News & Events

Trade Credit: Construction in Europe

Monday, October 3, 2022

TMHCC’s Underwriting Director – Credit, Ray Massey, recently provided his expert opinion on the Construction sector in Europe in Baker Ing’s in-depth report. Read below for Ray’s full commentary. 

This paper from Baker Ing is an excellent and timely overview of a large and strategically important industry sector throughout Europe, at a time of significant uncertainty and risk.

Following the recession of 2008-2010 and the impact of Covid in 2020-2021 it would appear that the sector across Europe is now facing a further shock of similar or greater dimensions. The war in Ukraine is driving increases in energy prices not seen across Europe in modern times, there is clear potential for energy shortages and short-working across the coming winter, and relations with China and Russia are having a huge, negative impact upon supply-chains.

The UK has the third largest construction sector in Europe and our analysis at Tokio Marine HCC, suggests there are further pressures to consider. Brexit has naturally impacted the UK more than any other region, while the UK economy’s heavy weighting towards services meant that the drop in output during Covid was greater than others in the G7.

Conversely, while much remains very unclear at this time and forecasts are being changed more frequently and significantly than one would expect of developed economies, the UK may suffer proportionally less than continental European from the Ukraine crisis with less reliance on Russian energy and food supplies.

Some features of the UK construction sector remain consistent however:

  • Greater levels of insolvency than any other notable industry sector
    With low, single-digit profit margins as a model and notable contractual risk when pricing jobs, it is almost inevitable that losses will be incurred at some point. And with a sector dominated (in number of companies and people employed) by SME entities, such a model leads to a higher insolvency level than elsewhere.

  • Contracting, and in particular civil engineering, are at the sharp-end
    That risk is most concentrated within civil engineering, where in addition to all those risks experienced elsewhere – cost and availability of material and labour, cashflow and order-book management – unforeseen ground and contract conditions can undermine the most competent. The high density of population and planning constraints within the UK mean that civil engineering is a higher proportion of construction activity within the UK than elsewhere.

  • Public sector and Government clients are key
    Infrastructure spending is a notable feature of all new Government budgets and plans, with the sector having the reputation of providing a quick and visible return on such investment. The new UK Conservative PM and Chancellor have publicly committed to significant increases in infrastructure spending in recent weeks without yet producing details – or independently audited budgets. However, if confirmed, that could produce significant workloads that local supply-chains and labour availability could not meet, providing opportunities for European and other companies to enter a large and competitive market.


Overall, the European construction market remains the 2nd largest in the world. Although slower-growing than both China and the US, the European market nonetheless has the opportunity to develop leading positions and technology in green construction and energy-usage. At the same time the UK will also continue to see notable levels of insolvencies and we intend to continue supporting our clients at TMHCC to navigate those risks while benefitting from the volume of work available.

Written by Ray Massey, Underwriting Director – Credit

Click here to visit our Whole Turnover Credit page for more information.

Click here to view the full Baker Ing report.

Disclaimer

The information contained in these articles and documents are believed to be accurate at the time of date of issue, but no representation or warranty is given (express or implied) as to their accuracy, completeness or correctness. TMHCC accepts no liability whatsoever for any direct, indirect or consequential loss or damage arising in any way from any use of or reliance placed on this material for any purpose. The contents of these articles/documents are the copyright of Tokio Marine HCC. Nothing in these articles/documents constitutes advice, nor creates a contractual relationship.