confined production,and restricted
26、freight movement.Four in five survey respondents cited supply chain disruptions as one of their companys top three challenges in the next year.The industry continues to observe input price fluctuations,and the volatility in material costs is driving up the overall cost of construction(figure 2).Pric
27、es of construction inputs increased 40.5%between February 2020 and August 2022.12 Persistent inflation could hurt contractors who have not bought large quantities of their materials at normalized prices or included appropriate price escalation clauses in their contracts.The ongoing disruptions are e
28、xpected to drive the E&C industry toward new business models,supported by new ecosystems that bring innovative products and services to serve the unique needs of different end markets.Technology:For example,a construction technology company has leveraged 3D,virtual modeling,and robotics for a new of
29、fsite home-building approach that addresses labor shortages and controls carbon emissions.13 To address the supply challenges and rising material costs,developers and contractors will likely leverage advanced technologies to assess strategic inventory strategy for materials and inputs.Ecosystem appr
30、oach:An ecosystem approach can improve E&C companies ability to respond to disruptions and enable interoperability throughout the supply chain.Firms investing and participating in ecosystems are more likely to reap higher strategic benefits.14 By forming an ecosystem with Industry 4.0 providers and
31、material suppliers,E&C companies can use data-sharing platforms to exchange real-time information with material suppliers in case of a disruption or shortage of supply.Heightened focus on supply chain management:E&C companies are expected to increasingly stand up supply chain management functions an
32、d build more local capacity,driving competition across the industry.Companies will likely expand capacity for the supply of materials in the United States,get closer to customers to address supply chain constraints,and be less dependent on foreign suppliers.Figure 2.Volatility in material prices con
33、tinueSource:Deloitte analysis of BLS data.322824201612840-4-8-12-16-20-24-28-32Jan-19Apr-19Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Jul-21Oct-21Jan-22Apr-22Jul-22Aluminum mill shapesIron and steelConcrete productsSoftwood lumberMonthly percentage change in pricesCOVID-19outbreak2023 engineeri
34、ng and construction industry outlook53Talent pressures and shifting talent models lead the industry to rethink workforce strategiesFuture of workThe E&C industry remains significantly short of skilled workers,further exacerbated by a tight labor market.More than 82%of survey respondents mentioned a
35、tight labor market and an exiting workforce as one of their companys top challenges in the next year.Even though the construction industry has a strong pipeline of projects and spending,especially the infrastructure buildouts,may be challenged to meet the demand due to a persistent shortage of worke
36、rs and high turnover.Labor availability in construction continues to decline(figure 3),driven by declining interest in the industry,an aging population,and talent pressures in“competing”industries such as technology and trucking.Many workers,especially from the younger generation,are preferring less
37、 physically demanding jobs.The number of construction workers between the ages of 25 and 54 decreased by 8%in the past 10 years,while the share of older workers leaving the industry increased.15 Figure 3.Job openings in construction continue to remain highSource:Deloitte analysis of BLS data.To reta
38、in top talent,companies should consider a workforce strategy based on two pillars:a purpose-driven organization and a personalized career path.Moreover,technology adoption and innovation could help attract employees with new skills and roles such as data scientists and retain workers by encouraging
39、them to work with cutting-edge tools.In addition,an increased focus on diversity,equity,and inclusion(DEI)in hiring could yield additional talent for the industry.In 2021,only 11%of all construction workers were women,6.3%were Black,and 2.1%were Asian.16 According to a Deloitte study,DEI hiring can
40、help raise productivity,enhance organizational management,improve financial performance,and increase innovation.17Addressing the tight labor market and exiting workforce amid shifting talent models will likely remain a priority for most E&C companies in 2023.According to Deloittes survey,91%of respo
41、ndents agree that offering a flexible and agile workforce structure can help E&C companies to attract and retain talent.Jan-19Apr-19Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Jul-21Oct-21Jan-22Apr-22Jul-22Job openings in construction(thousands)4504003503002502001501005002023 engineering and con
42、struction industry outlook64Developers and contractors further invest in emerging technologies to drive efficienciesEmerging technologiesWhile the E&C sector has been historically slow in integrating and adopting digital technologies,industry players are now increasingly paying attention to and leve
43、raging emerging technologies.Most E&C companies are utilizing digital technologies to expand business opportunities and boost profits by reducing costs in the long run and enhancing project execution.Further,with increased global supply chain disruptions,increased competition,worker shortages,and sk
44、yrocketing material prices,the need for digital transformation in construction has become much stronger.Construction companies are under pressure to safely deliver high-quality projects on time and within budget despite these challenges.While external factors remain outside companies control,impleme
45、nting new technologies can help increase visibility and tackle process inefficiencies.18 For instance,construction companies will likely adopt digital technologies through two IIJA initiatives:advanced digital construction management systems(ADCMS)and the Technology and Innovation Deployment Program
46、(TIDP)related to the transportation sector managed by the Federal Highway Administration.These initiatives will provide a total of$550 million to promote the use of digital technologies on government-funded projects.TIDP comprises research and development(R&D)and other efforts related to highways an
47、d transportation,while ADCMS is part of the TIDP and was created to advance technologies such as BIM,2D and 3D modeling,and others.19 Similar programs will likely be explored across other industrial sectors such as energy and mining and metals.More than half of the Deloitte survey respondents agreed
48、 they would likely invest in digital technologies such as artificial intelligence(AI),digital twins,and BIM in the next year.Moreover,developers and contractors are likely to further invest in combined digital and physical technologies such as visual intelligence,sensors and Internet of Things(IoT)d
49、evices,robotics,immersive collaboration,and drones to increase efficiency.Around 44%of survey respondents have shown interest in investing in advanced technologies.For example,an industrial technology company recently released an all-in-one cloud-hosted software that enables end-to-end workflow esti
50、mation for general and specialty contractors.It provides a structure for consistent and standardized estimating procedures that allows companies to leverage leading practices to boost accuracy and productivity.It also offers collaboration software that connects users with data on any device to enabl