The U.S. economy has entered uncertain times. After an unprecedented decade of prosperity, the country is now in a recession. Closer to home, what does the economic downturn mean to the commercial and industrial insulation industry? Representatives from each of the six National Insulation Association regions were asked to assess the economic climate for the industry in 2002. A number of factors were addressed, including general business prospects, year-on-year comparisons, strong and weak areas, challenges and potential opportunities in a number of areas. Their views are presented on the following pages.
Central States Insulation and Abatement Contractors Association
When looking at his region’s prospects for 2002, Jim Gribbins, president of Gribbins Insulation Co. in Evansville, Ind., sees some bumps in the road.
"The central states region, not unlike the rest of the country, will feel the effects of a slowing economy that started in 2001 and was compounded with the events of Sept. 11," he said. "The degree of impact remains to be seen. Certainly some areas of our business will be affected more than others, but it’s safe to say that the overall pie will shrink resulting in smaller pieces for everyone."
A number of sectors have been affected by the slowing economy, said Gribbins.
"The commercial and light industrial markets have been most affected by the events of late," he said. "Office buildings in particular are being put on hold until developers acquire the confidence that had them building at record levels the past few years. Small manufacturers are making do with what they have and not improving and upgrading as they have in the past few years."
However, Gribbins notes several positive developments.
"Utilities continue their effort with pollution control equipment and gas fired peaking units," he points out. "With the number of power generating facilities in our region and neighboring states, this work will be steady for years to come. Other industries in our region, from pulp and paper to pharmaceutical to aluminum and steel will all likely slow in their capital improvements while continuing their ongoing maintenance efforts."
In terms of challenges, labor remains a common theme. An image problem is becoming a major obstacle, said Gribbins.
"The labor shortage will continue. The lack of respect given the construction industry by educators has worsened over the years to the point that young people view a construction worker job as undesirable and something they may settle for if nothing else is available," he said. "Our ability to attract a quality work force will not improve unless some radical changes are made in the way our industry is presented to individuals entering the job market. Now, more than ever, with the degree of emphasis on safety and quality we must find a way to improve the sophistication of the construction worker."
While he doesn’t see a drastic downturn for the region, Gribbins, as he did previously, offers cautionary words.
"Contractors working in the central states region will likely experience a slight reduction of business in 2002," he said. "With our proliferation of power generating plants and the continued development of gas peaking units, the impact on us should be less severe perhaps than other regions. But rest assured, the pie representing mechanical insulation contracting in the central states region will be reduced.
Southeastern Insulation Contractors Association
H. Vaughan Privett, chairman and chief executive officer for C.E. Thurston & Sons, Inc. in Norfolk, Va., thinks 2002 could be a surprisingly strong year, at least in the mid and south Atlantic states (Virginia and the Carolinas).
"We feel encouraged for 2002 even though it’s predicted to be a slow year," he said. "Some people I’ve talked to feel ‘this year’s sales is next year’s budget’ is aggressive. Two areas we focus on are the power industry and the marine markets. With deregulation of power being phased in over the next few years, we believe there is opportunity. Virginia alone is announcing construction of six new power plants, which is a big opportunity for contracting and distribution. We believe Virginia Power, Duke Power and CPL are not sitting still, but preparing to challenge competition with pricing and service."
Privett said the maritime industry has been active and opportunity may present itself.
"The marine business, basically the shipyards, have gone through two major mergers," he points out. "These were Southwest Marine purchasing NorShipCo, and Northrup Grumman purchasing Newport News Shipbuilding. The doors are open for more aggressive ship repair and new carriers, not to mention the local naval shipyard facilities, which should pick up in light of national defense."
Maintenance projects could also provide business for insulation companies in the region, said Privett.
"It’s felt that the industrial base business has undergone many mergers and downsizing over the last five years, and will be moving forward to upgrade existing plants for the more competitive future," he said. Privett also stresses that, "our budget for 2002 will be conservative, but our marketing plans will be aggressive."
Western Insulation Association
It looks as though the best description for 2002 in the western region is "steady," according to Jim King, vice president of Hudson Bay Insulation Co. in Seattle.
"There’s a lot of plan spec work in Washington right now," he adds. "Also, it looks as though there is a potential for a significant amount of power plant/refinery work in the mix since these people have put off a lot of work in the last three years. Oregon is waiting for the ‘tech rebound’ with a few jobs around. California is ‘moderately busy,’ but nothing like the past. Utah, Arizona and Nevada, are all down a little bit, with Utah being down the most since all of the Olympic venues are built. Alaska has a smattering of work, but is awaiting more energy projects."
Compared to a year ago, King said, "I think there will be pockets of areas that will be busy, but overall I see things as about the same."
When looking at "up" and "down" areas within the industry, King points out a couple that come to mind.
"The industrial market definitely seems on its way up," he said. "The design build market, of which there was a lot of work the past five years is way down, and everything else is about the same."
King sees good potential for business in plants and facilities throughout 2002.
"I see this area as opportunity thoughout the region, as many of these facilities have ignored maintenance for the past three years," he points out. "We have seen an upturn in maintenance and upgrades lately as many have in the western region."
King also sees opportunities in the power and energy sector in 2002 after a somewhat slow year in 2001.
"There wasn’t much going on in 2001, but a lot of facilities need to upgrade and are finally realizing this. A lot of new work is in the mix for the next three years."
Other areas seem to be more of a wild card, according to King.
"High tech is down, but will respond quite strong and quick if the stock market and indicators dictate," he said. "Pharmaceutical is really starting to expand with office and manufacturing. Other work is steady."
King said that materials and workforce issues don’t seem to be as much of a problem as in other parts of the country.
"So far materials don’t seem to be a problem," he said. "Labor is okay with some shortages, but doesn’t seem to be a factor like in the South and Ohio Valley. The biggest problem here is the early retirement of skilled individuals with the union’s ’30 and out’." King does say that hiring of skilled labor is something that has to be addressed.
King sees several other trends on the horizon for 2002.
"One of the big challenges is going to be the insurance/bonding markets," he said. "Insurance companies are leaving the insulation market in droves and the bonding climate has changed and will continue to change dramatically. The small independent businesses are facing some challenges. The converse of that is there seems to be a tremendous amount of consolidation, which is decreasing competition in some areas."
Midwest Insulation Contractor’s Association
Bob Anderson, senior estimator for NYCO, Inc. in Inver Grove Heights, Minn., is cautiously optimistic about business in the upper midwest region that’s covered by the Midwest Insulation Contractors Association.
"Our forecast looks a little lower but still good," he said. "Manpower is still an issue [mainly from the union side] and even the merit shops are having a hard time. Here in the Twin Cities [Minneapolis and St. Paul], we don’t see a slowdown until the third quarter of ’02, if at all."
Compared to a year ago, Anderson doesn’t see too much difference.
"It’s probably about same," he said. "Speaking for the Twin Cities, there are a couple of pockets that have slowed down. The reports we’re getting indicate that the private sector may slow down. It will be the weaker area. A lot of design builds are on hold, but they may rebound by the second or third quarter. The government [especially schools] might pick up some of the slack."
Anderson said he doesn’t see any major developments in areas such as plants and power and energy. Both challenges and opportunities exist in providing appraisal and reinsulation services.
"It’s frustrating at times," he said." People say ‘we don’t have the money’ to make changes from our recommendations. Still, I think there is some opportunity and potential there in the long run."
Anderson thinks the overall prospects for 2002 hinge on how things develop in the early part of the year.
"Most contractors have a nice backlog of work," he said. "It’s up to us to get the work in February and March. Again, a lot of that depends on how things are going in the private sector and with government work."
Southwest Insulation Contractors Association
How does the southwest region look for 2002?
"The chemical, petrochemical and refining market segments will continue to be slow for the first half of the year," replies Jim Getgood, president of Industrial Specialists Inc. in Richwood, Texas, adding, "The second half appears as though it will improve a little. New power plants are being built all over this area and this is supposed to continue through 2002."
Comparing this year to last, Getgood said, "2002 will be about the same as 2001 or down some. We don’t see a decline of greater than 10 percent in our markets." He said the health of regional insulation businesses seems to be affected equally by market conditions in the industries previously mentioned.
When asked to describe trends in operations and in plants, Getgood expressed some worry, saying, "The owners are continuing to find methods to reduce their costs. Online bidding and reverse auctions seem to be the currently methodology being employed by some business."
Labor has been a concern with many in the industry, and Getgood doesn’t disagree.
"Labor has been and will continue to be our greatest challenge," he said. "Our industry has failed to keep pace with the economy and wages have not increased to a level that attracts the next generation into our crafts."
However, Getgood does see opportunities in other areas.
"Our business continues to improve as our markets demand more from us," he points out. "Our ability to respond to changing market conditions sometimes provides a competitive advantage."
While technology has certainly made life easier in many respects, Getgood said he is sometimes concerned that its rapid growth sometimes cancels out any gains it provides.
"The information age has nearly brought business to its knees," he said. "More information makes for more scrutiny, more questions and ultimately the inability to complete the work. We are challenged to provide more details that much of the time increases our administrative costs with very little value added to the project."
Eastern States Insulation Contractors Association
Asked to assess prospects for his region in 2002, Paul Stonebraker, president of TRA Thermatech in Beltsville, Md., said he expects things to be "busy" to "very busy," with the exception of upstate New York.
Compared to 2001, Stonebraker said "all areas will be busier" in 2002. When asked to assess areas that are stronger now compared to this time a year ago and vice versa, he said, "It’s mostly commercial and technology that are stronger in the majority of areas, except New England, where industrial is stronger with commercial down slightly."
In terms of trends, Stonebraker said maintenance would range from steady to slightly down, with power and energy up slightly and that educational construction will be on the upswing in upstate New York.
Labor shortages loom as a potential challenges or problem areas in the region, said Stonebraker. Another issue is contract negotiations in areas where things are busy. He also said, "Material pricing is on an upward trend after a long period of minimal or no increases." Conversely, Stonebraker said he sees opportunities in firestopping and lead abatement.
Overall, he said, "Opportunities are increasing in educational construction, health care and research. The challenges exist in upcoming labor negotiations and creating interest in our trade as a career."