After almost two decades as an adviser to the ready-mixed concrete and related construction materials industries, I can’t think of any annual event that I look forward to more than the TCP Survey which is featured in this issue.
Over the years my editors have asked me to weigh in on some of the assumptions and conclusions they have drawn, and frankly, it is hard to compare the larger multinationals, as some are pure-play cement, aggregates, and ready-mixed concrete producers, and others have substantial assets in building products, the asphalt industry, and related contracting and paving businesses. Nevertheless, if you want to experience an eye-opening comparison, look at the industry from the early 2000s, and then compare it to today. You’ll be surprised how many changes have occurred, especially in the top tier of the largest companies.
It is important to realize that the industry has witnessed major changes since the early 2000s, from the housing boom of mid-decade and the attendant record volumes and profitability, to the whipsawing of a recession unlike anything we ever experienced, and hopefully will not again over the course of our careers. So where is the industry today, and more importantly, what lies ahead over the next few years?
- A Big Recovery in Volumes — From a high of 458 million cubic yards in 2005, the industry sank like a rock, bottoming out at 257 million cubic yards a short five years later, and stayed at these levels for three long years. As 2014 began, I was convinced we would increase from 300 million cubic yards in 2013 to 340 million this year. I was wrong; a cold winter, wet spring, and late season start, coupled with the softness in the housing recovery I wrote about recently, created a perfect storm this year. We’ll be lucky to hit 325 million cubic yards in 2014.
- This is an improvement but it’s still a long way from the highs. The good news is that demand is expected to increase to 450-plus million yards by 2017-18. Remember, I used the term “demand,” not the ability of the industry to produce at that level of demand.
- Shortages in All Corners of Our Industry — Two years ago, I predicted ready-mixed concrete would be in short supply in the maturing stages of the recovery, and I was right. In selected markets that have rebounded strongly, concrete is 14 to 21 days out on delivery lead times.
- Also, the driver shortage I predicted two years ago has firmly taken hold in most areas of the country, with those markets experiencing the most robust recovery bearing the brunt of the hiring difficulty. And more shortages are looming. New and used ready-mix trucks are quickly being snapped up as used values climb and new truck manufacturers apologize for multimonth backlogs. And don’t dismiss other non-driver personnel shortages, such as experienced dispatchers, batchmen, and trade-related personnel of all types. Materials will be next, and at some point, we will experience cement supply shortages in the markets where the recoveries continue to be the most robust.
- Infrastructure, Public Works, and Housing — We all know the recovery in construction has been slow to gain traction. But the reality is that municipal, state, and federal budgets are all healing, and quickly in many places. Politicians know infrastructure and public works are great job-creators, and as tax revenues improve, expect to see more growth in budgets at all governmental levels. What makes this interesting is that much of the non-housing recovery will coincide with an improvement in new housing starts, particularly in multifamily, which has a long run ahead of it. All of this leads to an industry that will be straining to keep up.
- What does all of this mean? Challenging times lie ahead, but in a good way. Expect volume and pricing growth driven by increased demand and shortages in the industry’s ability to meet this demand, for all the reasons I have pointed out. So I remain bullish on our industry. This sure sounds better than the declining volumes and eroding margins of the recent past, which are all in the rear-view mirror.