How to Navigate Supply Chain Challenges in 2025

As we head into 2025, the construction industry finds itself at the center of a critical transformation.

An unprecedented surge in data center construction and an associated growth in power demand presents a huge growth opportunity for construction businesses across the country. At the same time, the pressures this rapid surge is putting on our supply chain, coupled with geopolitical uncertainties in the Middle East and ongoing labor challenges in the United States, create significant risk of price spikes and supply chain shortages going into 2025. In response to these, we can expect to see manufacturing continue to be reshored to the U.S., new domestic entrants enter the market and supply chain management becoming increasingly digitized.

For construction business owners aiming to stay competitive and resilient, understanding and navigating these complexities is more important than ever.

The Surge of Data Centers & Supply Chain Pressures

The rapid rise of artificial intelligence (AI) is leading to an extraordinary boom in data centers and demand for power generation. Generative AI is expected to add trillions of dollars of value to the global economy. To power that, companies like Oracle (which plans to spend about $10 billion in 2025 on data center expansion), Microsoft, Google and Amazon are spending billions of dollars expanding their data center capabilities.

According to Goldman Sachs, this is forecast to lead to a 15% growth rate in data center power demand from 2023 to 2030, meaning data centers will make up 8% of total U.S. power demand by 2030. This is expected to drive about $50 billion of capital investment in U.S. power generation capacity through 2030.

With Bloomberg Intelligence forecasting over $200 billion to be invested in data centers and AI infrastructure in 2025, this is a huge opportunity for construction business owners.

At the same time, this growth will put enormous pressure on our supply chain. We’re already seeing lead times for major data center critical equipment increase significantly. According to McKinsey & Company, lead times for medium-voltage transformers grew from four to six months in 2019 to 18 to 24 months in 2023. For medium-voltage switchgear, lead times increased from three to five months in 2019 to eight to 12 months.

As demand for specialized materials such as high-capacity cooling systems and reinforced structures outpaces supply, we’re facing heightened risk of rising costs and limited availability in 2025. The more advanced planning that construction business owners can do to lock in prices and secure inventory, the better prepared they will be.

Port Strike Risks

The port strike in October highlighted the vulnerability of our supply chain. While the recent strike is over, the new deal remains to be ratified and tensions around automation across dockyards remain high. If the strike resumes, it’s likely to create further delays, which could lead to costly penalties for construction business owners who haven’t found alternative ways of getting the materials they need.

Geopolitical Risks in the Middle East

Geopolitical tensions, particularly in the Middle East, pose additional risk for construction supply chains in 2025.

Ongoing tensions are likely to lead to fluctuations in the availability and price of essential materials, especially oil and gas, which are integral to construction processes and the cost of transportation. In 2024, shipping companies rerouted ships away from the Red Sea, with traffic “plummeting by two-thirds through the key shipping route,” which previously accounted for “12% of all global trade,” according to The Guardian.

If these tensions remain or escalate, expect to see increased inflationary pressure in 2025. Construction businesses that rely heavily on imports may find themselves facing higher costs and extended delivery times. Having a backup plan for alternative sourcing strategies is essential to shield against this risk.

Building Resilience in the US Supply Chain

Given the risks surrounding imported construction materials, we expect to see a continued trend of reshoring manufacturing and bolstering domestic supply chain resilience.

The Chips and Science Act and the Inflation Reduction Act passed by Congress are both providing huge amounts of funding and incentives to build domestically. Coupled with the increased focus on making buildings more sustainable and prioritizing decarbonization, we predict that, in 2025, we’ll see more U.S.-based companies building everything from equipment to help upgrade our grid infrastructure to low-carbon concrete alternatives and improved recycling processes for steel and aluminum.

The Ongoing Digitization of the Supply Chain

In 2025, the rate of supply chain digitization will increase significantly. The risks of material shortages and price spikes will increase business owners’ desire to plan and buy materials further in advance. We expect to see a continued increase in businesses wanting to more accurately track progress against their initial estimates and leverage data analytics to make more informed purchasing decisions. We also expect to see businesses increasingly utilize warehouse management systems to make sure they have critical materials in stock and to implement technology that gives them the ability to track lead times and status updates from their vendors.

The ongoing labor shortage will spur more companies to make greater use of prefabrication and off-site construction to improve efficiency and speed up build times. It will lead more companies to embrace building information modeling to better plan what needs to be purchased for which phase of the project before building begins.

As people with long-term relationships and institutional memory retire, companies will increasingly need to implement systems that help them verify they are getting the best pricing available and ordering materials from vendors who will deliver what they need on time.

Navigating the 2025 Supply Chain Landscape

With a year of significant change ahead of us, construction business owners can benefit hugely by adopting a more proactive approach to supply chain management.

Given the potential inflationary risks on the horizon, as well as the huge growth opportunities presented by the rise of the data center market, businesses that can diversify their supply sources, develop contingency plans for shortages of critical materials, and invest in technology to help them optimize their operations will have a major opportunity to differentiate themselves and win new business.