Cutting Through the Hype: What the Future Really Holds for the Trenchless Industry

By Bob Martin - General Manager - April 2009

There's been a lot of talk lately about how the highly-publicized $787 billion economic stimulus package will revitalize the country. A lot of people are holding their breath waiting for the money to come flowing in and take their companies from the threshold of bankruptcy and back into the black again.

Before such hopes are put into place, it would be a good idea to take a look at things objectively. The proposed spending on US infrastructure is slated to be somewhere between $100 and $200 billion, which is a lot of money, but it's all a relative thing. If you do some math, you can take the $100 billion, divide it over the five or six years that the money will be doled out, and you wind up with somewhere around $16 billion per year being injected into the infrastructure markets. Current infrastructure spending is somewhere just south of $200 billion per year, which means that the proposed plan will make a difference of about 8%.

Now, that's not an inconsiderable increase, however it is hardly the Hand of God that the media has led some to believe.

The harsh reality is that there are going to be some hard times ahead for a lot of people. The addition of the Relief funds will help, definitely, but it won't cure the ailing US economy... not by a longshot.

I've written other articles running through some of my predictions, but to sum it up the next year or two is going to be a challenging time for a lot of companies. The main objective for many is not to thrive, grow, or come out ahead, but simply to survive.

That having been said, I want to depart from the doom and gloom that already permeates our everyday lives and focus on some of the benefits that we'll be seeing in the time to come.

First off, what we should see is a "weeding out" of those that have no business being in business in the first place. This period of challenging economics will force those with bad management and sloppy practices out of the industry, leaving the field clear for better-run organizations and hopefully helping to build a more stable environment afterward for all of the players left in the game.

Additionally, the loss of these badly run businesses will inundate the market with cheap equipment. While this will hurt resale value on a company's existing fleet, it makes expanding or replacing equipment much more feasible and affordable. Slow economies are a perfect time to buy, to replenish , upgrade and to replace aging assets. We've already seen the start of this, as our active listings have increased by approximately 15% over the last three or four months. Prices have not yet dropped to anything remotely resembling the crash of 2001, but average retail pricing has lowered slightly by approximately the same margin of 10 to 15%.

The loss of companies will also leave a lot of qualified and experienced personnel floating without work, and the opportunities to thin the ranks of marginal employees and replace them with better and more productive crews abound. I recently talked with a company that reduced their crew size by 25% and increased productivity by 50% by cutting the fat from their ranks and replacing it with more qualified and experienced people.

It seems that the international market is more stable (or at least the international buyers have not yet been adversely affected by the negative media). The vast majority of sales of used HDD right now sees US equipment being sold overseas. The good news for US contractors is that it means fewer machines remaining here to compete against them once things pick up again. The loss of good, used equipment here also helps with equipment values if and when equipment needs to be liquidated.

Keeping afloat in the months (and dare I say years to come) will be a challenge to everyone, even to the large, well-run companies. However, there is good opportunity right now to lay the framework for a leaner, more productive company so that when the economy does pick up again, organizations can be poised to take full advantage of it while their competition still scrambles to pick up the pieces.

This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither HDD Broker, Inc nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.

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