With few new business projects in the works, competition for what little is out there is growing fierce, according to electrical contractors. They point to the combination of tight credit availability and lack of confidence in the economy for "a precipitous drop" in commercial, industrial and institutional construction projects, and in turn for the conduit used in the projects.
"We started to see the commercial and industrial construction market really start to weaken in December or January to the point that we are now doing about 50 percent of the business that we were doing last year across the board," Dan O'Brien, president of Current Electrical Construction Co. in Portland, Ore., said. "I think there is still some pent-up demand out there, but until money starts flowing again we will have some serious issues. We had been going great guns through the end of December with a number of projects in hand, and then it slowed. A number of buildings that we were going to build were canceled, largely due to credit issues."
Terry Cole, president of Hamer Electric Inc., Longview, Wash., agreed. "There are businesses that want to build but can't because they can't get credit. It is amazing how many projects have been put on hold or were canceled altogether because they couldn't get a loan or because their market has essentially gone away."
The roots of the problem actually extend to the housing market, even though housing uses little conduit in most regions of the country, he said. "If someone loses their house or a job, they can't afford luxury items, so what happened in the housing market eventually affected retail sales and construction of retail space. And what happens to the retail market affects the industrial market. It is a snowball effect, and one that at this point has affected everything in the economy."
Thomas Anderson, executive vice president of Bergelectric Corp., Escondido, Calif., noted that commercial construction has been especially hard hit, falling about 70 percent year on year. Industrial construction is down a lesser, but still very steep, 30 percent. "I think the decline in commercial construction is a reflection of the financial state of consumers and of consumer confidence," he said.
Anderson described manufacturing projects as "few and far between" and construction demand overall as slow. "We are finishing up some projects that were begun or planned before 2007, but we are seeing very few new projects being started up and a number of projects that have already begun now being canceled," he said. "One big shock was the Ritz-Carlton Palm Desert Hotel, which just stopped construction after being about 90-percent complete because it lost its financing."
However, some sectors are faring better than others. O'Brien pointed to a lot of school projects that are being bid on, "but these are mostly remodeling projects, not full-blown new projects." There also continues to be demand for other municipal projects, like wastewater treatment plants and hospitals, which generally are perceived as less risky and, therefore, more likely able to secure funding.
Cole noted that these also are areas that likely will be helped by the American Recovery and Reinvestment Act, which he is hopeful will give the industry the push it needs to start things going again. Despite governmental efforts, there is little evidence that credit is starting to flow any freer, he said. In fact, there have been some reports that banks have become more restrictive in their lending practices.
"Right now there are government projects that have been sitting on the books for 10 years because they have not been funded, but now with the economic stimulus monies they are viable options," Cole said. "Once these projects go forward, that should help to prop up the economy and bring other business with it. I think the public sector will pull up the private sector and we should all see an increase of business."
But this will take time, Anderson warned. "It will likely be well into 2010 that some of these projects being funded by the economic stimulus program will roll out, and many of them will be for things like roads and bridges that use very little conduit."
In fact, he said there could be a black hole for construction projects—and conduit demand—starting sometime next year once the current backlog of existing projects is worked down, given that there aren't many new projects available to take their place. The earliest the industry will likely see a strong commercial construction economy will be 2011, he added.
O'Brien was more grim in his estimate, saying the market will unlikely be back to last year's level for another four or five years.
In the meantime, Cole said everyone is living off their backlogs, and competition for the few jobs that are out there is getting ever more fierce. "There used to be four to six bids for each job. Now we see 14 to 20," he said. "But I think we have been through the worst of it. I think we are hitting bottom and starting to come out of it now."
The contractors acknowledge that the current business environment hasn't been hard just for them, but for everyone in the supply chain including the conduit producers, especially given the diminished prices for their product.
"But I am not worried about any of the major conduit producers failing," Anderson said. "When world demand rises, the cost of conduit and other commodities double. When it falls, costs are cut in half. I believe our suppliers will be there when it picks up again."