First the corona struck, and now the nightmare is coming true in Ukraine. The world has moved into a new, warlike position. What are the effects of sudden changes in world situations on the construction industry?
Chairman of the board of Joensuulainen Rakennustoimisto Eero Reijonen Oy Eero Reijonen, director of urban development of the city of Mikkeli Jouni Riihelä and K-Rauta Naumanen's merchant from Kuopio Olli Naumanen open their thoughts about the current situation and the near future of the construction industry.
"The outlook for orders is still reasonably good"
"Currently, there are quite a lot of construction sites in the calculation," says Eero Reijonen, founder and chairman of the board of Joensuu's Rakennustoimisto Eero Reijonen Oy. He says that in the last month or so, his construction company has received new work sites worth around 30 million euros.
There is good work, but the future is uncertain: "When Russia attacked Ukraine, its effects were immediately visible. Along with military measures, sanctions have also brought big challenges."
"The housing market is almost exhausted. Inflation is accelerating. The price level of products and energy rises. A lot of products have come from the East. That road is closed. There will be a shortage of some construction materials. Interest rates are believed to rise," Reijonen lists.
"We are in a state of uncertainty. The whole of Finland is on its toes."
He predicts challenging times, especially for those companies that a year ago took on many large, two- or three-year contracts. "Nobody has been able to prepare for the rise in prices. From the point of view of the companies' profitability, times will be very challenging."
Reijonen estimates that index-linking has not been agreed upon with the client in many contracts. Now we are weighing the closeness of the cooperation between the customer and the contractors.
The founder of the family business, which will soon celebrate its 40th anniversary, hopes for index-linked practices in construction industry projects.
"If an agreement has not been signed, changing agreements afterwards is not very simple. A lot depends on the customer."
The role of the public sector is important
Rakennustoimisto Eero Reijonen Oy, which employs approximately 120 employees, operates in Eastern Finland, Upper and Northern Savo, North Karelia and the Kainuu area. The company also does some construction in southern Finland. In the opinion of the chairman of the board, the prospects in the company's operating area are still quite good.
Even though the population in the area is getting older, the construction of service buildings brings jobs to construction firms.
Reijonen sees the role of the public sector as important. When the pandemic hit, public sector recovery measures were increased. "Hyvin has borne his responsibility well", Eero Reijonen praises the society's way of working and assesses that Finnish straight-forward social responsibility works even in the current exceptional world situation.
However, he sees some shadowy clouds in the air: "Here in eastern Finland, there are long distances and the work sites are not always very close. Employees' travel costs are increasing and the willingness to go on very long trips is being tested."
Reijonen states that there is a big challenge in pricing throughout Finland.
"We don't want to get advance prices because no one knows what the final prices are for certain building materials."
In light of the recessionary economic forecasts, company investments may wane a little. "Fortunately, the public sector is still investing somewhat."
"At least for the time being, the outlook for orders is reasonably good."
"The agreed work sites will be taken to the finish line as promised. And a new one begins. New construction sites are getting started quite well", states Eero Reijonen with confidence.
In the city of Mikkeli, we trust in the future
"At the moment, the situation in Ukraine has shown surprisingly little in our contracts. In the ongoing projects, it is not yet visible," says Jouni Riihelä, director of urban development in the city of Mikkeli.
He admits, however, that the industry's input costs, for example fuel price increases, are already beginning to be felt.
Riihelä mentions that the city of Mikkeli has received a few advance warnings from the service providers that the exceptional situation may still be visible within this year.
"They have been advance announcements on a very general level, and it has not been possible to show that they had any effects on, for example, the construction product, delivery or, for example, schedule delays."
The urban development director considers this a procedure in accordance with YSE (general contract terms), where the service provider's concern is shared in writing in good time with the service subscriber.
"The spirit must be proactive."
"Concretely, we have not yet sat down in a single case because of cost spikes, delivery difficulties or schedule delays that we would have had to discuss."
Riihelä is cautiously inclined to think that when the city's next tenders start at the end of summer and early autumn, the situation will have already partially normalized.
The value chain has a future
The city of Mikkeli carries out construction contracts in many different ways and contract forms. In large contracts, fixed prices and precise schedules have been agreed upon. Jouni Riihelä, who has been in the city office for ten years, does not see the need for index-linking.
"Socially, such particularly serious disturbances reflect on all levels. When the situation evens out, everyone has a chance to succeed. In the best case scenario, everyone in the value chain is a winner."
"There is no separate advantage for the customer, service provider or material producer", Jouni Riihelä emphasizes.
"We are all part of the same construction industry value chain, we live in a multi-project world. If the value chain does not produce profitable projects, no one is developing the construction industry. Then the solutions of the future will not be better than the solutions of today", Riihelä reflects and says that he trusts in the power of cooperation.
"All of us have to manage in order for the industry to develop and to obtain new resources, experts and innovations. If we only thought about partial optimizations per project, such a view would not be achieved."
"In the same way that an individual develops project by project, companies move forward. The customer must also develop", says the urban development director.
Mikkeli is experiencing a strong period of investment
Doing business has become a bit more challenging than a little while ago. Still, we trust in the future.
"As a city, we have invested quite a lot. Private investments in the city have also increased significantly," says Jouni Riihelä and lists recent and soon-to-be-implemented construction projects:
"A modern wastewater treatment plant inside the rock, a school network renewal, a large store construction project near the city center, and investments by private operators in the Visulahti shopping park and Tusku's logistics business area."
Riihelä also tells about increased plot reservations. He would also like to give more speed to the expansion of the city center, the so-called To Satamalahti's development plans.
Highway 5 has been repaired near the center of Mikkeli, as well as the connection between Mikkeli and Juva. Soon the direction to the south will also improve. The information that has just arrived about the planning of the realization of the Itärada line has been received with satisfaction in the city.
"From the eyes of a builder, our city is interesting because of its improved infrastructure and logistical position. Mikkeli is in a good place on the map."
"When the public sector builds, it maintains society and develops it. Private investments reflect the vitality of the city", characterizes Riihelä.
After the winter, the first frost mats of the apartment building site are already on the ground and the second site is being started.
"These reflect in particular that society, entrepreneurs and townspeople believe in tomorrow, despite the distractions."
"Even after the disturbance, there is life worth believing in and investing in," says Mikkeli's urban development director in a calm voice.
"I see this as a momentary challenge. Despite the difficult situation, we believe in a better future. In autumn, we will already be in a more positive mood", Jouni Riihelä is confident.
"You shouldn't fall into gloom"
Olli Naumanen, a trader at K-Rauta Naumanen in Kuopio, confirms that the price level has increased for several products, and estimates that upward pressure can still be expected.
"In quite a few products, a part of a raw material comes from Russia or crisis areas. In an exceptional situation, the industry is looking for new raw material suppliers and routes for its deliveries. Availability is limited. It indirectly causes challenges. It may take some time before things are fixed," says Naumanen.
"The available quantities are decreasing. At the same time, however, demand remained at a good level. In the equation of the market economy, it means that the price will rise."
According to Naumanen, the pressure to raise prices comes from many different factors. The increased price level of energy, oil and freight and the availability of raw materials create the most upward pressure.
"There are surprisingly many different product groups that are affected by the current world situation. Many of them are products that have not been processed very far, are heavy and physically take up space, as well as products that have used a lot of energy to produce," Naumanen lists.
However, the K-Rauda merchant wants to emphasize that the effects on most of the products in the selection have remained minor for the time being. Replacement products are available for several articles. "If there are problems with a brand, you can usually find a similar product from another brand or another product suitable for a similar purpose."
K-Rauda has a willingness to serve: "We take as many proactive measures as possible. We are looking for new procurement routes, we anticipate possible longer delivery times and we make pre-orders", Olli Naumanen lists.
"With everything we come up with, we prepare for changing situations."
The hardware store often hears about upcoming construction projects in advance. A service store takes its customer's tips into account. The goods are ordered in advance, we try to stock them or make binding direct orders to the suppliers.
"Prediction both ways, as much as possible. This is the best way to get through this."
The shopkeeper at K-Rauda in Kuopio has heard estimates from several sources that everyday life should return to normal by summer. "Let's count on it."
"You have to create faith here," Olli Naumanen says hopefully. He doesn't like gloom. "You always have to find something positive. It helps to move forward.”
"Repair and new construction is always needed. It will continue in the future as well."
Text and pictures: Heikki Luukkonen