March 2015, Vol. 70, No. 3

Editor's Log

Seizing Opportunities

When trying to get a handle on the economic activity, outlook and trends of the underground construction and rehabilitation industry, I keep getting mixed signals. Most of the market segments are primed and ready to take off, yet 2015 has started off slowly and tentatively.

While obviously the large diameter energy pipeline construction market may suffer a short-term set-back, virtually all other major markets within underground infrastructure are either booming or on the cusp of a strong resurgence in activity. Yet, markets appear to be suffering from timidity, reluctant to pursue waiting opportunities and clinching to an overabundance of caution.

Nowhere is this more prevalent than the municipal sewer, water and storm sewer market. This point was driven home by comments we received in our annual Municipal Survey (see the February issue of Underground Construction). Said this East Coast manager from a mid-sized city: “We’ve got more projects – major projects – on the books now than we have for several years but no one seems excited about that. “ Added this Midwest city representative “We’re releasing a major project for the first time in five years, yet the excitement we’re getting from the manufacturing and contractor community is surprisingly muted – it’s like they don’t believe us!”

But it’s hard to blame contractors and manufacturers for being reluctant to ramp up their businesses as recent years have seen essentially nothing but stagnant capital budgets at best, significant cutbacks and slowdowns at worse. Contractors spent the last several years scrimping by and manufacturers forced to throttle back expansion and development of vital new products as investment funds were hard to come by and justify.

Still, we have to get beyond this malaise as, for at least 50 percent of U.S. cities, spending is increasing at a hefty level. Though still wholly inadequate to meet our country’s needs, it does mark a significant and positive change in direction for the U.S. municipal markets.

And other markets? At UCT, discussions with the many gas and electric utility personnel also expressed a continuation of major replacement and maintenance work along with a strong mix of new construction for several years to come. Their main concern was getting enough contractors to keep up with the coming workload. The telecommunications personnel at the show repeated a similar story: strong work in the coming years.

The lone legitimate market of concern is energy pipelines. But we really shouldn’t be surprised at the precipitous drop in prices that have caused many companies to throw on the economic brakes. Oil represented big money and quick profit. But oil production around the world also continued at a strong pace while global economies struggled and consumption fell. The predictable result was an oil glut.

The price of oil is a carefully orchestrated, geopolitically manipulation led by Saudi Arabia. The market will rebound – again – but the question remains how soon. But lest we forget, it was not oil that got us into shale plays. It was natural gas and that’s still – and will continue to be for decades – a growth market. Yes, we have a gas bubble right now, but steadily growing gas consumption will slowly deflate that bubble and the need for gas pipelines will continue.

For those depending upon the large rig or track trencher market, 2015 will be a year of wrapping up projects and watching carefully developments in the energy market. For some in large HDD, it may be time to ponder a shift from exclusive concentration upon steel oil/gas pipeline projects to the water market and even electric transmission – all high growth opportunities.

For small to mid-sized HDD and even trenchers in that category, markets should keep contractors busy and manufacturers with backlogs for the foreseeable future.

One risk that is legitimate is overconfidence on the part of certain business. There are those companies who believe their product lines are so solidly entrenched or exclusive that they are virtually untouchable. One of the benefits of being in my job is that I know of emerging technologies and market developments long before most and I can assure manufacturers that complacency is something to fear.

For most of the underground infrastructure markets, it is time to embrace a potentially healthy year and enjoy a welcome shift into sunlight for a change and move out of the dark days of recession that has dogged our markets.

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