Pit & Quarry’s Second Annual Producers Forum was held in August in Scottsdale, Ariz. The event featured aggregates-producer and association representatives discussing topics of importance to the industry.
PARTICIPANTS:
Charles Rea - Construction Materials Assn. of Calif.
Chris Upp - Conco Quarries Inc.
Ed Gerik - TXI
Jerry Cox - Summit Stone
John Grabowski - R.W. Sidley Inc.
Rick Feltes - Feltes Sand & Gravel
Ric Suzio - York Hill Trap Rock Quarry Co.
Ron Kurpiel - Hanson America
Silvestre Gonzalez - Vulcan Materials Co.
PIT & QUARRY PARTICIPANTS:
Chad Dorn - Associate Editor/Western States News Bureau
Mark Kuhar - Editor-in-Chief
MARK KUHAR: The national economic slowdown, coupled with harsh weather conditions around the country and other factors, has contributed to a slowing in aggregate industry production in the first quarter of the year. This occurred despite a continuing influx of federal dollars and no lack of new construction projects on the books. How has your company weathered the economic storm? Do you see a slowdown in business or demand in your particular businesses and your particular market? How do you view business for the year 2002?
JERRY COX: I’m from the Pacific Northwest and the inland Pacific Northwest. That’s 300 or 400 miles from the coast and from Seattle and Portland. And we have had a very strong economy. We have a very positive migration, strong housing markets and a very strong commercial real estate business. Our concerns up there have been primarily energy, which has impacted us, as well as the rest of the country. The Northwest is a little bit immune from that because of the hydroelectric basin we have for power production.
On the downside, what I have experienced in my particular operations are pricing pressures. There is a lot of business, but there’s a lot of suppliers and a lot of people after that business. So we have seen a resistance by my peer group to pass along those cost increases. They want to continually maintain marketshare and have absorbed the costs. I was hesitant to pass on the electric increases and especially the diesel increases that we experienced. We had an extremely strong third quarter, apparently. The fourth quarter, I think, is going to be moderate.
RICK FELTES: I come from the Midwest, just west of Chicago. And we have had a strong, steady growth in the last three years. We have seen just a little bit of the TEA-21 money. Our governor passed an infrastructure project called Illinois First that has generated a sizable amount of state dollars. And being in a suburb of Chicago, residential development has been very strong. We see that continuing. The manufacturing segments in our area are down. Housing seems to be strong - commercial, as well. Within the last couple of weeks, there seems to be a little bit of a softening. But through the rest of this year and the first half of next year, I see it pretty strong. Weather has not been a problem. We had a wet spring, but we made up for that with a lot of dry weather during the summer. So it was good for us.
CHRIS UPP: In the southwest Missouri area, we have seen an increase in state highway work that comes and goes in spurts every two or three years. There are all these construction projects all at one time. We are in one of those spurts right now. Our sales weren’t very high in the first quarter, but we are preparing for a record third quarter and see it continuing in the fourth quarter and on into the next year when there is even more state work coming about. We’ve gotten started on an airport job, which is a major project for next year. So our view on the next two to three quarters is very good. And the commercial development keeps increasing. The residential seems to moderate where it’s not increasing a lot, but commercial is still seeing a lot of development in our area.
JOHN GRABOWSKI: I wish had some of the good news you guys are talking about - having a good third and fourth quarter. Our third quarter has been very slow. My residential area has been very strong, but the commercial work has not been there. We have been hit pretty hard. We thought we would do better the third quarter, but I would say our concrete ready-mix operation is down about 50 percent. We are in northeast Ohio and western Pennsylvania. We do ready-mix and precast concrete and some other things. We are hoping for a little bit stronger fourth quarter with some of the state jobs we have going on with the Pennsylvania and Ohio Turnpike Commission.
Being a union company, our wages are a little bit higher than some of the nonunion companies, so that’s always a factor. The way we try to curtail some of the problems right now is that we have had some layoffs, cut some corporate people. It’s a good time to cut out some of the fat and give some other people additional responsibilities. We are still positive about what is going on. It’s just that you have got to be smarter and work harder.
FELTES: For us in the Midwest, one of the issues that doesn’t seem to be consistent is the fact that it takes so long for a large project to come on line. There are so many governmental regulations, issues that each developer has to go through.
RIC SUZIO: The problem we have had is that the people start planning the projects so far ahead. And now, all of a sudden, we have the doom and gloom sayers out there suggesting that the economy is falling apart. Now a lot of those projects that were in the pipeline that we were all counting on, they’re putting them on hold and saying, "Well, let’s see." By the time it gets through the actual channels and the paperwork, who knows what the economy is going to be like?
FELTES: Look how long it takes to build a runway today, or a highway. At Chicago O’Hare Airport, they’ve been talking for at least 10 years about new runways, but only now are the political power makers sitting to negotiate something. Streamlining at the federal and state levels is critical to get things moving. It’s the only way to eliminate the stranglehold on congestion and improve safety.
GRABOWSKI: I’m more involved in the trucking than the producing of the aggregate. You can really see how the economy is doing if you just look at the trucking, when the lanes aren’t being filled, and there are thousands and thousands of trucks out there. This year, 20 to 25 percent of all trucking companies or dealerships will be going Chapter 11. It’s been happening to some real strong companies. There is one in Atlanta that was a mega-dealership, and he went under.
SUZIO: I don’t think there is anybody in the room that can say last year was a bad year. Last year was a good year. That’s what sometimes we fail to put in perspective. Yes, we may be down this year, but down from last year is not necessarily a bad thing. It’s just how you plan and prepare and are poised for it. A lot of these people forgot about the 80s and went out and did the same thing again. They financed everything. They bought a new fleet. They put their overhead up and now expect the business is going to be there to sustain it. And they can’t handle the little bump in the road.
What scares me is when all of you pick up the financial section of the paper with the doom and gloom every day. We are fighting off the raids on the gas tax money, the TEA-21 money. Again, we are going to spend our time and efforts fighting in Congress so that money that is earmarked for us isn’t all of a sudden going for some pork belly legislation or to cut a deficit here or to put away in some plan because the economy is turning. It’s funny. I mean, when you try to get reservations for restaurants, it’s packed. You go into a Circuit City to buy a video camera, it’s packed. I’ve been joking with people, and I’ll say to them, you know, "This recession is really hurting you guys." The clerk will look at me and go, "Oh, no. It’s like Christmas in here." And I’m like: "Where are these people getting their information?"
GRABOWSKI: A lot of the recession talk is media driven.
SUZIO: As soon as Bush was elected president, the economy took a turn, and everybody said, "Look what he’s done already." The guy wasn’t even in office, and they were blaming him for the downturn. You’re right. It’s media driven.
GRABOWSKI: We are a family-run business, and we have looked at the everyday operations a lot closer. What are you doing for the company? What can you do to make a difference? Accountability right now is stronger than ever. People are trying to take a little bit more pride in what they’re doing in the sense you have to do what you have to do to make a difference because the margins are so thin right now. You’ve got to watch it close.
RON KURPIEL: That’s the fine line that you have to balance. If you start bleeding your assets, that’s going to hurt you in the long run. Hanson is in a highly introspective mode right now, and it’s a back-to-basics mode. Even though we are having record years in Texas, other areas of the country aren’t. There is a real cost-cutting theme.
GRABOWSKI: Is there a certain number? Are you guys going to cut 25 percent or 30 percent?
KURPIEL: They come out with guidelines year after year. An industry standard actually is a dollar depreciation for a dollar of SIB, or staying-in-business capital. We are not anywhere near that. They’ve cut back pretty significantly, but they are investing their money where they feel it’s prudent to do so. They are putting money in Texas. We’ve taken delivery on some new equipment this year.
SUZIO: Because of the acquisitions, the big keep getting bigger. And a lot of times, they might not know the market they’re moving into. I’m from a family owned business and our biggest competitor has been bought within the last year. We are the only independent source of aggregate left in our state of any quantity and any reserves. That plays into the economics of things, also.
KUHAR: How would you respond to that from a Vulcan perspective?
SILVESTRE GONZALEZ: We are a basically a large corporation, and we have hot areas in the market and cold areas in the market. We had a very first good quarter. The second quarter has been tough. Don [James] just mentioned in his report he gave to me, that because of that, he started reflecting operating expertise in certain areas and our competitive position across the whole United States. So he reports that we have areas that are doing very well and areas that are colder and just holding on. Look at TEA-21. There were states that got their money very quickly, and others that didn’t. That money will come around.
Vulcan has made an acquisition recently, and I guess we have moved into the Pennsylvania area. History shows that when we move into an area, we try, number one, to enhance the price of aggregate. We don’t go and undercut price. We try to keep prices up. If you look at the California area, we did the same thing. We went into that area, and we boosted up the price for the aggregate.
GRABOWSKI: What are those hot and cold areas you were talking about?
GONZALEZ: Texas is a hot area. Chicago is a hot area. Some parts of the Carolinas and some parts of Virginia are hot. And then you go down south, and you have places that there’s no rock. In central Florida, there’s no rock. Whatever you have, you’re going to sell.
COX: How is California?
GONZALEZ: California is doing well.
COX: Equal to last year, better than last year?
GONZALEZ: At par. It’s a tough state.
SUZIO: One of my competitors feels if there’s no work out there, cutting the price is the best way to increase work. And let’s face it, if the customer is not there, it doesn’t matter if you’re willing to cut your price. It’s not there. That’s made it tough. We take the other side. We know our fuel costs and our energy costs and our personnel costs went up. Why should our price go down? It’s not an imaginary increase because the economics of it and times are good. And any one of us in the room can sit down with our customers and show them how my tires went up; my fuel went up; my legal fees went up, and justify an increase. And yet there are people out there who are cutting the price for business that’s not really there.
COX: Is it the smaller guys that are intimidated, or is it the larger guys that are volume-driven?
SUZIO: It’s the larger guys that are volume-driven.
COX: Basically, we are all in the volume business.
FELTES: We are in the volume business is right, but you can only cut your prices so much.
COX: I would qualify that. We have the perception that volume is the cure-all. But you get to the point where you can’t rely on volume to pull you out of the fire.
CHAD DORN: How is your company doing with its Part 46 training program? Do you see this regulation as a problem, as a necessary evil? Is it in line with existing safety programs you have had in the past? Do you think there will be some change in policies under the new MSHA chief, Dave Lauriski?
GONZALEZ: Vulcan always had a very strong safety program, and we always have looked at it as something that requires training throughout the whole organization. We just make people aware that when they have to be working, they have to be conscientious about what they’re doing. We have a system. They can help each other. Safety talk is mandatory. Every day you have to have a safety talk about something. That is essential.
FELTES: For the safety policy to be more effective, we need to have more of a collaboration of industry, labor and government. The success of Part 46 came about through an input of all aspects of our industry. And with our new director, we may be seeing more of that, and there may be more of an acceptance of change when it has the input of labor, industry and government.
KURPIEL: I’m hearing some very positive things. I haven’t heard anything bad about [Part 46]. Things that I’m hearing is that [Dave Lauriski] stands for inspector consistency, inspector fairness. Don’t write up a [violation] that 10 inspectors have seen over the last five years and haven’t written up. Work with your producers. I’m very encouraged by some of the things I’m hearing from our safety people about Lauriski.
GONZALEZ: At Vulcan, everybody goes through the same frustrations. Sometimes in the operating areas, you don’t have consistency between inspectors. That’s something the industry need to work on, work together to create standards. Because you have an inspector that checks out a plant, and he says, "That guard is not to specs." Whose specs? MSHA [literature] doesn’t say anything about specs. It just says you have to have a guard.
ED GERIK: We have experienced a lot of inconsistency. We have situations where we might be inspected in one area of the state and receive citations for a given situation. In another area of the state, you don’t see that. We also see it between inspectors that come out from time to time. A lot of inconsistency. What we are hoping that what we will see now is a change of tone coming out of the agency related to the way that they express their regulatory authority. We hope we see a situation where they strive to partner with industry to improve the safety programs rather than being a pure regulatory authority.
UPP: We have seen, just in the last two or three years, inspectors in our area who have been that way. They’ve been cooperative. They’ve wanted to help. They’re not writing up every nitpicky, little thing. They’re wanting to help the operator and make a safer operation. And especially in Missouri where there are a lot of smaller, family owned companies where you have only 10 people working in a quarry in different spots. Financially, those operations just can’t hack it. They want to have a safe work place for the employees, and there needs to be cooperation. Since the [MSHA] administration has changed, we have seen that already with inspectors. It was a shock, because we are used to the inspectors coming in and nailing us to the wall on every little thing. It’s kind of refreshing.
GRABOWSKI: The inspectors have to have a sensitivity to a family run business compared to a Vulcan or Hanson. The cost a smaller operation has to put in compared to a larger company sometimes can put the little guy under. They just can’t do it.
KUHAR: What everybody is saying is the consultative approach works better than the long arm of the law coming in.
KURPIEL: That long arm of the law tends to keep the barrier erected and keep the adversarial aspect of it in place. Hopefully, the new administration will start to tear that down.
UPP: Our state association and state committee had a meeting with Doyle Finch. He is out of Dallas, South Central District supervisor. And he basically came in after Lauriski had taken over. And Lauriski told all of his district managers to go out and visit industry and say, "Look, we’re going to change. We are going to be a different organization." And he was almost to the point of being apologetic for the way things were the last eight years.
KURPIEL: I’m not sure of his background, but I’ve heard he has some kind of producer background prior to coming to MSHA.
KUHAR: I think he worked for a mining company, not an aggregate company, but a mining company. And he had his own consulting business, as well.
CHARLES REA: We had the same thing happen in California. He sent someone from his office to come to one of our safety meetings and get ideas on how to improve training programs that they have or help with his goal to reduce injuries.
GERIK: We have already seen evidence of a change with the new chief. It’s evidenced by him rescinding the policy letter relating to the contract truck drivers that had been issued by the previous chief. That’s an indication that, hopefully, we can look forward to a greater partnership with that agency because we all have the same goal. That’s for everybody to come to work and everybody to go home safely. If that attitude will prevail among the agencies, then we will all benefit, and we will get there quicker, get there sooner rather than later.
REA: I don’t know if others have experienced the same thing, but it seems like our producers like [Part 46]. It gives them more innovation or creativity on how they approach the training. They don’t have to rely on something MSHA says. They can use their own personnel and trainers.
KURPIEL: It’s a little bit impersonal, but [the training] is now on CD. You can sit a guy down in front of a PC, and he can do his training.
REA: I think it’s a part of the overall training.
KURPIEL: Yes. You can work it in.
GRABOWSKI: Last year we budgeted an additional $50,000 for a program for all our facilities on safety and appearance and everything. It really seems to have made a difference. We spent a lot of time on it. Our safety director put a lot of time in it, going to each and every plant, how to get things cleaned up, appearance and just safety in general. It’s worked.
REA: Some of our operators say safety issues are becoming a community relations issue. Opponents will start listing your citations and things like that in the permitting process. Strong safety programs have a lot of payoffs.
KUHAR: What can be done to bring the next generation to the aggregate industry?
GONZALEZ: I guess anybody that has their own situation going on and needs work done or assigns work is going to need engineering or technical help to do that. There are ways that different organizations do that. You can farm it out, or you can do it in-house. Positives of the in-house: number one, the technology stays with you. Number two, it’s usually cheaper.
When I got to Vulcan, one of the things I had to do was to get people to work on the engineering. I found out there is not available technical help out there to hire. So I was forced to start a scholarship program. We have what we call an Industrial Scholarship Program, in which we award two scholarships every year to students that go to the University of Alabama. For the first two years, we don’t see the students. The third year, they work 10 hours a week, and the senior year, they work 20 hours a week. When they graduate, we offer them a job. Whoever gives them the higher pay, that’s where they go to work because they have no obligation to stay with us. It’s been very successful because those students that come on board learn immediately everything they have to learn about design engineering.
GERIK: We recognized the need a few years ago and really began to reinforce ourselves for the future by bringing in individuals that we were going to need to help us achieve automation, to help us to be able to embrace the new technology. We’ve undertaken programs geared towards taking on interns and co-op students. They will come into our facility and spend a summer with us. We get to know them. They get to know us. They get to learn a little bit about our business. And then, depending on how we feel about the individual and how they feel about us, we have been very successful in hiring a number of the individuals.
So we bring them in after they come out of college, and we put them in a role where they have responsibility; they have a specific job. And they work with our senior managers to enable us to prepare ourselves for the future. We have been quite successful with that. We also support the universities in their outreach programs both at the University of New Mexico and the Missouri School of Mines at Rolla. By and large, we are starting to see the benefits of it. Young people these days are not afraid at all to get in there and pursue the new technologies. But you have to put the challenges in front of them. You have to keep them invigorated and keep them thinking.
SUZIO: A lot of this issue has to do with a national image. We are not a sexy industry. You go out there and meet a young person on the airplane, and they ask you what you do for a living, you say, "We make big rocks into little rocks." That’s the standard answer.
We are competing with a lot of glamour industries. We are competing with a lot of high finance industries. And most of the people that are here in our industry were either born into it or got into it through a military background. But it’s not something your average high school kid sets out saying, "I’m going to go to college and work in the construction materials business for the rest of my life."
A national image-building program would be a nice help to the companies that are out there actively recruiting, giving scholarships, working hand in hand with the institutions of higher learning. It would be a lot easier if we could do it on a national level and make it more of an attractive business to be in.
GERIK: Our industry is relatively unknown compared to other industries. Therefore, we really need to work hard at educating the public at a much younger age. That involves getting into the schools and beginning to educate them relative to the uses of our materials and the importance of the materials that we produce to our overall economy.
FELTES: It is a very important job. You have to be willing to tell your story of the importance of your business. There is a lot of information that’s being supplied by the NSSGA, including videos, coloring books, posters. Our Illinois State Association is very active in getting the industry message out.