Many construction equipment manufacturers, including those serving the road building industry, are reporting a 20 to 30 percent increase in orders for the first half of this year. Great news!
Unfortunately, those reported increases don't reflect the economic health of highway contracts reported by the American Road and Transportation Builders Association. In fact, ARTBA reports overall contract awards are behind last year's pace by 20 percent. So, what gives?
First, the good news reported by equipment manufacturers is due to the fact that the glutted inventory of construction equipment resulting from rental center mergers and consolidations several years ago has finally worked its way through the supply and demand pipeline. Contractors have consumed much of the excess inventory that's been available in the market over the past four or five years. Equipment manufacturers are now producing equipment that's needed to replace aging fleets, or in some cases expand fleets for those contractors who are experiencing modest growth.
Although the reported increase in equipment orders is definitely a positive signal for manufacturers, total sales still lag behind 1999 numbers, when the industry started to experience a decline in orders. But remember, eliminating excess inventories and operating on a supply and demand basis is a much healthier approach to growth and profitability.
As for the overall decline in highway contracts, you have to remember that we're all still waiting for reauthorization of the federal highway and transportation bill. The industry has been operating off extensions ever since TEA-21 expired last September. State agencies have responded accordingly by delaying or eliminating some of the projects originally scheduled for 2004.
Not to add salt to the wound, the rising cost of oil and steel only stretches those uncertain and limited budgets even further. Rising steel prices add to the cost of equipment and construction of bridges. Rising oil prices add to the cost of operating equipment and producing asphalt.
And here's the final snag that clouds the road construction industry's immediate future — the economy. Earlier this year, economists abandoned their usual "cautiously optimistic" crystal ball and were actually jazzed up about the economic prospects for 2004. The economy sputtered a bit during the second quarter, but not to worry, it still showed promise over year-ago levels. Then came August with new terrorist threats and predictions of higher oil prices, and the stock market reacted.
Now what? The threat of terror, or rising oil prices, or even delay on federal funding is today's reality. You can't control those factors, and I'm not sure it's worth worrying about things you can't control. What you can do is make sure you're operating your business and the projects you're constructing as efficiently and effectively as possible. It will help you remain profitable on today's projects and competitive when bidding on tomorrow's projects.
Greg Udelhofen, Editor
P.S. If you would like to share a project story that illustrates efficient and effective productivity, let me know.
