STATE OF THE INDUSTRY: Blotches of growth

Dec. 9, 2013

Bob Schafer is not mixing any paint, so it is hard for him to get too excited.

The Florida heavy-highway contractor is encouraged, though, and could be on the verge of turning a corner. It’s a far cry from the road-building glory days prior to the Great Recession, but it’s progress.

Bob Schafer is not mixing any paint, so it is hard for him to get too excited.

The Florida heavy-highway contractor is encouraged, though, and could be on the verge of turning a corner. It’s a far cry from the road-building glory days prior to the Great Recession, but it’s progress.

“There was a seven-year cycle there where when we would go through a down period, we would put a coat of paint on the shop,” Schafer, president of Ranger Construction Industries Inc., told Roads & Bridges. “If we didn’t have something for the crew to do, we would have them go mow the grass or paint.

“When it got really bad and we had put five coats of paint on the shop, we realized that was enough and we started letting everybody go. I think a lot of people just left [the industry].”

Now Schafer is trying to call them back. Ranger is currently hiring and has added in upwards of 175 people since the bottom dropped in 2009.

“We have gotten a few back, but not very many,” he said, “and it is a lot more difficult to find that skilled operator that you are looking for.”

Recent surveys from the American Road & Transportation Builders Association (ARTBA) and Roads & Bridges magazine show the road and bridge industry is holding its own. However, with MAP-21 expiring, 2014 is being coated with a thick layer of uncertainty. None of the contractors surveyed by Roads & Bridges believes Congress will pass a long-term funding bill when MAP-21 comes to a close at the end of September.

“[MAP-21] is the wild card,” Alison Premo Black, vice president and chief economist for ARTBA, told Roads & Bridges. “We know that states delay using their federal funds in years of uncertainty or reauthorization.”

And with the Highway Trust Fund running on fumes, Premo Black said that uncertainty could last well into 2015.

“Our five-year forecast is pretty flat in the pavement market, and it is because our assumption is the federal-aid program is going to stay where it is.”

Bridge booster
Road and bridge contractors are surviving. According to the R&B survey, over 62% are experiencing either a good or very good 2013, and over 66% view 2014 with some degree of optimism (good or OK). The latest ARTBA research shows a market still trying to recover. The association’s third-quarter Industry Conditions Survey revealed 26% of contractors experienced an uptick in construction activity compared with the third quarter in 2012, while another 45% reported flat conditions. The backlog of construction work has been wavering as well over the last 12 months, as 39% of contractors reported an increase and 42% said there was a decrease. For the most part, profit margins are down. According to ARTBA research, during the third quarter of 2013, the net rising for profit margins was minus-33, which means more contractors experienced lower profit margins than a year ago.

Bridge construction continues to be the biggest form of financial nutrition for the industry. Premo Black said 2013 will be a record-setting year in spending ($28.5 billion), and the ARTBA economist is predicting a bigger number in 2014, where it could reach $30 billion. Contract awards were up in 26 states, with California, Kentucky, New Jersey, New York, Texas and Virginia reporting the heaviest amount of activity.

“When you are in a situation of limited revenues, some states are really focusing on their bridge programs and trying to get some of those bridges off the deficient list,” said Premo Black.

Pavement construction, however, is still sliding. Awards are down in 20 states and remain flat in 11 others. Premo Black said there has been some positive growth in California, Illinois, Georgia, Pennsylvania and Virginia, but most states are in a wait-and-see mode while Congress tries to sort out a new funding deal. ARTBA is predicting only slight growth (2%) in pavements in 2014.

“I’m hoping that is what happens,” said Premo Black. “I’m hoping it is flat or up a little bit.”

The need for repair is certainly there. The R&B survey revealed that over half (51.7%) of the nation’s urban roads are in fair condition, and just over 48% of rural routes are starting to show signs of wear.

A glimmer and a flicker
In Florida, the commercial building market is starting to make a comeback, and the department of transportation is committed to cranking out as much road and bridge work as possible behind an increase in design-build contracts and public-private partnerships (P3s). Areas like Jacksonville, Orlando and Tampa are starting to pick up the tempo.
Ranger Construction is currently working on two $100 million jobs, including two of the four sections of the massive I-595 expansion in Fort Lauderdale, which is Florida’s first P3 venture.

“Towards the middle of last year we started to see some glimmer of hope,” said Schafer. “There was some investment in south Florida from South Americans, Russians; they are buying up commercial properties and buying up the inventory and now we are seeing some real growth.”

Christian Zimmermann, president of Pike Industries, which operates 12 quarries, 26 asphalt plants and has 13 paving crews covering the Northeast, is not buying into Schafer’s enthusiasm—yet. Work for the New Hampshire company has been flat for much of 2013, and there have been layoffs. Since stimulus money stopped coming through, business is at 60-65% of what it was when construction work was at a record pace in the mid-2000s.

“People are struggling to stay alive and every job they bid they look at it as being the last job they will see,” said Zimmermann. “So people convince themselves they can do it for prices that they really can’t, and it eventually catches up with them.”

Zimmermann also sees the commercial industry picking up a bit, as well as residential, but the volume of work has not materialized in 2013. Not long ago Pike was used to landing six to eight major parking-lot jobs a year, and there has been just one over the last 12 months.

“We are not spending anywhere near enough money to keep up with this huge investment we have in infrastructure,” said Zimmermann. “We have great capacity to go do it, and we have pricing that is unbelievable right now, yet no one can agree on how to raise revenue.”

Like Zimmermann, Schafer also continues to see saturated competition in the bidding process, which has translated into big discounts for owners at the state and local level.
Schafer said Ranger played the game of financial chicken for a while, but realized its negative impact.

“It would have been better to go clean swimming pools for a few years rather than give work away,” he said. “It is still competitively fierce. I think everybody is scared that next year they are not going to have that job in the backlog, and they got to have it.”

Schafer’s backlog is starting to thin, and even though the state of Florida is generating more money for transportation projects, it has all been clumped together in a few megaprojects.

“My concern is it is going into a lot of those big projects. As for 2014, we are guarded . . . and are struggling with the fact that the counties aren’t doing any work . . . and that still makes it very difficult.”

States are feeling it
Coming up with a replacement for MAP-21 in late 2014 is the big project lying in front of Congress, and many in the road and bridge industry are struggling to find confidence that something meaningful will be done.

“We go up there with the Florida group about three times a year, and we go and shake hands and beg and plead, and you just don’t get a warm, fuzzy feeling,” said Schafer. “They just are looking over your shoulder at the next person that is coming through the door that hopefully has a check in their hand for them.”

At the state level, Pennsylvania was the latest to add muscle to its budget following the House passage of a $2.3 billion transportation-funding bill. The measure, which calls for an increase in the gas tax and vehicle license fees, moved through the Senate quickly and reached the governor for signing in late November. Virginia and Maryland passed revolutionary infrastructure bills earlier in the year, and several more states were considering options. The state of Washington, however, failed to pass a funding package in 2013, and legislators were unclear when one would finally be approved. R&B

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