{"id":6856,"date":"2014-05-01T00:00:00","date_gmt":"2014-05-01T00:00:00","guid":{"rendered":"https:\/\/insulation.org\/io\/articles\/construction-industry-growing-steadily\/"},"modified":"2016-10-21T21:05:25","modified_gmt":"2016-10-21T21:05:25","slug":"construction-industry-growing-steadily","status":"publish","type":"articles","link":"https:\/\/insulation.org\/io\/articles\/construction-industry-growing-steadily\/","title":{"rendered":"Construction Industry Growing Steadily"},"content":{"rendered":"

The mechanical insulation industry is continuing to recover from the recent recession. The recovery is slow and varies geographically and by industry segment, but as a whole is continuing steadily. Undoubtedly, our industry is dependent upon the national economy, and while many signs point to sustained moderate growth, several economists are quick to point out just how fragile the economic recovery is. Taking into account a variety of data and expert analyses predicting steady growth, the overarching prognosis might be summarized as: full speed ahead, but proceed with caution. The industry has experienced low to modest single-digit growth for the last couple of years (2012–2013), and 2014 appears to be headed in that same direction. The forecast for 2015 and 2016 are much more optimistic, with the potential for double-digit growth. Again, this varies geographically and by industry segment, and consequently, by company.<\/span><\/p>\n

The mechanical insulation industry consists of many differently sized companies, with some having multiple branches or sales locations. It is not unusual for various local branches within a company to experience different conditions—one may be up by double digits, while another may complain of business being flat or even down. Such variations are usually impacted by the gain, loss, or completion of a major project; a market share shift; reduction or expansion of backlog; consolidation; a local facility closing or opening; or simply the local economy. One consistent factor among all segments and geographic areas is that the industry remains competitive. It does appear that margins are steady and even trending upward, which is the sign of an improving market.<\/span><\/p>\n

The recent recession and the recovery road, politics, consolidation, and our industry’s dependency on the national and global economy may provide the most significant opportunities—and simultaneously challenges—in the next few years.<\/p>\n

Talent Shortage<\/strong><\/span><\/p>\n

Our industry, among others, lost talented people at all levels during the recession. That reduction of available skilled and knowledgeable personnel is problematic, especially in light of the 2015 and 2016 forecasted growth.<\/p>\n

Downsizing—or rightsizing, as some prefer to call it—restructuring, consolidation, and attrition have taken and continue to take a toll on sales, administrative, and management levels. While many companies are currently adding bright and talented professionals in those areas, the fact remains that the industry has lost years of experience.<\/span><\/strong> That level of experience will take years to replace. There is a significant difference between being in the mechanical insulation industry and truly knowing the mechanical insulation industry.<\/p>\n

The new blood, new ideas, and renewed energy emerging in the industry is nothing less than phenomenal.<\/span><\/strong> One can only hope the knowledge of more experienced workers is being transferred to the next generation.
\n The industry is changing, and the challenges change brings can be difficult. Understanding the history of the industry and the lessons learned can make the obstacles of the future less burdensome.<\/p>\n

The loss of skilled and experienced project work force personnel is real and cannot be corrected overnight. Regardless of a company’s labor affiliation, investment in training is essential to meet the demands of the future.<\/span><\/strong> Many organizations, associations, and companies have excellent training programs, but it takes time to complete those programs. The shortage of skilled craft men and women will only get worse over time without a meaningful and continual commitment
\n to recruitment and training.<\/p>\n

The mechanical insulation industry, at first glance, may not be appealing to younger generations and other novices. Industry should invest now to change that image by reaching out to high schools and trade schools with educational programs and career
\n path information. We have a great story to tell, and we need to share it. Our industry is competing with other industries for talent; we should act now by implementing recruitment programs before we are left behind.<\/span><\/strong><\/p>\n

Trying to gain awareness for the benefits and value of mechanical insulation has been an ongoing, and sometimes arduous, task for our industry. The central problem we face is the lack of sufficient and proper education and awareness as to the design,
\n installation, and maintenance of mechanical insulation systems.<\/p>\n

The need for basic and continuing education at the college, university, and trade school level is a given. If the industry is going to fundamentally change how mechanical insulation is viewed, education at the post-high school level must happen. The enormity
\n of that challenge is great, but not addressing it is simply not acceptable.<\/p>\n

Consolidation<\/strong><\/span><\/p>\n

Consolidation is not new to our industry. Companies have been buying and entering into mergers with other companies for years. It is affecting all industry channels: manufacturing, distributing\/fabricating, laminating, and contracting. Since private equity’s entrance into the industry, consolidation as a strategy has visibly increased. For decades our industry was not attractive to private equity or public investment, but it has been garnering more interest recently.<\/p>\n

This new attention may be due to the fact that the industry is extremely fragmented, presenting an appealing consolidation opportunity. It may also have to do with increasingly attractive growth and investment opportunities, or that insulation manufacturing, distributing\/fabricating, laminating, and contracting fits well with implementing a multi-line or multi-craft strategy. Regardless of the motivation, private equity’s investment is a sign that our industry is alluring to those interested in profiting from their investment—we have even seen evidence of private equity purchasing the interest of other private equity companies.<\/p>\n

While consolidation can be an exciting opportunity and rewarding to many, it can present challenges to all industry segments and certainly creates individual anxiety. The buying, selling, or merging component is the simple part; the difficult part is the merging of the cultures, implementing new operational and marketing procedures, employing new strategies, and dealing with the challenge of implementing operational synergies that may not be fully realized for months or even years.<\/p>\n

Regardless, it is the projected return on investment opportunity that is driving consolidation and that will trump any concerns as to the impact to industry, pro or con. While that may sound cold, it reflects the reality of operating in a public market type environment. A public company is driven by creating shareholder value, and that is no different for private equity other than the fact that their hurdle rates may be higher with a shorter horizon. Private equity interests will always have an exit strategy or strategies concerned with getting the ultimate value out of their investment. This may take the form of a public offering, the sale of the company or components of the company, or a merger, among other options. Whatever the exit method, these new developments will continue to impact the industry.<\/p>\n

The following are a few that could be viewed as either opportunities or challenges:<\/span> <\/strong>\n<\/p>\n

•<\/span> With multi-craft and service offerings, mechanical insulation could be the lesser of the company offerings. The definition of a true “specialty mechanical insulation contractor” could change. Could multi-labor affiliations become more common, or even the norm, in the future? <\/span><\/strong> <\/strong><\/p>\n

•<\/span> Traditional local, regional, or even national distributor-fabricator\/manufacturer relationships could be put to the test as national consolidators leverage their buying power. <\/span><\/strong><\/p>\n

\n •<\/span> Manufacturers’ distributing\/fabricating customer base could be shrinking, changing the dynamic of customer relationships. This could potentially even lead to business models mirroring “big box” business practices. <\/span><\/strong><\/p>\n

\n •<\/span> Will consolidation at some point fuel the drive for new entrants into the contracting and distributing market channels?<\/span><\/strong><\/p>\n

•<\/span> Will the consolidators “talk the talk” and “walk the walk” of maintaining traditionally strong industry distributor-contractor customer relationships? <\/span><\/strong><\/p>\n

\n •<\/span> Will consolidators continue to support industry associations to the same or higher levels as the companies they acquired or merged with? Or will consolidation drive association changes? <\/span><\/strong><\/p>\n

\n Consolidation will continue to change and shape all aspects of the industry for years to come. The mechanical insulation industry has been slow to change, but consolidation has the potential to quickly and materially alter many facets of the industry.
\n Only time will tell the degree and direction of its impact.<\/p>\n

Reducing the Industry’s Dependence on the National Economy<\/strong><\/span><\/p>\n

The primary driver for our industry will always be the national economy. As the construction (commercial and industrial) industry goes, so goes our industry 6 to 12 months later. That being said, it is possible that with some effort a company can reduce,
\n though not erase, its dependency on such trends and improve performance during the up and down cycles.<\/p>\n

Lessening our industry’s dependence on the national economy requires a straightforward, yet difficult, fix: sales. There are 2 schools of thought regarding selling style. In many cases, sales teams favor electronic communication and even automated
\n selling. Alternatively, some sales forces favor face-to-face communication and building personal relationships. Perhaps the best option for the industry is to blend these approaches to optimize its methods and increase sales.<\/p>\n

Our industry is not alone in its loss of knowledgeable people over the last several years; the specification, engineering, and facility owner\/management industries have faced similar losses. While many understand the basic principles of mechanical insulation,
\n a select number understand the details necessary to successfully design, specify, manage, and provide installation and maintenance inspection for mechanical insulation systems.<\/p>\n

It is encouraging to see manufacturers once again putting renewed and expanded effort into specification development. Making this investment for their own benefit simultaneously provides needed education at the specification level. All industry segments
\n need to help educate those audiences that can directly influence our industry.<\/p>\n

The following are some examples of initiatives that could positively impact growth and profitability—especially during the up and down cycles. <\/span><\/strong><\/p>\n

•<\/span> Help drive the adoption of ASHRAE 90.1 2010. Every time you see an older version of the ASHRAE standard, point out the difference and simply ask if the interested parties want to use an outdated standard that may be detrimental to the operational and resale value of their facility. The increased cost is minimal compared to the benefit. <\/span><\/strong> <\/strong><\/p>\n

•<\/span> Provide information to facility managers and owners on the real risk of not properly maintaining an insulation system. The risk can be substantial compared to the annual operational cost and potential capital investment and production losses in the long term. Too frequently, insulation is damaged or missing, causing energy loss and potentially presenting a safety issue for personnel. Properly maintaining an insulation system is crucial to a facility’s long-term success.<\/span><\/strong><\/p>\n

\n •<\/span> Many take insulation for granted. Educate all parties on the energy savings and environmental benefits of insulation-system performance. The return on investment is attractive from an annual and longer term perspective.<\/span><\/strong><\/p>\n

\n •<\/span> Energy and the environment will always be part of our industry’s economic future. Advocates of increased use of alternative energy sources, increased production, and use of nuclear, fossil fuels, and a long list of similar initiatives seem to be in every publication. Energy efficiency should always be included in those discussions. Our industry needs to resolve to be recognized as a leader in energy efficiency in existing and new construction, retrofit, and maintenance applications.<\/span><\/strong><\/p>\n

\n •<\/span> Fight improper “value engineering” of insulation systems. This is not only detrimental to the project or application in question, but it could allow others to believe such practices are acceptable on other applications.<\/span><\/strong><\/p>\n

\n •<\/span> Help to create and use case studies from actual projects. Specifiers and owners relate to applications that resemble their facility or operational footprint.<\/span><\/strong><\/p>\n

\n •<\/span> Support developing data related to mechanical insulation in the world of sustainability, the energy-water nexus, life-cycle analysis, the numerous and ever-growing “green” programs, etc. The world is heading rapidly in those directions, and the potential of mechanical insulation’s contribution is significant and should not be taken for granted. The more data we have to support the benefits of mechanical insulation, the easier it will be to make an argument for its inclusion in more applications.<\/span><\/strong><\/p>\n

\n •<\/span> Holistic building measurements and performance-based codes continue to gain momentum. The industry has historically operated in a prescriptive environment. Our industry should help support programs that address how prescriptive initiatives can and will work in a holistic world.<\/span><\/strong><\/p>\n

\n •<\/span> Building simulation and energy modeling is also gaining momentum. Mechanical insulation needs to be specifically recognized in those initiatives, and the industry should actively work with coalitions and similar groups in this arena. <\/span><\/strong><\/p>\n

\n •<\/span> It is difficult and time consuming for a contractor to offer “upscale” or alternative approaches when bidding a project. However, it can be a worthwhile time investment when combined with a thorough explanation as to the short- and long-term advantages of a particular approach. The key in many cases is the involvement of the facility owner in the decision process. <\/span><\/strong><\/p>\n

The Political Landscape <\/strong><\/span><\/p>\n

Politics can be an incredibly divisive topic, particularly given the current atmosphere of partisanship and the lack of meaningful action on Capitol Hill. While it is tempting to just avoid politics, it plays a role in our daily personal and business
\n lives, so it is important to get involved. Members of our industry should let their Congressional Representatives and Senators know their position on topics, support initiatives they agree with, and make time to vote.<\/p>\n

In 2005, the National Insulation Association (NIA) decided to get involved with Capitol Hill to promote the value of mechanical insulation by obtaining incentives and appropriations for educational opportunities and industry advancement. Having never
\n had an active legislative advocacy program, we were surprised to be met with the reality of the slow pace on Capitol Hill and the difficulty in passing even small measures.<\/p>\n

In spite of being a relatively new player, NIA—through its Foundation for Education, Training, and Industry Advancement—has accomplished a great deal with limited resources over the last 8 years. Accomplishments include defining mechanical insulation to new and unaware parties, receiving appropriation dollars through the Department of Energy, introducing tax incentives, testifying before Congressional Committees, successfully having mechanical insulation included in various bills—most recently, in the Farm Bill—attending hundreds of meetings with legislators, and building a network of allied and supportive associations. <\/span><\/strong><\/p>\n

\n With these small victories, we are benefiting both NIA and its members. On Capitol Hill, success comes in small pieces, but by continuing to raise awareness and win support from different allies, we are promoting the long-term growth we need to succeed as an industry. <\/span><\/strong> While it can be frustrating to those of us who are aware of the benefits of mechanical insulation not to see all of our initiatives adopted wholesale, we are laying the groundwork to win more and more victories for our industry.<\/p>\n

The key to advancing our interests on Capitol Hill is active involvement from NIA’s membership. While it may not always seem to be the case, elected officials listen to the people who vote for them. The more times they hear a message, the more they
\n listen. This formula applies to federal, state, and local legislators—get involved, and you can make a difference. One call or letter can have a significant effect, and the collaborative action of many is the key to true success. It is time to accelerate our efforts by presenting a united front and working both collectively and individually to advance our goals. <\/span><\/strong><\/p>\n

Full Speed Ahead, Cautiously<\/strong><\/span><\/p>\n

With steady growth improving the national economy, higher confidence levels in the global economy, increasing bid activity, industry consolidation and investment in the industry continuing, the low interest rate environment, a promising forecast spanning
\n several years, upward manufacturing trends, energy independence improving, and the forecasted skilled labor shortage, how can you not step on the accelerator?<\/p>\n

With that acceleration, however, you must be cautious and able to react quickly to the potential bumps in the road. It is not easy to develop and execute a prudent, profitable, low-risk growth strategy that focuses on long-term earnings without sacrificing
\n short-term earnings. However, taking no action or being slow to react in a highly competitive industry could carry severe consequences.<\/p>\n

There is every reason to be optimistic about the future of the mechanical insulation industry. The respondents in the recent NIA industry survey forecast that overall growth in 2014 would range from 3% to 17%, with an average of 8.9%. <\/span><\/strong> Those expectations seem to be reasonably in line with overall commercial and industrial construction market forecasts, and may actually be conservative. Based upon the survey responses, it appears 60% of the growth will come from unit growth and the
\n balance in dollar growth. In other words, an increase in unit cost, or sale price depending upon your point of view, is expected to represent 40% of the growth expectations. That ratio between unit and dollar growth is good news, since unit growth
\n is important to sustained growth.<\/p>\n

Preliminary indications are that 2015 and 2016 could also see moderate—i.e. middle to high—single-digit growth and forecasted construction starts would support that potential growth.<\/p>\n

We will continue to see geographic differences. Some areas and certainly individual companies may enjoy higher growth rates driven by project securement, mix of business, and an array of other unique or localized events, while some companies could experience
\n a downturn or flat position due to project completion, scheduling, or other factors.<\/p>\n

Once again, the industry has responded to and overcome rough economic times, proving our resiliency and making us stronger. The next several years look promising, with numerous and diverse opportunities. We should be defined by how we have taken advantage of these opportunities, and not stymied by the challenges they may create. The mechanical insulation industry for years has been dependent upon the economy, and that dependency will always be a primary influencer. Our industry needs to accept and embrace whatever hand the economy deals us, but we need to influence mechanical insulation’s role in that economy by understanding and aggressively examining the changing market place and addressing the opportunities where we can make adifference.<\/span><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

A look at the opportunities and challenges facing the industry over the next few years.<\/p>\n","protected":false},"author":[308],"featured_media":0,"template":"","categories":[37,298,34,294,24,21,291,297,27],"class_list":["post-6856","articles","type-articles","status-publish","hentry","category-market-research","category-installation","category-industrial","category-training","category-contracting","category-business-managment","category-association-news","category-basic-understanding","category-distribution","author-ronald-l-king"],"acf":[],"yoast_head":"\nConstruction Industry Growing Steadily - Insulation Outlook Magazine<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/insulation.org\/io\/articles\/construction-industry-growing-steadily\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Construction Industry Growing Steadily\" \/>\n<meta property=\"og:description\" content=\"A look at the opportunities and challenges facing the industry over the next few years.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/insulation.org\/io\/articles\/construction-industry-growing-steadily\/\" \/>\n<meta property=\"og:site_name\" content=\"Insulation Outlook Magazine\" \/>\n<meta property=\"article:modified_time\" content=\"2016-10-21T21:05:25+00:00\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"15 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/insulation.org\/io\/articles\/construction-industry-growing-steadily\/\",\"url\":\"https:\/\/insulation.org\/io\/articles\/construction-industry-growing-steadily\/\",\"name\":\"Construction Industry Growing Steadily - 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