STATE OF THE INDUSTRY: Sinking to new lows

Road, bridge industry continues to lose altitude

Funding Article December 08, 2011
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There is a height restriction for roller coaster rides, but there is no cut-off for how low the machine can dip.
The performance of the road and bridge market, which many believe resembles the path taken by the carnival thrill provider, does not appear to be hitting an upside anytime soon.
With the exception of a couple of flickers of light, 2011 did not generate any cheers of joy or excitement, and the next 12 months figures to be uncomfortably quiet as the industry waits for positive reinforcements to come from local, state and federal governments.  
Unemployed become undone
Less are looking to the construction industry as a way to land on their feet. That task becomes increasingly difficult when the market is still spiraling toward a rock bottom. “Construction employment has barely budged over the last year and a half, so workers who had been sitting home hoping to be recalled for other construction jobs are now leaving for other industries, or they are going back to school or retiring or just dropping out of the work force,” Ken Simonson, chief economist for the Associated General Contractors of America, told ROADS & BRIDGES. “That is ominous for when construction does start to pick up, these types of workers may not be available.”
According to American Road & Transportation Builders Association (ARTBA) Chief Economist Alison Premo-Black, employment in the transportation construction industry in 2011 was actually up 1% compared with 2010, but it is a small consolation to an environment that continues to drag its feet, and most experts now say it will not be until 2013 when conditions will improve. In fact, a recent ROADS & BRIDGES survey indicates that 31.5% believe the road and bridge construction arena will start to brighten after the upcoming election year, with 29.3% respondents indicating it will happen in 2014. However, 33% are guessing it will take more than 24 months.
“The times are getting tougher,” said Simonson. “Just about every state is now experiencing a downturn in new contract spending.”


Too many drops
The same factors continue to dog the road and bridge industry: the lack of a long-term federal highway bill, continued budgetary struggles at the state and local level and an extremely competitive bidding environment.
However, those businesses that have found a way to be competitive are still doing pretty well. According to the R&B survey, 37.7% said 2011 was a good year for them, with another 33.9% marking it as an average campaign. Almost 14% went as far as to say it was a very good year, while only 11.8% indicated it was poor.
Market conditions in general, however, continue to slip. Late in 2010, ARTBA forecasted the road and bridge construction sector to be down 4% in 2011, the actual numbers showed a 9% drop.
“It has been a very difficult market the last few years because we have had such a large economic recession as well as the federal situation,” explained Premo-Black, “which normally we would expect a very flat number when we are going through the reauthorization period, but given the extreme economic environment, state and local governments have had a lot of other issues to deal with, so they have to pull back.”
Simonson’s forecast shows a public-sector market in a free fall. Total public spending fell 9% between September 2010 and September 2011, and the highway and street sector suffered a 6% setback.
With stimulus money drying up and no new funding mechanism in place at the federal level, pavement construction took a crippling hit in 2011. Premo-Black said it was expected to be down 14%. The bridge sector continued to show growth in 2011, but appeared to hit a peak. Since much of the work involves long-term contracts, most of the construction activity dealing with spans over the last three or four years are the result of healthier DOT budgets. In fact, bridge contract awards were expected to be down 13% in 2011, and the bridge market overall could drop 10% in 2012.
Pavement construction is only predicted to fall 2% next year, with airports (3.7%) and subway and light rail (15.7%) also coming down.
“I am afraid the overall public-construction spending may drop at double-digit rates [in 2012],” noted Simonson. “As for highways, there is a chance it will level off, but I do not see much likelihood it will wind up ahead of what we were at the end of 2010 when there was still some stimulus money.”
Looking at the industry as a whole next year, ARTBA is a little more optimistic, predicting only a 6% decline, from $77 billion in total spending for roads and bridges in 2011 to $72.6 billion in 2012.


No bargain shopping
Due to the increase in oil prices at the start of 2011, the cost of doing business was extremely problematic during the first two quarters. However, oil prices became less volatile as the year progressed, and material prices as a whole remained relatively flat, although they still outpaced inflation. Due to the early-year spike, Premo-Black reported that material prices were up 6.2% in 2011. Both ARTBA and Simonson are predicting the likes of oil, steel and cement will continue to rise in 2012. According to R&B readers, asphalt, cement and steel prices are all expected to rise over the next 12 months.
The contractor is not necessarily passing the material price increase on to owners, either. The National Highway Construction Index, developed by the Federal Highway Administration, shows what contractors have been charging. The rate did move up 2% in June 2011, but in March bids were 9% below what contractors were asking in March 2009.
“I do not expect much upward movement in prices in 2012,” said Simonson. “There may be a little less competition than we have had simply because some businesses are going to fold and others are going to switch over to more profitable private construction.”


Conditions worsening
States cannot hang their hopes on Congress saving the day, and many are facing a hard budget crunch.
When asked to describe the current economic conditions in terms of money generated for road and bridge construction in their respective state, just over 50% said fair and another 30.8% said poor. In contrast, only 1% described it as excellent. More surprisingly, many said their state was not doing anything to increase road and bridge funding (37.6%).
The Maryland Transportation Authority tied a lifeline to the bumper of motorists when it announced toll increases a couple of months ago.
“I know it’s a very tough time and this is very hard for the public,” Maryland Transportation Secretary Beverley Swaim-Staley said shortly after the vote to raise fees passed unanimously, “but I can’t stress enough that we had no choice but to raise tolls.”
A few other states were taking a serious look at raising the gas tax or other fees as road and bridge conditions continued to deteriorate in 2011. Rural roads appear to be in the worst shape. Just over 47% of R&B readers said low-volume arterials were in fair condition, with another 24% marking them in poor shape. Urban roads are not showing much of an improvement. A little less than 50% of R&B readers rated city streets fair, with an additional 16.8% grading them in poor condition. As expected, interstate roads received the best grade—50.1% are in good condition.
On the bridge side, 22.5% of R&B readers said more than 25% of their bridges were structurally deficient (SD); 19.9% said 16-20% were classified as such, and another 14.6% said 21-25% of the bridges in their region were classified as SD.
The number of functionally obsolete bridges in the U.S. appears to be far fewer, as 44.6% of R&B readers indicated 10% or less of their spans fell in that category.
At press time Congress did show signs of moving closer to the passage of a multiyear highway bill. The Senate Environment and Public Works Committee passed a two-year measure worth $80 billion on Nov. 9, and a little over a week later the House said it was close to introducing its transportation/oil drilling bill.
Still, Simonson seemed pessimistic that anything of that scale would get done during an election year.
“I am not nearly that optimistic when it comes to highway and bridge work,” he said. “I just do not see an increase in funding moving forward, and I do see a risk that it will decline still more.”

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