a look into the crystal ball: the ready mixed concrete industry in 2010 and beyond presented at the...
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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
Long-term Cement Concerns Long-term Cement Concerns
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
Long-term Cement Concerns Long-term Cement Concerns
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
Consolidation Will ContinueConsolidation Will Continue
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
Consolidation Will ContinueConsolidation Will Continue
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
HR Will Continue to Be A ChallengeHR Will Continue to Be A Challenge
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
HR Will Continue to Be A ChallengeHR Will Continue to Be A Challenge
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
Permitting And Compliance Will Permitting And Compliance Will Become More Daunting Than EverBecome More Daunting Than Ever
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
Permitting And Compliance Will Permitting And Compliance Will Become More Daunting Than EverBecome More Daunting Than Ever
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
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