The Water and Wastewater Equipment Manufacturers Association hosted its annual Presidents Council at Chicago O’Hare, giving member company CEOs and senior executives an opportunity to meet and discuss issues dominating the headlines and challenging the economic viability of manufacturers serving the water and wastewater industry.
Leading the discussion was the immediate and long-term consequences of Hurricane Katrina. Several members shared their experiences of having been among the first responders working through FEMA and the Corps to provide pumping systems and water quality analysis services in Louisiana and Mississippi.
They discussed the chain of command within the federal government for the environmental cleanup effort and the process by which products and services will be procured. While most of the emergency work has been completed with the Corps having announced that all floodwaters had been removed, it was generally agreed that the long-term work of rebuilding the water and wastewater infrastructure was months away as communities begin the laborious task of determining which plants to rebuild in light of changing demographics caused by this horrific event. Some of the attendees speculated that as much as 30% of New Orleans’ residents may never return to the city.
While most of the work in the Louisiana region will likely be that of rehabilitation of existing plants, Mississippi’s infrastructure was significantly destroyed requiring complete rebuilding of water and wastewater systems. New construction of water and wastewater facilities in other parts of the country might also be necessary to accommodate significant population growth due to the permanent relocation of former residents from the affect region.
Who will pay for the multi-billion dollar price tag associated with the recovery effort was debated by the participants with most believing that it will involve a combination of public and private financial resources. Tax incentives in the form of accelerated depreciation schedules were viewed as a viable option the federal government should consider to help stimulate such investments.
The effects of Hurricanes Katrina and Rita on the demand for, and availability of, raw materials was another topic on the minds of the participants. It was noted that raw material shortages existed pre-hurricane season and were exacerbated by these devastating events. While spot shortages are anticipated, it is believed that foreign suppliers will enter the marketplace, perhaps on a permanent basis, to meet the demand created by this unique event.
A more immediate concern already being felt in the marketplace are project delays resulting from the spike in raw material costs and the need to rebudget and rebid projects in the pipeline. Instances of re-engineering and opening up specifications to find further savings are undermining the procurement of products that offer significant savings over the life of the project in place of less efficient, inferior products that may provide only a short-term savings to the customer.
Employment was another topic on the minds of the WWEMA member company executives, especially in light of low unemployment rates, an aging workforce and mobility in the workplace. With technology becoming more automated and sophisticated, and with energy becoming a greater factor due to escalating costs, tomorrow’s workforce will need to be more technically savvy with both electrical and process engineering know-how. On a positive note, due to the costs of operating water and wastewater systems, life-cycle factors are growing in importance leading to greater acceptance of quality products that offer long-term value to the owner.
The role of the Internet was discussed as it relates to today’s workforce. There was general consensus that the Internet will continue to grow in importance as a tool for initially screening products available in the marketplace. However, it will never supplant the need for personal contact to “seal the deal” on water and wastewater projects, according to the participants.
Innovation was another topic that generated stimulating debate, not so much “if” but “by whom”. Factors such as environmental regulations certainly play an important role in driving demand for new technologies, as was evidenced by innovations that have come out of both the U.S. and Europe. One advantage enjoyed by Europe is its structure of only having a few, sizable water companies that are able to invest significant funds into developing new technologies and pass the costs along to the end users. European companies also have more favorable depreciation schedules making investments in new equipment more affordable. Nonetheless, innovations are taking place in the U.S. water and wastewater market as new needs arise driven by regulations, population growth and water resource constraints.
The participants had differing views about the benefits of patenting innovations in the water and wastewater industry. On the positive side, it does add value to a company’s reputation as a leading developer of quality technologies and provides some competitive advantage for a limited time. On the negative side, the maintenance fees are costly, the litigation fees to defend the patent are exorbitant, and the risks of divulging proprietary information about the product when filing with the Patent Office are very real. Adding to the dilemma of whether to patent or not is the risk of not being able to sell the technology to the municipal water and wastewater marketplace given the emphasis on competitive bidding. This is judged to be one of the key factors that detracts from innovations occurring in this marketplace.
The final topic addressed by the participants at this year’s meeting of the WWEMA Presidents Council was the emergence of alternative delivery methods in the water and wastewater industry. Some member companies are seeing a significant growth in the use of design-build as a way to expedite projects and lower costs. While alternative delivery methods offer greater opportunities to sell value-added products, it comes with additional risks to suppliers who must assume greater liability for process performance, especially given the lack of detailed specifications that typically accompany these types of projects. Some question whether the margins that can be obtained justify the added risks.
Ending on a positive note, the participants pegged the next 12-month growth rate for the domestic water and wastewater market at 8% and the international market at 9.5%, as compared to 3% and 7%, respectively, last year. Things are looking up for the business in spite of - or due in part to - the unusual circumstances that have occurred in the course of the past 12 months.
About the author:
Dawn Kristof is president of the Water and Wastewater Equipment Manufacturers Association. WWEMA member companies are among the world’s leading producers of technology to the water and wastewater industry, employing 43,000 workers with collective sales nearing $6 billion (USD) worldwide.
