America’s entrepreneurship makes U.S. industry unique
BY MORRIS R. BESCHLOSS
PVF and economic analyst
Despite a preponderance of obstacles facing the pipe-valve-fittings sector, as well as other aspects of America’s business and industry, the manufacturers, distributors, end-users, mechanical contractors, turnkey constructors and others comprising our broad-based business arena are reporting substantial and expanding rebounds since the first of the year.
This is especially impressive when you consider that new projects are tough to come by currently, with most of the incoming orders reflecting expansion, maintenance and replacement. Instead of the traditional split between new jobs and maintenance, the proportion is closer to 25% projects and 75% MRO (maintenance and repair orders).
In my conversations with scores of industry activists since the beginning of the year, I’ve reached the conclusion that the primary reason for the successful rebound of a predominance by both manufacturers and distributors is the entrepreneurial leadership knowhow of the independent businesses comprising much of the $30-billion (annualized) PVF sector. This is based on pricing at the wholesaler level.
Whether it’s manufacturing CEOs such as Glenn Mosack, Conbraco; John Leone, Bonney Forge; David Hickman, Legend Valve; Rex Martin, Nibco; Jim Coulas, Weldbend; Fred Guterman, American Valve; or Milwaukee Valve’s Seder family, et al, these leaders know that the buck stops at their desk. They know the industry and have, therefore, been able to guide their businesses through the shoals of uncertainty.
This singular leadership is even more prevalent in the PVF distribution component, the great bulk of which is independently owned, and many of which are operated by multi-generational descendants of the original founders. This includes several outstanding master distributors that service the multitudinous PVF sector, whether domestically manufactured or imported.
What makes me particularly bullish on the success of the PVF sector is the hands-on reaction to what can be best categorized as a demand economy. This is what I have labeled the recovering U.S. economy, which has mobilized for expanding its activities to service the current, slowly growing expansion at every level of distribution.
To be specific, the following are the multi-fold reasons why, even under the restraints of increasing government regulation, these owner-general managers are greatly encouraged by their business opportunities during the second half of 2010:
• The astute management of their expanding inventory and personnel facilities. They are becoming increasingly productive, profitable, and are focusing on greater monetary liquidity. They plan to stay this way, stepping up their service capability in lockstep with the economic growth as it occurs.
Almost all of them see exports as a new target of opportunity, concomitant with the demand growth of such developing nations as China, India, Indonesia, Brazil, Taiwan, South Korea, Russia, and some of the Mideast nations.
• They sharply perceive the opportunities offered by such renewable energy initiatives — solar, wind and geothermal — as well as the future breakout of natural gas as a universal fuel for transportation as well as power generation. Even such domestic oil drilling opportunities as the Bakken Belt, located in the Dakotas, Montana and certain Canadian provinces, are anticipated to become major areas of oil production.
Solar power, which is heavily subsidized by the Federal government in tax offsets, in addition to rebates by utilizing utilities, make this energy producer most attractive financially, especially in the Southeast, Southwest and far West Sunbelts.
• Even a rebirth of commercial and industrial construction is forecast to expand in the second half of the year. This is especially foreseeable as demand for lagging power generation is making itself increasingly felt with the acceleration of the global recovery. Even pockets of such commercial enterprises as multi-story apartment buildings, healthcare facilities, educational institutions, and office expansions are springing up in many parts of the country.
Although greenfield nuclear power stations and oil refineries will not become a significant factor in the 2010-11 time frame, the site expansion of the existing 104 nuclear power generating facilities will emerge as an increasingly productive factor with expanding demand making itself felt in the third and fourth quarters, quickening into 2011.
• Retention of monetary liquidity through greater productivity will allow many savvy manufacturers and distributors to have in place the financial firepower for future expansion and acquisitions. World industrial economic growth will increase the need for American-made and U.S.-managed top line imported pipe-valve-fittings, especially as this nation’s industrial and energy construction sectors continue to rebound aggressively in the years ahead.
• The biggest question mark is the role of the Federal and state governments in their support or hostility to future PVF sector development. With the advent of the Gulf of Mexico oil spill, most analysts are expecting that all further offshore development in the foreseeable future will be put on ice. Public pressure to more aggressively utilize the vast Alaskan oil potential and natural gas on federal lands will decisively answer the question as to whether the U.S. is serious about attaining a realistic target of lessening foreign energy independence. Under current government Environmental Protection Agency restraints, it’s likely that the energy gaps will widen, in tandem with an international growth economy, demanding increasing supplies of oil. Even such deep sea discoveries as Brazil’s offshore finds will add dramatically to the cost of oil per barrel, when considering the cost of extraction.
However, those U.S. manufacturers and distributors who are now laying the groundwork for the aforementioned future development in all areas of energy usage— extraction, transmission, refining usage, and derivative development— will assert an industry-wide leadership that will put such companies in the forefront of PVF sector leadership, as the new decade kicks into high gear.
Leading manufacturers and distributors who stay in the forefront of automation, mechanization and overall product upgrading will find that such progressive assertion will put them at the top of the heap, from which they refuse to be dislodged, despite the ebbs and flows of future economic ups and downs.
To get the financial and economic news on my daily blog, please log on to www.theworldreport.org, then click the link to “Morrie’s Page” at mydesert.com. Please recommend the blog if you find it informative. n
Morris R. Beschoss, a 54-year veteran of the pipe, valve and fitting industry, is PVF and economic analyst emeritus for The Wholesaler.