SHERRI CASILIO HAS a novel way of looking at the concrete industry. "The ready-mixed concrete business is so completely foreign to any other business model that exists," she says. "You are dealing with a highly perishable product that people think you can deliver like a pizza. If it's not there in 30 minutes or less, they are on the phone to somebody else. It's that kind of market."
"Th at kind of market," as Casilio, president and CEO of Four Winds Concrete in Bethlehem, Pa., describes it, has been particularly brutal for concrete producers the last four years. A housing depression and a marked slowdown in commercial construction throughout the U.S. caused telephone calls for concrete deliveries to slow. Indeed, the last two years, annual readymixed concrete production has been hovering about 40% off its record peak of 458 million yards in 2005.
Still, the 2012 TCP Survey shows a new wind is blowing for many producers. "Th is is the busiest we've been since 2009," says Scott Young, sales manager at Four Winds. "We are doing a lot of roadwork for the State of Pennsylvania and are doing a large commercial project for Binney & Smith, the people who make Crayola crayons."
Similarly, Mark Fitzpatrick, division manager at Champion Concrete in Iron Mountain, Mich., adds, "things are picking up strong now." Champion supplies much of its concrete to industrial projects, such as solar power towers, bases for reflective solar mirrors, and liquified natural gas facilities.
According to the TCP Survey, 52% of respondents expect revenue to increase in 2012, compared to 2011. Another 31% expect sales to be similar, while 17% said revenue this year will be below that of 2011. When we asked this question last year, only 36% replied revenue would be higher than a year earlier.
ASR and other challenges
Young says the biggest challenge his company faces is having too many suppliers serving the same area. Four Winds is a small, family-owned producer. So to differentiate themselves from the larger, more established competitors, they stress customer service. "We have 24-hour-a-day concrete, seven days a week," he says. "When someone needs concrete at 2 a.m., we're there. No questions asked."
Last winter, when a couple of homes were in danger of disappearing into a sinkhole near the Lehigh Valley International Airport, one producer turned down delivering concrete late that afternoon. "It was an inconvenience if you're the kind of guy who wants to go home," Young says. "It was 4 o'clock in the afternoon, and all of our managers were here." Four Winds made the delivery, the homes were saved, and the producer received some favorable publicity on a local newscast.
Finding enough sand is a concern for Young because many truckers do not want to haul it from New Jersey without having a backhaul for the return trip. Champion Concrete's Fitzpatrick's has a different concern as he looks ahead. "Fly ash is becoming nonexistent due to the lack of coal plants, and ASR (alkali-silica reaction) is now becoming standard with most DOTs and commercial and industrial projects," he says. "Without the ability to mitigate using pozzolans, we will have to turn to admixtures. Without fly ash as a source of mitigation, a lot of producers are switching over to a lithium admixture to mitigate, and that poses other problems. You really have to dial the lithium in, and it will have a negative effect if you add too much."
Fly ash is a great supplementary material that brings the price down as well," Fitzpatrick adds. "If that option is taken off the table, all of the sudden you are going to see the price of concrete rise." Champion Concrete currently uses about 25% fly ash in its mixes.
Finding employees with a strong work ethic and attracting young people to the industry concerns Casilio of Four Winds Concrete. She and her husband, Frank, who is vice president, had no problems attracting four of their employees. Their son, Joseph, 27, is in charge of raw materials and quality control; Brian, 23, heads the concrete pumping division; and Christopher is in charge of colored concrete and driver training. Their oldest, John, 29, is an aerospace engineer and lieutenant in the U.S. Navy. He works part-time on the producer's IT and computer systems.
"There is a certain amount of expertise that goes into this industry," Casilio says. "As our drivers age, getting people of like quality and understanding and work ethic is going to become more and more difficult."
Along the same lines, E.C. Babbert, a precast producer based in Canal Winchester, Ohio, replied, "We are losing skilled workers and not getting equal replacements. There is a lack of interest on the part of educated workers."
According to the TCP Survey, the economy (26%), government regulations (20%), employee and labor issues (14%), and fuel and production costs (11%) are the greatest challenges facing the industry. Other responses included climate change/sustainability, competing materials/asphalt, consolidation, fly ash shortages, and capital equipment replacement.
Nanotechnology and other opportunities
Champion Concrete's Fitzpatrick sees nanotechnology as the most important technology or development for the industry's future. "As fly ash is becoming scarce and other pozzolans are not always readily available, nanosilica could revolutionize the concrete industry as much as admixtures have," he says.
Nanotechnology creates better strengths, he says. "If they can price nanotechnology to become more affordable, perhaps in the next decade, we might see a big surge of that in our industry in the United States."
Hoyle Stone Products, a manufactured concrete producer based in Millington, Md., cites the material's durability as a strength. "You can't make items that have a long lifespan and are durable out of bamboo," Hoyle stated in its survey.
In the TCP Survey, 29% of respondents listed durability, longevity, or reliability as concrete's "greatest strength and opportunity." Th is was followed by versatility (20%), green attributes/recyclability (15%), and ability to improve infrastructure, pavements, or bridges (7%).Other replies which received more than one response included value/ cost, capacity to meet demand, color/ decorative qualities, availability, and quality/consistency.
BIG Baby Steps
The large public companies in the U.S. concrete industry have regained their footing. While 2011 will not be remembered for double-digit gains in sales, the bleeding clearly has stopped.
A TCP analysis of their results show that six of the 10 largest public companies had increases in revenue from 2010 to 2011. Three saw sales decreases, while one had identical results. Together, these companies' revenue grew a combined 0.7% in 2011. For companies based outside the U.S.—Larfarge and Colas (France), Heidelberg Cement (Germany), Holcim (Switzerland), and Italcementi Group (Italy)—TCP analyzed their North American results.
These companies generally have seen their markets stabilize, as evidenced by increased production volumes. Houston-based U.S. Concrete's ready-mixed concrete volume was 4.15 million yards in 2011, a 6.4% jump over 2010. Like others, the producer had an especially upbeat 2011 fourth quarter. "We had a roughly 11.9% increase in ready-mix volumes, helped in part by a mild December in most of our markets," said William Sandbrook, company president and CEO.
Cemex saw "moderate improvement" in residential construction, mainly multi-family, late in 2011. Mexico-based Cemex also reported "moderate" improvement in the commercial and industrial sectors. "Infrastructure spending has remained relatively weak due to the winding down of the infrastructure stimulus program and uncertainty over federal funding," the company said.
Vulcan Materials, the nation's largest supplier of aggregates, is "maintaining a conservative view of near-term demand growth," said Chairman and CEO Don James. "We expect relatively stable public spending on highway projects, specifically road-related construction, some improvement in private nonresidential building construction, and continued strong growth in multi-family housing."
Martin Marietta, the nation's second largest construction aggregates supplier, sees promise in the West. Late in 2011, it acquired from Lafarge ready-mixed and asphalt plants, quarries, and road paving business in the Denver area in exchange for quarries and distribution yards along the Mississippi River, and cash. "Denver is an attractive market to expand our geographic footprint based on its growing demographic trends, a per capita income well above the national average, and its ability to attract both national and multinational businesses," said Ward Nye, president and CEO of Martin Marietta Materials.
North American ready-mix sales volume grew 5.2% to 7.4 million yards in 2011 for HeidelbergCement, with the South especially strong. North American is the German company's largest market. Like Cemex, Heidelberg said public spending decreased as 2011 neared an end, falling 4.4% below 2010's level.
— Tom Bagsarian
Many producers in the survey report they have been able to increase concrete prices this year, but not fast enough. "We forecast a slight increase in the years to come, but not substantial enough because the market is oversaturated with producers," said Tycer Ready Mix in Hammond, La. Orrville Trucking cited increasing prices as the industry's greatest challenge. The Orrville, Ohio-based company derives 70% of its business from ready-mixed concrete.
Among the large public companies, Cemex increased ready-mix prices 3% in 2011. U.S. Concrete's 2011 ready-mix average sales price of $94.48 was a 2.1% increase over 2010, while Vulcan Materials' increased 5%. But whether a producer is large or small, demand dictates the direction of selling prices. "When demand increases significantly, prices will rise substantially," said Forest Inn Masonry Supply Inc., of Lehighton, Pa.
Our TCP Survey shows 61% of producers' concrete sales prices have increased so far this year, while 13% have decreased, and 26% have remain unchanged.
Hiring and firing
The industry has shed many employees since the recession began in 2007. Construction sector unemployment in July 2012 stood at 12.9%. A total of 7.15 million construction workers were on the payrolls, while 1.06 million were out of work. Th is is an improvement from a year ago, when construction unemployment was 13.7%. But both of these figures are better the depths of the recession, when unemployment hit more than 20% for the construction industry, although many have left the industry and workforce.
In the TCP Survey, 62% of respondents have hired or expect to hire additional employees in 2012, while 38% do not. Th is is very similar to last year, when 64% said they were hiring in 2011.
Cap Spending: Trucks lead the Way
Bill Perry is ready to spend money for some front-discharge ready-mix trucks. But he is anxiously awaiting word from headquarters on one big detail.
"It will all be according to how much money they're going to give me," says Perry, general manager of All Ohio Ready Mix in Sylvania, Ohio. "There are only so many cap-ex dollars to go around."
Concrete industry equipment manufacturers know this only too well. As producers' revenue decreased during the Great Recession of 2007-09, capital spending was squeezed. Producers spent money only on new equipment which was absolutely necessary. Indeed, capital spending by the U.S. construction industry decreased from a peak of $40.8 billion in 2008 to $17.8 billion in 2010, the most recent year available, according to the U.S. Census Bureau. Of the $17.8 billion, $2.6 billion went to equipment, $15.2 billion toward new structures.
"I've done all of my due diligence," says Perry. "I've contacted all of my manufacturers, got the quotes, and got the trucks spec'd out." He expects to buy anywhere from two to 10 new vehicles." All Ohio Ready Mix is a division of The Shelley Co., of Thronville, Ohio. Shelley is a division of Oldcastle.
Perry has company. Producers in our TCP Survey who plan to buy new equipment in 2012 cited trucks (all types) as the equipment they were most likely purchase. Ready-mix trucks ranked third (see chart).
Among the large public companies, Mexico-based Cemex spent $386 million on maintenance capital expenditures companywide in 2011, a 25% increase from 2010. U.S. Concrete of Houston spent $6.4 million last year, similar to the previous year. Germany-based HeidelbergCement spent $195 million at its North American operations in 2011, $16 million more than 2010.
Looking ahead, Martin Marietta, Raleigh, N.C., plans to spend $155 million this year, including $35 million for a cement kiln project. Vulcan Materials, Birmingham, Ala., said it plans to spend $100 million on capital equipment in 2012.
Among other producers, Ozinga Indiana in Gary plans to buy frontdischarge trucks ($500,000); Heldenfels Enterprises, San Marcos, Texas, forms and batch plant equipment ($100,000); Arizona Materials, Phoenix, loaders, ready-mix trucks ($1 million); Standard Concrete Products, Columbus, Ga., forms, loaders, forklifts ($500,000), and Arban & Carosi Inc., Woodbridge, Va., crane ($100,000). Palmetto Ready Mix Inc., of Bluffton, S.C., does not plan to buy anything new, opting instead to refurbish its existing equipment.