Our crystal ball: recent cement shortages are "just the beginning"

Concrete Producer, The, July, 2005 by Pierre Villere

Bill Allen and I love to debate the big picture. My partner has been expressing accurate opinions about trends and values in the ready-mixed concrete industry for more than a quarter century, and I have become a true believer in his crystal ball.

His ball is uncannily clear because the rest of us at the firm seem to gaze into it over his shoulder, and often we only see clouds. But I'm learning. When our industry is having a good year, like it is now, or a good run of a few years, it's easy to get lost in the daily distractions of bidding jobs, taking orders, and loading tracks.

Last fall, Bill and I shared our crystal ball at NRMCA's annual Business Administration Conference in Colorado. We've made the same presentation a few times since. It's just an educated, if not subjective, look at where we think this industry is headed over the next five years and beyond.

Over the next few months, I will be writing in detail about some of these trends. I hope you find these articles interesting and informative. To kick things off, here are our views of the trends that will affect our industry over the next few years:

* Cement shortages will continue to haunt us.

* Total concrete volume in the United States could reach 500 million cubic yards by 2010, up from 430 million cubic yards in 2004.

* Consolidation will continue, in a big way.

* Human resources issues will continue to be a challenge.

* More sophisticated marketing will play a key role in growth.

* Truck-mounted mixer technology will continue to become more sophisticated.

* Permitting and compliance will become more daunting.

* Technology will drive efficiency improvements.

In January 2004, as we tracked a startling updraft in ocean freight rates, we were telling our clients that they needed to brace themselves for potential cement shortages. Some reacted with puzzlement. But we called it right, and shortages began in the spring.

More shortages to come

"This is just the beginning" of the cement shortages, I said in October. For those old enough to remember the first oil shocks of 1973, you've witnessed the first cement shock in 2004. Believe me, there are more to come.

In our advisory practice, we have to pay very careful attention to the trends that challenge our industry. Our clients look to us for informed advice to help them make strategic and sometimes difficult business decisions. We provide blunt and candid advice; we don't sugarcoat it with statistics and politically correct window-dressing.

We said last full that 2004 would end with about 410-420 million cubic yards of concrete production in the United States. We blew past that with a record 430 million cubic yards, and barring a severe recession and with a reasonably sustained housing market, that could easily grow to 500 million by 2010, and maybe even sooner.

The housing market shows no signs of easing, despite numerous and repeated warnings of a bursting housing bubble. If the Federal Reserve Board increases interest rates at a measured pace, it may be the first time in history that Fed rate hikes will have no effect whatsoever on the housing market.

I hope you'll enjoy sharing a seat next to us. It's important that we all look into our crystal ball. Please contact me with your own views.

Pierre Villere is president and managing partner of Allen Villere Partners. Contact him at pvillere@allenvillere.com or telephone 985-727-4310. For more, visit www.allenvillere.com.