Concrete has made the foundation of America. It is the skeleton of our infrastructure and of the tallest, strongest buildings where the business titans of the modern era formulate their strategies.
The skylines of the nation's cities glisten with concrete buildings that reach to the stars. Much of the material supplied for these super-structures comes from batch plants operated by skilled technicians, and then transported to jobsites by drivers, some of whom have toiled for producers for decades.
The material has helped build not only our biggest cities' dazzling downtowns, but also sidewalks, streets, banks, and stores in rural towns, villages, and hamlets. This is concrete.
Concrete producers in North America are caught in the typical glass half-full, half-empty scenario for a variety of reasons. Many poured more concrete in 2005 and the first half of this year, thanks to a strengthening commercial market and public works projects. And even residential business, while not as strong as a couple of years ago, has not taken the dive many have expected.
But these gains in business have been offset in many cases by rising fuel costs and increasing raw material prices. Producers tell TCP they have not always been successful passing these increases on to their customers. Still, as part of our annual TCP 100 survey of the concrete production industry, most producers see 2006 as being a very good year (See the 2006 list). A robust 83% of producers say net income will be better or the same this year, with only 17% predicting a decline.
One small precast producer in the middle of the nation remains cautious and may have put it best: "Raw material costs are going up and sales volume will increase slightly, giving us the same profit as last year."
A good year in the works
U.S. construction the first four months of 2006 totaled $210.5 billion, an 8% increase over 2005. Commercial construction led with a 14% jump, followed by non-building/public works construction with an 8% increase. Even residential building, which many thought would become dormant, registered a gain of 5% so far this year.
"The current year is seeing a shift in the source of expansion for construction activity," says Robert Murray, vice president of economic affairs for McGraw-Hill Construction. "Single-family housing had been providing the upward push for much of the past five years, but now it's beginning to lose momentum. Nonresidential building in 2006 has picked up the slack, as improved occupancies and rents are outweighing any dampening arising from higher material costs."
On the commercial/industrial side, store and warehouse construction stayed very strong-a 14% rise for stores and 28% for warehouses in April. Lodging remains strong, with large hotel projects in Las Vegas, San Diego, and Atlantic City, N.J., breaking ground in spring.
In public works/nonbuilding, highway and bridge construction were up 17% and 46%, respectively, in April. "The transportation sector in 2006 is being helped by having the multi-year federal transportation bill now in place and by the greater funding coming from the federal government for fiscal 2006, combined with enhanced funding from the state," says Murray.
One Northeast ready-mix producer echoed that with, "The federal highway money is starting to go to the state, so state construction activity is increasing. There's more work to bid on."
On the home front, the National Association of Home Builders/Wells Fargo Housing Market Index, which tracks home builder sentiment, fell in June to its lowest level since 1995.
"We now expect new home sales to be off by 13% from the record posted in 2005," says David Seiders, the association's chief economist. "Single-family starts, supported by larger builder backlogs of unfilled orders and some continuing reconstruction in the wake of last year's hurricanes, should be down by about 9% from the 2005 record."
Producers in our survey are coping with shortages of two vital components of their businesses: materials and employees. (See charts.)
Two-thirds of producers said material shortages, mostly cement, have had a major or moderate impact on their businesses. "Material shortages have limited our ability to expand in the marketplace," said a small ready-mix producer in the West who said the impact has been major. "It's caused us to neglect customers and we've had to send customers away."
Material shortages "have added 30% to the cost of our materials and it's increased capital investment for our firm by over 50% over the last two years," said another Western producer.
Many noted that such shortages trickle down to their customers. "It's made it harder to supply our contractors, so we don't meet our deadlines," according to one producer in the Midwest. "And that hurts our customers."
"There have been some goods that haven't been delivered when promised," added one producer in New England. "There have also been some irate customers."
Producers also are coping with labor shortages, primarily truck drivers. Six out of 10 companies surveyed said labor shortages have had a major or moderate impact on their businesses.
As the economy strengthens in many parts of the country, unemployment has fallen. This makes it difficult to find qualified employees. One producer in the Mid-Atlantic region noted, "Unemployment is very low in our area. The people who want to work are basically working. This has led to a shortage of skilled laborers."
Such shortages have impacted business for several producers. "It's reduced capacity, which has reduced sales," according to a Southern paver manufacturer. "We do less work because we don't have enough people to do more jobs."
A producer in the West has increased drivers' pay 10%. "Shortages have made it difficult to keep our fleet fully manned," the producer reported.