Engineering and Construction Costs Continue Climbing in March

Engineering and construction costs continued to increase in March, according to the Engineering and Construction Cost Indicator from PEG and S&P Global Market Intelligence. The headline Engineering and Construction Cost Indicator, a leading indicator measuring wage and material inflation for the engineering, procurement and construction sector, increased to 69.2 in March, from 62.6 in February. This means that prices are increasing for this sector in March and specifically, the sub-indicator for materials and equipment costs increased by 11.7 points to 73.9, while the sub-indicator for subcontractor labor costs decreased by 5.2 points to 63.5.

The materials and equipment indicator continued to grow in March, with increases reported in all the twelve tracked components compared to February. The most significant gains were observed in turbines, as well as in ANSI Pumps and Compressors. These components scored above 70.0, with copper-based wire achieving the highest score. Alloy steel pipe and copper—based wire experienced smaller increases, but as mentioned copper saw the highest reading of all categories. Ocean freight had a notable increase of above 10.0 points signaling the complications related to logistics in the current climate.

“Containerized freight rates are set to rise sharply, even in a softer pricing environment, due to higher shipping costs from the MENA conflict,” said Keyla Goodno, Senior Economist. “War-risk premiums, increased insurance, fuel surcharges, and congestion fees are pushing delivered costs up—often faster than commodity prices. Shippers should expect stricter carrier allocations and more schedule changes as networks adjust when importing equipment. Alternate routes are emerging, with some carriers using inland networks in Saudi Arabia to bypass sea disruptions.”

The sub-indicator for current subcontractor pricing decreased to 58.3 in March, indicating a deceleration from the recent trend. The indicator remains above 50.0, signaling rising prices. Most categories remained stable with 12 categories scoring a neutral 50.0. The Midwest showed moderate gains, particularly in mechanical and I&E, which reached 75.0. The South exhibited similar behavior in I&E scoring 83.3. Overall, subcontractor pricing shows similar results as last time with prices still maintaining a rising behavior.

The six-month headline expectations for future construction costs indicators bounced higher to 87 in March. The expectations indicator for materials and equipment reached 85.0, which is 11.7 points higher than last month’s figure. In March, all categories scored above the 50-mark, with notable increases of 25.0 points in Shell and Tube Heat Exchangers, and 33.3 points in Redi-Mix Concrete. Additionally, turbines saw an increase of 25.7 points and Ocean Freight from Asia to the US 14.6 points. Turbines had dropped during February but have now bounced back to a fast growth in prices during March.

The six-month expectations indicator for subcontractor labor costs rose to 91.7 making it the highest scoring category. This indicator grew from 81.3 in February, reflecting a 10.4-point increase. Notable increases were observed in the US Midwest and West for both I&E and Mechanical categories jumping 16.0 points. Additionally, the Western and Eastern Canada categories also demonstrated strength, with the Eastern growing 25.0 points. Overall, the outlook for subcontractor labor costs continues to trend upward.

Respondents indicate that the market is experiencing significant shortages in general laborers, pre-cast piles, and medium voltage cable, while transmission and substation steel manufacturers are oversold, raising quality and schedule concerns. Many suppliers across various material and equipment types are struggling to meet contract delivery dates due to sub-supplier issues, workforce shortages, and overcapacity. Additionally, rising metal prices, particularly for copper and zinc, are complicating the supply of electrical equipment, including transformers and switchgears.

Respondents and professionals report that the U.S. market is becoming highly active, with new power projects and data centers emerging. They highlight tightening supplies for transformers, electrical bulk materials, and large turbines. Rising freight costs and insurance premiums, driven by geopolitical tensions, are causing uncertainty in finished product pricing.