|Suppliers are loading up trucks and heading to the Gulf states. (Photo: Courtesy of Godwin Pumps of America Inc.)|
Cleaning up after Hurricane Katrina could clean out construction suppliers over the next year. Builders working far away from the Gulf Coast are likely to experience shortages, lagging deliveries and higher prices, experts say.
"Inventories are low and there isn�t a lot of used equipment sitting around doing nothing," says Charles R. Yengst, a Wilton, Conn.-based analyst who tracks the heavy machinery market.
Suppliers already are feeling the pressure. "We are seeing brisk business as far away as Texas and Arkansas and even farther north," says Don Harrison, a spokesman for The Home Depot, Atlanta. The megastore chain is selling generators "off the backs of the trucks," he says.
Seven Home Depot stores in the New Orleans area are still closed. Some are underwater; others are in areas of heavy looting. Locations near Baton Rouge, La., Biloxi, Miss., Mobile, Ala., and Pensacola, Fla., have become major staging areas for supplies.
During such events, the company's store managers freeze prices and initiate a process they call "shrinking the store." That means they rope off non-essential goods inside, while the surge of needed supplies, such as tarpaulins, chainsaws and gasoline cans, spills out into the parking lot. "We are slamming everything we can," Harrison says.
The fallout comes at a time of already-high demand for construction materials and equipment. Regional cement shortages are hurting contractors in many states. Availability of larger equipment, such as earthmoving machines, is tight. Nominal prices for highway diesel, averaging $2.59 per gal, are at an all-time high. This week is the third week in a row to set a record diesel price, according to the Dept.of Energy.
"Katrina will push many of these costs much higher," says Ken Simonson, chief economist for the Associated General Contractors of America, Alexandria, Va.
A heavy equipment dealer in the Gulf Coast area, who asked not to be named, says he expects to see a run-up for construction machines, such as crawler dozers, excavators and wheel loaders, over the next 90 days. "The scale of this [disaster] is three to five times the worst hurricane I've seen come across the Gulf," he says. The region's need for equipment over the next 12 months is going to be twice the normal demand, experts say.
Across the U.S., "there is going to be a draw-down on everybody�s inventory of pumps and gen-sets," Yengst predicts.
Machinery analysts have forecasted per-unit sales of construction equipment to increase by a hearty 8% to 10% this year. Katrina may push up next year�s modest forecast of 2% to 5%.
For suppliers of emergency-response products, "It�s going to be bonanza time," says Frank Manfredi, an equipment analyst in Mundelein, Ill. Manufacturers, dealers and rental companies are routing shipments as fast as possible to the Gulf states, but "I don't think that the companies would price-gouge," adds Manfredi.
The crunch could tighten global supplies of construction machinery, whose demand is expected to rise to $106 billion by 2009 from last year�s $81.4 billion, according to Freedonia Group Inc., a market research firm in Cleveland. U.S. machinery exports climbed a staggering 44% during this year�s first half, notes the Association of Equipment Manufacturers, Milwaukee.
If there is a silver lining, companies that specialize in emergency response carry stockpiles. Godwin Pumps of America Inc., a manufacturer and rental company in Bridgeport, N.J., keeps 5,000 dewatering pumps in its national inventory at all times.
"Not everyone here is pulling their hair out," says Bryan Gassler, a Godwin spokesman. "About 10 truckloads have left and they have gone to the disaster zone."