Soaring Diesel and Material Costs Halt U.S. Construction Projects

Soaring diesel and material costs, driven by tariffs and global conflicts, are forcing U.S. commercial construction projects to be canceled, scaled back, or significantly altered. Escalating expenses are making projects financially unviable, impacting billions in private development.

Rick Donovan

September 28, 2026 · 2 min read

U.S. commercial construction projects are facing widespread cancellations and pivots as soaring diesel prices and rising material costs break the budgets of long-planned undertakings. Developers are increasingly abandoning or scaling back projects, reflecting an economic environment marked by tariffs, elevated interest rates, and significantly higher fuel and material expenses Bisnow reported. This trend is impacting hundreds of billions of dollars in private commercial projects across the country.

Key Economic Pressures: Diesel and Material Price Surges

The producer price index for inputs to new nonresidential construction climbed 8.9% between August 2025 and August 2026, according to an Associated General Contractors of America (AGC) analysis of government data. This increase is largely driven by steep tariffs on key materials and ongoing conflicts in the Middle East. Among the most significant increases, diesel fuel prices soared 77.8% over the past 12 months Bulk Transporter noted. Liquid asphalt rates also inflated, contributing to the overall cost surge. Metals, particularly those subject to tariffs of up to 50%, saw substantial year-over-year price hikes: aluminum mill shapes increased 27.3%, steel mill products rose 23.4%, and copper and brass mill shapes were up 20.9% AGC reported.

Direct Impact on Project Viability and Planning

These escalating costs are making it increasingly difficult for projects to be financially viable, prompting developers to put planned construction on hold. For instance, packaging giant Georgia-Pacific abandoned its 2024 plans to convert part of its 51-story Atlanta headquarters into apartments, retail, and entertainment space due to construction costs Bisnow reported. Similarly, a major redevelopment in Virginia, which included over 700 residential units and retail, is being terminated. In Philadelphia, a New York developer pivoted from a luxury residential high-rise to a 34,000 square-foot retail building, nearly four years after acquiring the vacant parcels Bisnow reported. A recent AGC survey found that 55% of firms reported at least one project canceled, postponed, or scaled back because of rising costs and demand uncertainties Bulk Transporter reported.

Contractor Strategies and Future Outlook

Contractors are adapting to this higher cost environment by incorporating these expenses into new bids, which ultimately makes projects more expensive for both private developers and public agencies. Ken Simonson, AGC's chief economist, stated that firms are being squeezed by tariff- and war-induced materials cost increases, even as they boost wages to attract personnel AGC reported. Higher diesel prices significantly impact construction projects not only through direct fuel consumption but also by increasing transportation costs for materials and equipment deliveries. Firms are paying diesel fuel surcharges on thousands of deliveries to jobsites and for hauling away debris Simonson said. An Equipment World poll indicated that 81.5% of surveyed contractors, dealers, and manufacturers had changed their business strategy in response to rising diesel prices, with about 40% raising bid prices or hourly rates, and 31.1% adding fuel surcharges to contracts Equipment World found. This means owners may decide to scale back, postpone, or cancel projects that no longer "pencil out" financially industry expert Wilkins told the DCNF.