Manufacturer Executives Discuss Water Market Trends

On October 3, a group of 25 chief executive officers and senior business executives met in Chicago for WWEMA’s fourth annual President’s Council to discuss industry trends and concerns.

Nov 1st, 2007

by Russ Komline

On October 3, a group of 25 chief executive officers and senior business executives met in Chicago for WWEMA’s fourth annual President’s Council to discuss industry trends and concerns. Major categories for reflection included 1) state of the market; 2) future funding for equipment purchases; 3) material costs fluctuations; 4) staffing for our businesses and the industry in general; 5) day-to-day operating issues; and 6) the impact of the global warming threat on our industry.

Virtually all executives reported good, if not record, results for their 2007 business year. Municipal markets, industrial markets and international markets had all been generally robust, with normal rotations of strength and weakness from one region to another. Interesting opportunities have been available in Europe, the Middle East and Asia, and some reported strength in specific South American market segments as well. Even Chinese industry has begun to spend money for WWEMA member products. Many executives also expect a healthy 2008, if not matching their 2007 results. Some concern was expressed that the credit shortage has dampened developer markets and there is a possibility this could also impact municipal markets by decreasing expected local property tax revenues which might be used to fund future water and wastewater infrastructure work.

Although it is easy for WWEMA, headquartered in the Nation’s Capital, to focus on federal funding (or lack thereof), the vast majority of funding for municipal water projects (exceeding 95%) comes from local sources. Examples of new twists in local project funding include switching of gas tax revenues from bridge and roadwork, in recognition of the growing importance of assuring adequate water for the future.

On the industrial side the power industry is taking off and with it comes requirements for water and wastewater treatment. Funding for these projects goes along with, and is mostly dwarfed by, the larger power plant costs. There was a strong consensus that on the federal side, funding would not be increased for at least the next five years (the foreseeable funding future.) There is, however, the possibility of removing private activity bond caps from under the state volume caps for water and wastewater projects, resulting in an additional $5-6 billion in potential new capital flowing into the industry.

While material costs have fluctuated, increasing because of demand excess (e.g. steel) and decreasing because of the weakening dollar, there was broad speculation about the prospect for an eventual revaluation of the Chinese RMB, driven by the devaluation of the Chinese-held Treasury bill investment portfolio, resulting in greater equalization of overall cost structures. We’ll see.

Considerable concern was expressed by almost all the participants over the shortage of available personnel to fill our staffing positions. There has been a marked decrease in technical and engineering students graduating from our colleges and universities (this situation has been developing over the past few decades.) While the supply of such people seems to be decreasing, the demand seems to be increasing. The oil and gas industry is swallowing up large numbers of technical staff, the nuclear power industry is being re-staffed with large numbers of people and the National Education Association is running an ad campaign saying that the U.S. is now a country driven by the service industry. What chance do we have!

Hope was offered by a few who encouraged us to promote our companies and our industry to prospective employees (especially current college students and even high school students) by highlighting the social good we do in leaving our world a better place. For some this has met with success. Perhaps we need an industry-wide campaign promoting this theme to our young people.

A bit of time was spent discussing day-to-day issues such as terms and conditions, but these things get pretty well worked over in other forums, so there wasn’t a lot of energy imparted here.

As for the last major topic of the day, a surprising amount of energy was displayed on global warming. The conversation started out with seemingly little broad interest among the group. While important, how could this really impact our industry? It became clear as one executive after another spoke of the potential effects of global warming on water quality and availability. Unprecedented drought is threatening a permanent water use ban in Georgia. Arizona and, indeed, the southwestern states are more and more impacted by decreasing water supply. Alternative energy sources will utilize much larger quantities of already scarce water, in turn requiring more energy production processes - a vicious circle. Will our own products have to change to meet new energy efficiency requirements? Will carbon credit trading impact our own water and wastewater industry?

I sensed a growing concern from this group, not normally seen, that our nation and our world now needs to seriously address the twin problems of energy and water and the linkage between the two. If this microcosm of executives is representative of our universe of business executives, we should be encouraged that concern for our common issues will finally yield concerted action to address them.

About the author:

Russ Komline is President of Komline-Sanderson, a Peapack, New Jersey-based equipment manufacturer specializing in biosolids pumping, thickening, dewatering and drying. He was former Chairman-of-the-Board and is currently a member of the Board of the Water and Wastewater Equipment Manufacturers Association.

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