Heavy Construction in the U.S.
Jennifer Nietz - Manager of Operations
October 2014 – Last month our industry report was actually on engineering services and their respective industry as a whole. This month I have decided to expand a little deeper and go into actual Heavy Construction and the trends we are seeing in this area. If you are involved in construction related projects as well as large scale renovations, you have probably felt what the whole nation has over the past five years. The industry and capital for construction has seen severe restrictions over the past five years. Through our work here at COACT we are actually seeing an increase in new construction and below I would like to highlight the areas of the industry where this growth is actually occurring, so you can leverage and strategize going into 2015.
The Heavy Construction industry is primarily engaged in heavy and engineering construction projects, with the exception of highway, street and bridge construction. Work performed includes new work, reconstruction, rehabilitation and repairs. The industry also includes specialty trade contractors, if they are primarily active in activities related to engineering construction projects. Construction projects include water resources, development of marine facilities and open space improvement.
The below chart (Chart 1) will show the industry segmentation of the where the actual work is being completed and anticipated over the next five years. Marine construction and mass transit construction are definitely the key areas where we are seeing heavy construction. The one industry that is leading is Power Plant construction. This is an area that we have a lot of knowledge around and we would agree that we are seeing some significant movement in this area.
The industry is going to maintain a low, yet stable growth over the next five years. Some of the factors that are contributing to this minimal growth are the lack of government investment and the increased reliance on the private sector to fund their projects. Due to the current low interest rates and the promotion of increased investment, it is expected that the front end of this five year period will be more fruitful than the backend.
International trade is what will drive the increase in construction for Marine and Harbor/Port Facilities as there is going to be increased demand for ocean and coastal transportation. Overall, the industry is forecast to grow at an average annual rate of 1.4% to $19.9 billion, over the five years to 2019. Growth is expected to be relatively fast in 2015, as low borrowing costs and impending rate increases encourage businesses to make new investment.
As I generally like to report, there are several key success factors, according to IBISWorld that firms must maintain to succeed in this industry and to be a top player:
- Development of a symbiotic relationship with another industry: A close relationship with potential clients, financiers and suppliers is essential for establishing forward orders.
- Access to highly skilled workforce: Firms base their reputation of quality of construction and hence require a highly skilled workforce in order to effectively compete.
- Ability to effectively manage risk: Firms in this industry are often subject to a high degree of risk associated with technical difficulties in construction, and managing supplies and costs. Effectively managing risks improves the firm’s capacity to ride out cyclical downturns in demand.
- Having good working relationships with subcontracting building trade specialists: Given the wide geographic dispersal of industry activity, this industry is heavily dependent on subcontracted labor services and leased equipment. It is essential that firms to have access to highly skilled subcontractors in all locations.
- Ability to compete on tender: Most projects in this industry are left to tender and successful firms must have a capacity to compete on tender while ensuring reasonable profit margins and an adequate cash flow.
- Ability to quickly adopt new technology: The technological complexity of much of the activity in this industry requires that firms understand and adopt emerging technologies in order to maintain competitiveness.
According to the information in this article, 2015 will be the time to capitalize in this market so it is important to get a plan and strategy in place now for market approach.
Questions or comments? Please contact Jennifer Nietz at jnietz@teamCOACT.com.