a look into the crystal ball: the ready mixed concrete industry in 2010 and beyond presented at the...

A Look Into The Crystal Ball: The A Look Into The Crystal Ball: The Ready Mixed Concrete Industry In Ready Mixed Concrete Industry In

20102010 And Beyond And Beyond

Presented at the 46Presented at the 46thth Annual Annual

NRMCA Business Administration NRMCA Business Administration ConferenceConference

October 20, 2004October 20, 2004

OverviewOverview

Cement Shortages Will Be Short-lived, MaybeCement Shortages Will Be Short-lived, MaybeTotal Concrete Volume Could Reach 500M Total Concrete Volume Could Reach 500M

Yards Within the Next Few Years Yards Within the Next Few Years Consolidation Will ContinueConsolidation Will ContinueHR Will Continue to Be A ChallengeHR Will Continue to Be A ChallengeMore Sophisticated Marketing Will Play A More Sophisticated Marketing Will Play A

Key Role In GrowthKey Role In Growth

Overview Overview

Mixers Will Continue to Become More Mixers Will Continue to Become More SophisticatedSophisticated

Permitting And Compliance Will Become Permitting And Compliance Will Become More Daunting Than Ever More Daunting Than Ever

Technology Will Continue To Be The Key Technology Will Continue To Be The Key Driver in Efficiency ImprovementsDriver in Efficiency Improvements

Current Cement ShortagesCurrent Cement Shortages

Cement Shortages Will Be Short-lived, Cement Shortages Will Be Short-lived, Maybe Maybe

The length and severity of the shortage will The length and severity of the shortage will depend on the regiondepend on the region

However, an easing of the current crisis However, an easing of the current crisis should occur over the next 6-12 monthsshould occur over the next 6-12 months

PCA sees a potential easing of shortage PCA sees a potential easing of shortage conditions in some regions during the fourth conditions in some regions during the fourth quarter, assuming a reduction in housing quarter, assuming a reduction in housing demand and increased import supply demand and increased import supply

Long-term Cement Concerns Long-term Cement Concerns

Cement consumption last year was 107.5 Cement consumption last year was 107.5 million metric tons in the United States. Of million metric tons in the United States. Of that figure, only 84.3 million metric tons were that figure, only 84.3 million metric tons were produced domesticallyproduced domestically

Over the next 5 years, domestic producers Over the next 5 years, domestic producers expect to expand production capacity by 17.6 expect to expand production capacity by 17.6 million metric tons million metric tons

Greenfield Operations: 9.9 million metric tonsGreenfield Operations: 9.9 million metric tonsModernization: 7.0 million metric tonsModernization: 7.0 million metric tons


These numbers indicate that total domestic These numbers indicate that total domestic production in 2010 will be approximately production in 2010 will be approximately 101.3 million metric tons101.3 million metric tons

With the ready-mixed concrete industry With the ready-mixed concrete industry consuming approximately 75% of the cement consuming approximately 75% of the cement production in the US, our industry cannot production in the US, our industry cannot sustain our current production levels, much sustain our current production levels, much less any growth, without historically high less any growth, without historically high levels of imported cementlevels of imported cement


If the ready-mixed concrete industry achieves If the ready-mixed concrete industry achieves a 500M cubic yard production level in 2010, a 500M cubic yard production level in 2010, this translates into a requirement of 48.7 this translates into a requirement of 48.7 million tons of cement in excess of domestic million tons of cement in excess of domestic production capacity at that timeproduction capacity at that time

This means that imported cement will This means that imported cement will represent 32.4% of total domestic represent 32.4% of total domestic consumption, which is a record high consumption, which is a record high percentagepercentage

Long-term Cement ConcernsLong-term Cement Concerns

Additionally, the economics of imported Additionally, the economics of imported cement relies heavily on favorable ocean cement relies heavily on favorable ocean freight ratesfreight rates

Current economic growth in China, and its Current economic growth in China, and its corresponding demand for cement, creates corresponding demand for cement, creates some concern about the stability of future some concern about the stability of future supplies of imported cementsupplies of imported cement

Imported Cement As a Percentage of Imported Cement As a Percentage of Total Supply Total Supply

Since the early 1980s, imported cement has Since the early 1980s, imported cement has increased significantly as a percentage of total increased significantly as a percentage of total supply, regardless of US economic conditionssupply, regardless of US economic conditions

Early 1980’s (recession):Early 1980’s (recession): 3% of Total Supply 3% of Total Supply Latter 1980s:Latter 1980s: 15-16% of Total Supply15-16% of Total SupplyEarly 1990’s (recession):Early 1990’s (recession): 6-8% of Total Supply6-8% of Total Supply1998:1998: 24% of Total Supply24% of Total Supply1999-2000:1999-2000: 29% of Total Supply29% of Total SupplyToday:Today: 22-24% of Total Supply22-24% of Total Supply

Total Concrete Volume Could Reach Total Concrete Volume Could Reach 500M Yards by 2010500M Yards by 2010

We have studied projections from several We have studied projections from several industry sources and examined historical rates industry sources and examined historical rates of consumption growth to project ready-mixed of consumption growth to project ready-mixed concrete production in 2010concrete production in 2010

Our internal estimates indicate total US Our internal estimates indicate total US concrete production will range between a low concrete production will range between a low of 434 million cubic yards to a high of 576 of 434 million cubic yards to a high of 576 million cubic yards million cubic yards

Total Concrete Volume Could Reach Total Concrete Volume Could Reach 500M Yards by 2010 500M Yards by 2010

RMC Production Estimates for 2010

300,000,000

350,000,000

400,000,000

450,000,000

500,000,000

550,000,000

600,000,000

F.W. DodgeProjection

PCAProjection

NRMCAProjection

Historical PerCapita

EstimatedInflationary

Growth (2.5%)

28 yearAverage

HistoricalGrowth (4.7%)

10 yearAverage

HistoricalGrowth (6.0%)

Projection Source

Yar

ds

Pro

du

ced

Total Concrete Volume Could Reach Total Concrete Volume Could Reach 500M Yards by 2010 500M Yards by 2010

I know you are saying to yourself, I know you are saying to yourself, “That is some “That is some crystal ball!”crystal ball!”

Based on a number of these data, it is reasonable Based on a number of these data, it is reasonable to assume that production by the end of this to assume that production by the end of this decade decade COULDCOULD reach the 500M cubic yard mark reach the 500M cubic yard mark

Obviously, the higher the production potential, Obviously, the higher the production potential, the greater impact the role of imported cement the greater impact the role of imported cement may have on our industry and its growthmay have on our industry and its growth

Consolidation Will ContinueConsolidation Will Continue

We estimate that more than 500 companies We estimate that more than 500 companies have been consolidated since the late 90’shave been consolidated since the late 90’s

Succession, estate planning, and a Succession, estate planning, and a concentration of net worth in the family concentration of net worth in the family business will continue to motivate the sale of business will continue to motivate the sale of smaller producers to the larger onessmaller producers to the larger ones

The Top 25 producers in the US represent 50-The Top 25 producers in the US represent 50-55% of total production in 200455% of total production in 2004


The Top 25 producers in the US will represent The Top 25 producers in the US will represent 65-70% of total production in 201065-70% of total production in 2010

Of those, the Top 10 could command more Of those, the Top 10 could command more than 50% of the marketthan 50% of the market

The smaller independents in local markets will The smaller independents in local markets will find it more difficult to compete with larger, find it more difficult to compete with larger, more sophisticated operationsmore sophisticated operations


The exception will be the smallest producers The exception will be the smallest producers in the smallest markets, who will be with us in the smallest markets, who will be with us foreverforever

HR Will Continue to Be A ChallengeHR Will Continue to Be A Challenge

More professional management will continue More professional management will continue to find its way into the industry.to find its way into the industry.

College curriculums will continue to expand, College curriculums will continue to expand, and young talent will continue to become and young talent will continue to become available (although the supply of talent may be available (although the supply of talent may be outstripped by demand for years to come)outstripped by demand for years to come)

While management may improve, hourly labor While management may improve, hourly labor will continue to be a headachewill continue to be a headache


The The Wall Street JournalWall Street Journal and and USA Today USA Today have have both written stories on the challenges of hiring both written stories on the challenges of hiring truck drivers in just the past week, despite the truck drivers in just the past week, despite the number of lost jobs we have suffered in this number of lost jobs we have suffered in this last recessionlast recession

In markets with large pools of new In markets with large pools of new immigrants, or with an ingrained blue collar immigrants, or with an ingrained blue collar culture, the problem will not be so acute culture, the problem will not be so acute


In markets where such pools don’t exist, the In markets where such pools don’t exist, the available labor pools will become even more available labor pools will become even more challengingchallenging

New initiatives, such as captive Driver New initiatives, such as captive Driver Training Schools, outreach programs to local Training Schools, outreach programs to local high schools, etc. will become a must for high schools, etc. will become a must for producers in the tougher labor pool marketsproducers in the tougher labor pool markets

More Sophisticated Marketing Will More Sophisticated Marketing Will Play A Key Role In GrowthPlay A Key Role In Growth

The role of our state and national The role of our state and national associations will continue to grow in associations will continue to grow in educating the specifying community and educating the specifying community and consumers at largeconsumers at large

A continued effort to educate the industry A continued effort to educate the industry to sell concrete, rather than price concrete, to sell concrete, rather than price concrete, will be adopted and/or grown by the leaders will be adopted and/or grown by the leaders in individual marketsin individual markets

More Sophisticated Marketing Will More Sophisticated Marketing Will Play A Key Role In GrowthPlay A Key Role In Growth

Continuing to educate the customer base at Continuing to educate the customer base at large of the benefits of concrete over asphalt large of the benefits of concrete over asphalt will be critical in continuing to grow volumes will be critical in continuing to grow volumes at the national levelat the national level

Mixers Will Continue to Become More Mixers Will Continue to Become More SophisticatedSophisticated

By 2010, new mixers being delivered By 2010, new mixers being delivered without without GPS tracking systems will be the exception, GPS tracking systems will be the exception, not the rulenot the rule

Truck tracking will be more accurate, Truck tracking will be more accurate, translating into more efficient fleet utilizationtranslating into more efficient fleet utilization

Electronic detection devices to measure Electronic detection devices to measure slumps and quantities of water added at the job slumps and quantities of water added at the job site will be commonplace (these are already in site will be commonplace (these are already in the market) the market)

Permitting And Compliance Will Permitting And Compliance Will Become More Daunting Than EverBecome More Daunting Than Ever

Federal EPA and state environmental Federal EPA and state environmental compliance will continue to become more compliance will continue to become more stringent in most states, and compliance costs stringent in most states, and compliance costs will continue to escalatewill continue to escalate

Environmental compliance costs may Environmental compliance costs may accelerate at the same percentage rates as accelerate at the same percentage rates as recent increases in insurance, fuel, and cementrecent increases in insurance, fuel, and cement


With new plants as unpopular as prisons and With new plants as unpopular as prisons and landfills, permitting for “greenfield” locations landfills, permitting for “greenfield” locations will become harder, and will probably be will become harder, and will probably be eliminated altogether in many large, urban eliminated altogether in many large, urban marketsmarkets

In the face of permitting challenges, sited and In the face of permitting challenges, sited and permitted plants will continue to rise in valuepermitted plants will continue to rise in value


The trend towards siting plants in aggregates The trend towards siting plants in aggregates suppliers’ yards will be one way around this suppliers’ yards will be one way around this issueissue

Technology Will Continue To Be The Technology Will Continue To Be The Key Driver in Efficiency Key Driver in Efficiency

ImprovementsImprovements

Wireless technology will be prevalent in all Wireless technology will be prevalent in all aspects of operations, from dispatch to aspects of operations, from dispatch to batching to trucks and deliverybatching to trucks and delivery

Wireless technology will move and monitor Wireless technology will move and monitor gates, valves, conveyors, and other mechanical gates, valves, conveyors, and other mechanical partsparts

Technology Will Continue To Be The Technology Will Continue To Be The Key Driver in Efficiency Key Driver in Efficiency

ImprovementsImprovements

The range of new computer and software will The range of new computer and software will continue to grow at an exponential pace continue to grow at an exponential pace (Wally is next) (Wally is next)

Summary – Our OpinionSummary – Our OpinionReady mixed concrete production will grow to Ready mixed concrete production will grow to

500 million cubic yards by 2010500 million cubic yards by 2010An average yard of concrete will sell for An average yard of concrete will sell for

$88.45 $88.45 Fleet utilization will continue to climb due to Fleet utilization will continue to climb due to

technologytechnologyDriver recruiting and training will grow to Driver recruiting and training will grow to

being the biggest challenge for many being the biggest challenge for many producers producers

Summary – Our OpinionSummary – Our Opinion

Environmental compliance costs will continue Environmental compliance costs will continue to climb, becoming one of the fastest growing to climb, becoming one of the fastest growing costs by percentagecosts by percentage

Many of you will be more computer-literate Many of you will be more computer-literate than you are todaythan you are today

Many of you will become better marketersMany of you will become better marketersSome of you will be living in FloridaSome of you will be living in Florida

a look into the crystal ball: the ready mixed concrete industry in 2010 and beyond presented at the...

Documents

cement production

tons of cement

total domestic production

total us concrete production

economics of imported

total supplyearly

total supply1998

total supply1999