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Five Major Problems Facing the Construction Industry. From deteriorating infrastructure in the US to the explosion of urban housing and office demand in China, the construction industry is poised for significant worldwide growth. Though the outlook is promising, the architecture, engineering, and construction (AEC) industry will face the following challenges in making the most out of the upturn in infrastructure demand.
1. Poor Productivity. Poor productivity stems from a wide range of issues, including: idle time. the breakdown of construction vehicles; inclement weather; design complications, friction between different stakeholders, etc. Though poor productivity cuts across many areas, the net result is dwindling profitability and rising costs. Thus, despite the demand potential for new construction projects worldwide, AEC businesses will face the same old problems. On the other hand, with fewer resources available, smaller or newer entrants will have trouble matching the pricing and pace of their larger competitors.
2. Rising Cost of Materials. Be it tariffs, trade conflicts, inflation, or increasing global demand, the cost of construction materials is rising. While the long-term trend for all materials is for rising costs, the short-term trend for individual materials is unpredictable. This unpredictability is causing problems for developers in terms of their ability to budget correctly and offer accurate pricing in their bids.
3. Poor Project Performance. The above challenges have two major impacts on the performance of construction projects: the risk of failing to deliver on time, and the risk of going over budget. According to a KPMG survey, only 25% of construction projects came within 10% of their specified deadlines. The delays can result from a number of factors, including productivity problems, such as inclement weather, or systemic issues, such as trade wars. These issues slow down projects, resulting in idle labor and machinery which harms productivity and gives rise to additional costs for the contractor. In addition, the combination of rising and volatile costs and productivity issues is forcing large or capital infrastructure projects to exceed budgets. According to the KPMG survey, only 31% of contractors managed to remain within 10% of their budget. Furthermore, just 32% of project owners maintained a high level of trust in their contractors, while 69% identified poor contractor performance as the biggest reason for project underperformance.
4. Skilled Labor Shortages. The surge in new construction demand is also generating demand for employment. In the US, for example, the construction industry employs 7.2 million professionals, which constitutes the highest level since the Great Recession of 2008. However, it is unclear if there is a sufficient amount of labor to support growth. According to a Deloitte study, since 2014 the number of job openings have almost doubled, while the number of hires over the same period has risen just 14%. The drawback of a skilled labor shortage is that it not only affects output and the ability to meet deadlines, it can also cause a company to fall behind its competitors. The labor gap cuts across multiple areas, including mechanical, electrical, and civil engineers, architects, skilled trades, HVAC technicians, and plumbers. Companies with weak talent rosters are going to struggle against stronger competitors.
5. Sustainability & Efficiency. The United Nations stated that the building industry possesses the most potential for delivering significant and cost-effective reductions in greenhouse gas emissions, and added that the sector can cut a potential 84 giga-tonnes of CO2 by 2050. This will be essential in lowering long-term operating costs and emissions. Likewise, a switch to some sustainable building materials may help offset the demand for certain steel products and other resource-intensive supplies. A primary aspect of that change is embracing key industry standards, such as the Leadership in Energy and Environmental Design. However, aligning with such industry standards is no small feat and the cost of doing so may put smaller AEC players at a disadvantage against their larger competitors.
To be fair, many of the above problems are not in the direct control of the construction industry. For example, material costs are driven by a range of economic factors. Even so, AEC businesses can rein in on certain areas, such as building in contingencies for material supply issues or better managing their machines and workers to prevent idling. Key components of these solutions involve building information modeling and the use of simulation for optimizing resource usage.
Strong Rebound for Mobile Cranes: The demand for used mobile cranes is currently very strong. In fact, the demand for secondhand cranes is at an all-time high due to the lack of new crane availability, as well as price increases attributable to higher raw material costs and supply chain delays. “The market for 200-plus ton capacity crawlers and, indeed, all crawlers is strong,” said Rick Mikut, crawler crane division manager, ALL Family of Companies. “I’m encouraged by the utilization rates we’re seeing, especially when you consider the lingering effects of the pandemic that continue to be felt. Across the board, our customers are experiencing supply chain issues that are impacting their ability to schedule cranes for their jobs. Consequently, some work has been pushed into next year. So, while it’s been an unpredictable time and utilization rates are off, given the extraordinary circumstances of the last year, the outlook remains solid.”
Used cranes have gained in popularity as buyers have begun to recognize their value in terms of both price and immediate availability. With used crane sellers experiencing high demand, the question is whether supply can keep up. In the Middle East, there is currently an oversupply of used cranes, especially crawlers, due to delays and cancellations of oil and gas projects, and a lower number of infrastructure projects. However, the supply in the US has been abundant up until recently. Certain class and size machines are becoming harder to find, especially when looking for lower hour and later year models. Supply is lagging behind demand and this has led to slightly higher prices.
Industry experts are optimistic about the used crane market over the next few years as more significant oil and gas industry projects have been sanctioned already, and additional ones are expected next year. In addition, many analysts expect the demand for used cranes to increase further over the next year, as the supply of new cranes is not able to meet the demand. Post-crisis economy stimulation packages around the world in combination with an increase in renewable projects will lead to many new projects (industrial, energy, infrastructure), thereby increasing the demand for both new and used cranes.
Falls Remain the Leading Cause of Death in the Construction Industry: Falls continue to be the leading cause of death in the construction industry. According to the Bureau of Labor Statistics, in 2018, falls accounted for 320 of the 1,008 construction fatalities. While OSHA’s construction fall protection standard provides numerous options to help protect employees, it doesn’t necessarily solve the issue. The four common areas where construction work proves to be most dangerous and the options that can be taken to prevent related accidents are as follows:
1. Unprotected Sides and Edges. Employees are most exposed to falls from unprotected sides and edges of surfaces that are six feet or more above lower levels. To mitigate this exposure, conventional fall protection systems that can be implemented include guardrail, safety net, and personal fall arrest systems. Regardless of the system chosen, OSHA expects implementation to occur early in the construction process and remain intact until all work is completed or the permanent elements of the structure that will eliminate the exposure to falling are in place.
2. Overhand Bricklaying. Overhand bricklaying is a task that is commonly overseen on construction sites on a daily basis. The OSHA standard requires employers to provide the necessary protection for their employees in a few different ways, including implementation of the three types of systems referred to above, as well controlled access zones.
3. Holes. During construction work, employees can be injured or even killed if they step into, trip over or fall through holes, or are hit by objects falling through holes. OSHA requires that steps be taken to help prevent such accidents by placing a cover over the hole, erecting a guardrail system around the hole, or using a personal fall arrest system. Nonetheless, there are certain exceptions to these requirements. For example, guardrails are not required if a cover is removed while work is in progress since that would interfere with the performance of work. However, when the work has been completed, either the cover must be replaced or the guardrails reinstalled.
4. Roofing Work on Low-Slope Roofs. When employees are performing roofing activities on low-slope roofs with unprotected sides and edges six feet or more above lower levels, guardrail, safety net, or personal fall arrest systems must be installed to protect them. In addition, warning lines may be set up in combination with any of those alternatives.
In summary, unsafe environment, equipment, and employee behavior are all factors that can contribute to injury or death on the job. That’s why OSHA stresses the importance of shoring up fall protection hazards before the work begins. Equally important is an employer’s duty to provide training for all employees to prevent the worst from happening, and to prepare a written certification record after the training is completed. When applicable, training must be provided on:
• Fall protection hazards that exist on the jobsite,
• How to properly report issues with existing fall protection, and
• How to correctly use, operate, install, maintain, dismantle, and inspect fall protection systems.
Manitowoc to Acquire H&E’s Crane Operation: The Manitowoc Company has entered into a definitive agreement to acquire the crane business of H&E Equipment Services, one of the largest rental equipment companies in the US, and a long-time distributor of Manitowoc products. Under the terms of the agreement, Manitowoc expects to pay approximately $130 million funded by a combination of cash and debt. The transaction is expected to close in the fourth quarter of 2021 and is subject to customary closing conditions and regulatory approvals.
The acquisition of H&E’s crane business, which currently operates with eleven full-service branch locations, will expand Manitowoc’s ability to provide rentals, new sales, used sales, aftermarket parts and service to a variety of end market customers. “Over the past few quarters, we have communicated that our intent is to grow through four strategic priorities, one of which is acquisitions focused on aftermarket,” said Aaron H. Ravenscroft, president and chief executive officer of the Manitowoc Company. “The purchase of H&E’s crane business is the next step in our journey to grow the less cyclical part of our business.”
“H&E has become one of the largest rental equipment companies in the US by maintaining a commitment to growth,” said Brad Barber, chief executive officer of H&E Equipment Services. “The sale of our crane business to Manitowoc represents a transformative event in H&E’s continued efforts to increase its focus in the equipment rental business, while positioning us for future growth opportunities. We believe Manitowoc will provide further career opportunities for our crane employees and will also continue to offer first-class service to existing crane customers.”
Texas to Take Bids for Border Wall Construction: Following Texas Governor Abbott’s emergency declaration of an immigration crisis at the state’s southern border, the Texas Facilities Commission is preparing to seek a project manager to oversee the construction and maintenance of a proposed border wall. When the solicitation for a manager goes live, any firm can opt-in to be considered for the project. Abbott’s press office has not responded to inquiries about the project and Abbott has not specified how long the wall would be or specifically where it would be built.
What is unusual about the project is that Abbott plans to use the emergency declaration to fund construction of the border wall, and that it will be partly paid for via a crowdfunding campaign that asks citizens to donate money for the construction. It has been reported that the campaign received more than $459,000 in the week it was announced, on top of $250 million allocated by the state government for wall construction. Regarding the timeline, the commission said it will remain transparent and compliant with state competitive bidding standards. One of the chief issues that the governor’s office will contend with is that parcels of the land on which the border wall is to be constructed are privately owned, meaning that the government will have to acquire the land in some way. A lawsuit against the federal government filed by Texas landowners whose land was claimed through eminent domain is currently on hold.
Trends in Used Equipment Values
The secondary market for construction equipment has proven to be resilient as the demand for most asset categories remains strong in North America. Contributing to this strength are the global supply chain disruptions caused by the COVID-19 pandemic that have adversely affected the ability of heavy equipment manufacturers to keep up with the demand for new machines. In addition, many contractors have been hesitant to invest in new equipment as some manufacturers have had to increase their prices in excess of 5% due to the substantial increase in the price of raw materials. In combination, these factors have led to strong demand and pricing at public auction and via private sale for used equipment that is well maintained with lower hours of service. Nonetheless, a continued weak spot for the economy and for construction equipment sales in general continues to exist in areas based around oil & gas, and pipeline development.
It remains to be seen whether continued negotiations in Congress over Infrastructure Legislation will be successful. If the legislation is passed, it is likely to have a profound impact on constriction starts and the related demand for both new and used construction equipment. Resulting efforts to build highways, dams, railways and roads as part of infrastructure development projects in the areas of energy, mobility and government could drive the volume and pricing of both new and used construction equipment sales for the foreseeable future.