June 2014, Vol. 69, No. 6
Editor's Log
HDD An Industry Staple
Often, detailed industry insights are hard to mine from the limited data sources generally available.
But for the horizontal directional drilling market, Underground Construction has the rare opportunity to discover market specifics with our annual in-depth research into the market. Yes, it’s expensive and very time-consuming, but reader feedback confirms the importance and significance of this exclusive project.
Our16th Annual HDD Survey (page XX) reveals a market that in some aspects is treading water. But that’s not necessarily a bad thing and a far cry from stagnant or even negative market conditions during the first few years of the new century.
The energy market, which has been a mega-driver for mid-to-large/jumbo rigs for many years, is projected to essentially be “catching up” with rapid growth of the past several years. Subsequently, HDD is experiencing the same type of minor slow-down before charging forward at breakneck speeds again. Most industry experts anticipate that while there will still be a strong market for the next couple of years, it will be in 2016-17 when the industry catches fire again. Estimates on how long the strong market/booms can last range from 10 to 25 years. Bottom line, for the foreseeable future, energy remains hot.
Consequently, for HDD contractors concentrating in the energy field, 2014-15 is a time to finally work through backlogs, expand and train staffs and position themselves to ride out the next wave – all while staying reasonably busy.
The survey also revealed that another market niche that has been a staple for small rig work remains viable but profit margins are down. The telecommunications market is no longer the attractive money-maker it once was. A plethora of contractors rushed to the telecom industry because of the heavy fiber build-out programs and an already competitive market has almost gotten out of hand. That competition has resulted in downward price pressures and emboldened owners to seek further cost reductions and shift risks back to contractors. Frequently, telecom contractors are feeling a “squeeze” by owners to obtain cut-rate prices.
Predictably, many telecom contractors are searching for other markets as telecom profits stall. Prime niches include the vibrant and potentially lucrative electric grid build-out, or even the gas distribution industry which by all accounts is ready to boom.
Granted, telecom owners are in a difficult position. Business is booming yet profits are harder to obtain. Cable and telephone companies, once clearly segmented in their services, now compete virtually head-to-head across the board. Internet search engine companies are now internet infrastructure providers. Traditional telcos are now entertainment providers and AT&T now is in to satellite systems via their purchase of Direct TV. The lines have blurred to the point that it is more realistic to lump all the companies together and call them simply communications providers.
Obviously, this new market dynamic is difficult to understand – even for the owners – and even more difficult to discover the path to profits. Yet, it is unfortunate that telecoms feel the need to strong-arm contractors into concessions that ultimately are driving them away. Contractors should be valued partners who can be incredibly helpful to the telecoms’ business development sojourn in the new communications frontier. The time may come when lack of interest in the telecom construction market ultimately leads to fewer bidders and longer build-out times. It would be far better to work with contractors in a reasonable fashion now than to suffer sticker-shock prices and slowed project roll-outs later.
Another striking point in the survey was the tremendous surge towards diversification. Niches continue to crop up as viable opportunities for directional drilling. While many of those niches are small, they are nonetheless profitable. HDD continues to experience explosive growth in the water market as well, especially for larger diameter installations. Increasingly, water utilities are turning to HDD for all types of installations, but particularly for pressurized transmission lines which typically are installed at greater depths. Of course, this market is in the public sector which is very different to bid/operate in than private work and creates its own unique set of challenges.
The trend to larger drill rigs was clearly demonstrated in the HDD survey as well. The lion’s share of new rig purchases continues to be small rigs but that segment has its smallest market share since this survey was started. More and more contractors are finding benefits in owning a mid-sized or even large rig. The strong energy market combined with the continued surge of water drilling should fuel this movement for many years.
But most of all, trends, attitudes and perspectives expressed by the survey respondents clearly document that HDD has become an all-encompassing and dependable technology. Indeed, HDD is clearly a staple of the underground construction industry.
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