This is Part 3 in a series of discussions on the economy and the precast concrete industry. In this segment, NPCA engineering consultant Sue McCraven interviews NPCA members Bob Christensen and Hedley Blundon for their viewpoints on infrastructure stimulus funding and the precast industry.
PRECASTER BIOS
Bob Christensen is senior vice president of Hanson Building Products East Region, a territory that includes the eastern half of North America for Hanson Pipe & Precast, Hanson Hardscapes, Hanson Roof Tile and all of the Hanson Brick North American operation. Christensen is based in Charlotte, N.C., and has more than 30 years of experience in the building products industry.
Hedley Blundon is vice president of Capital Precast Ltd., a Pennecon Ltd. company in St. John’s, Newfoundland. Blundon has more than 35 years of experience in the concrete industry and has been with Pennecon Ltd. for 27 years. Pennecon Ltd. is a multi-discipline company involved in residential and commercial developments, precast concrete, ready-mixed concrete, concrete products, heavy civil construction and offshore contracting.
Can Public Works Projects Jump-Start the Economy?
Q. Much has been discussed in the media over whether public works projects can help jump-start the North American economy. How do you think billions of new dollars to increase energy efficiency and rebuild schools, roads, bridges and sewer systems will affect your business?
A. Christensen: It can’t be denied that we must take action on our aging infrastructure. Spending on public works projects will eventually have a positive impact on our business and the economy. The government funding on infrastructure projects will stimulate the economy and create jobs, but could have an adverse effect in the long run if not spent wisely. We have right-sized our business to remain efficient and prepare for a slower turnaround – the key is integration.
Some don’t realize that even with the stimulus passing, it could take one to two years before some of these projects begin. For example, mass transit projects will alleviate congestion and help the environment, but they don’t solve immediate road-system needs that are crucial now. At the same time, the evident need for immediate repairs is there, but long-term projects need to be addressed, and proper prioritization and allocation of funds are vital to the success of our business, our industry and the economy.
I am glad to see “infrastructure,” a term neglected by most average citizens, placed at the forefront. It is important that we focus on the needs of the core of our infrastructure – the sewers, roads and waterlines. We are cautiously optimistic in our expectations.
A. Blundon: We have not experienced the economic downturn to the degree that other areas have. We have a relatively small population on an island in the North Atlantic and we are somewhat insulated from the global economy. Our provincial government, as a result of higher-than-expected oil revenues in the past two years, is in a position to reinvest in provincial infrastructure that will offset any negative effect of the global economic downturn. This combined with the investment commitments from the oil and mining sectors should result in economic stability for this region for the next few years.
Q. Are you preparing for increased production of infrastructure-related products in 2009 and beyond?
A. Christensen: Regardless of the financial situation or recent bills passed, it was inevitable that there would be a need for more products and applications to repair and maintain our infrastructure. What changes now is that with a quicker influx of projects, companies are not only assessing their own products and supplies, but also that of their competition – who are readily doing the same thing.
We are at the building stages now, when we should all be further along, but we will be seeing far more “green” products and practices in this industry to promote a sustainable infrastructure. Every day we adjust to our environment not only through what we use, but how we use it. We recognize this at our company – and have for a long time – and have put forth our efforts in new technology and operation to help the environment, while also maintaining a balance of utilizing products we already have and need in an environmentally conscious way. It is important to remain cost-effective and strategic in our efforts. We are highly determined and aware of our operational needs.
We have witnessed fluctuations in the economy over the years, which are inevitable in a cyclical business. We started right-sizing our business in 2007 while always keeping an eye on the upturn.
A. Blundon: Our production is directly related to demand, and we produce very little for inventory. We have positioned our facilities to produce products for an on-time-delivery market. Therefore, because of our unique market and our production techniques, we are able to produce all of the precast concrete products that owners require. In order to survive in a small market, product variety and production versatility are essential. Our motto is: “If it can be made of concrete we can precast it.” Versatility has been the key to our success in the precast concrete industry.
Q. Have you experienced any change in availability of financing for either private (bank-financed) or public (municipal bond or tax-financed) projects in the past few months?
A. Blundon: There are a number of projects slated to start this year, and we have been reassured by both provincial and municipal governments that spending will be increased above other years. The private sector has shown some weakness. However, we are very optimistic that private sector spending will also increase this year.
A. Christensen: Interestingly, we have seen a marked slowdown in the availability of financing of all sectors following the announcement of the potential stimulus package while decision makers wait to see what federal dollars will be coming their way. The stimulus package therefore affected businesses like ours in a negative way in the short term, but we are optimistic that we will benefit in the medium and long term.
Q. Are you considering major investments in new equipment during this economic slump when many companies have had to let workers go?
A. Christensen: As a forward-thinking company, our preparations for this current downturn were carried out during the extremely buoyant years of 2001 to 2007. During that time we invested significantly in productivity-improving facilities in anticipation of being the lowest-cost producer in our major markets to accommodate economic fluctuations.
Q. How does the tight credit environment affect your business and capital investment plans?
A. Christensen: Preparations for any coming downturn should be made by responsible management during the upturn; that is exactly how we run our business. Our capital investment was significant during the upturn, which not only serves to increase our efficiency during the downturn but also contributes to increasing cash flow during tough times.
A. Blundon: The credit environment has not affected our capital investment, and we will be able to meet all of the market demands for precast concrete products in our area. The exchange rate between the U.S. and Canadian dollars is a more significant factor in equipment purchases in that most of our equipment is sourced in the U.S. Last year we were at par; this year the Canadian dollar is down 30 percent as compared to the U.S.
Q. What would be the best business news you could hear?
A. Blundon: The awarding of the first contract for the site work on the Vale Inco smelter site, a multi-billion dollar (Canadian) project slated for our area, would be the very best news we could hope for this year. This project will contribute significantly to the economic stability of this area.
A. Christensen: The best news for our industry would be stabilization of the global/national economic environment and a return to the normal cyclical economic conditions that inevitably occur without the interference of outside stimulus packages. Our country has huge growth potential created by increase and movement of population, which will in itself create jobs, affluence and success over the long term. To enhance that success, this will need to be monitored and controlled from the point of view of financing and credit availability to ensure that the significant overheating that has been witnessed in recent times does not occur again.
Sue McCraven, NPCA senior technical consultant, is a civil engineer, technical writer and editor, and environmental scientist who has contributed numerous articles and studies to prominent scientific journals.
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