Commercial/industrial sector faces 2009 with guarded optimism

By Morris R. Beschloss

Year-end forecasting usually brings out the pundits, the prognosticators and the macro-economists, who lump together all business and industry into one giant crystal ball! In the $75 billion plumbing-heating-cooling-piping industry, such over simplification becomes absolutely farcical. This is true first and foremost in our industry's broad-based distribution and contracting system, which encompasses both plumbing-heating-cooling (PHC), as well as pipe, valve and fittings.

Even though the upstream sector of the energy markets has become the focus of highly specialized distribution and end-use installation, centered in the Greater Houston area, a substantial portion of commercial/industrial commodities is still shipped by multi-branch distributors, who combine all aspects of the plumbing-heating-cooling-piping spectrum.

As we enter 2009 with trepidation, there has never been a greater disparity in the fortunes of the two major industry sectors. Under the best of circumstances, the PHC industry component can hope for a moderation of the severe recession under which it has labored for the past 18 months. At worst, the fast-growing commercial/industrial sector may face some cooling of the red-hot pace that has brought manufacturers, distributors and end users the greatest boom since the early 1970s.

The following factors hold the answer as to the extent of the success commercial/industrial can look forward to this year:

1. The direction taken by the Obama administration in breaking the back of the economic mess in which the U.S. now finds itself. This includes the Obama approach to free trade, labor union card check legislation and the expansion of fossil fuel production within the United States.
2. The acknowledgment that small and medium-sized businesses are at the core of America's recovery. Additional taxation of all kinds and onerous regulation could deal a fatal blow to the survival of hundreds, if not thousands, of these establishments. This would include the bulk of this industry's independent and privately owned distributors.
3. The recovery of oil and natural gas pricing, which has become as severely underpriced as it had been runaway on the upside in mid-July.
4. The easing of the credit crunch that has continued to bedevil manufacturers, distributors, contractors, installers, end users and OEM's. Both new projects and maintenance operations will continue to be affected adversely as the year wears on.
5. Exports, which had become the saving grace in a tottering economy, may be in a downturn. With the dollar continuing to strengthen and foreign markets hit by growing recession, this near $2 trillion per annum sector could be on the way south, taking with it a chunk of commercial/industrial sector products. Domestically manufactured industrial products had previously made up two-thirds of the red-hot export picture. Many commercial/industrial manufacturers, as well as distributors, have participated in this surge and could be hurt by its reversal.

Barring the unexpected impact of a one-sided restriction of anti-business, anti-trade legislation by a one-sided Democrat majority, the commercial/industrial juggernaut will continue its steamroller throughout 2009 for the following reasons:

1. The aforementioned two trillion dollar U.S. export sector, the biggest surprise in an otherwise sagging economy, will continue to maintain its momentum. Although a stronger dollar and a temporary slowing of the developing nations' growth may act as an inhibitor for now, there will be no appreciable downturn in the demand for the commercial/industrial sector's products for 2009 as a whole.
2. Mechanical contractor-related commercial and industrial construction has been adversely affected for months by the credit strangulation of businesses large and small.
   Although government intervention in commercial paper availability and direct access to the Federal Reserve Board's discount window has begun to help, the building of hotels and motels, high rise apartment buildings and planned shopping centers has suffered. Institutional buildings, however, such as healthcare and religious edifices are proceeding apace. Industrial construction is also on schedule. The need for housing technological upgrading, despite reduction in personnel, also calls for expanded facilities.
3. Water and wastewater facility development is on the verge of its greatest year ever; however, federal, regional and local funding may put a cap on the extent of the growth.
4. Power generation. The crescendo of growth in this arena is certain to hit an all-time high as both nuclear and conventional electrical power undergo a catch-up to close the growing gap between supply and demand. Although environmental obstacles continue to be manifested, the danger of brownouts and blackouts should pressure the relevant authorities to be more amenable, even in the area of coal-powered generating facilities.
5. Alternative energy development. Although still in an embryonic stage, solar and wind power, as well as greater natural gas utilization and expansion of ethanol by utilizing corn husks, feedstock and switchgrass for ethanol conversion should reverse the recent downturn of that questionable gasoline blend.
6. Drilling may be the biggest boon to the expansion of commercial/industrial product usage. Although it's doubtful that the new administration will get behind offshore drilling, shale oil development or drilling in the Alaska National Wildlife Reserve just yet, there is more conventional drilling in the lower 48 than in the past 20 years. The only hold-back could be the further drop of already low prices that may make the current spate of drilling non-profitable.

All in all, there are only a few clouds on the horizon preventing the continuation of the commercial/industrial surge. Even the credit crunch that has inhibited the inventory development of the sector's distribution system is thawing out, as greater access to loans, as well as commercial paper availability, are facilitating the optimizing of requisite inventory levels.

The market for water will be redder, but greener

By Dan Chiles

For 2009, I see huge demand for water. Make it heated, cooled, solar, waste, rain, grey, storm, filtered, firefighting and, of course, ... ice. The ice is for the margaritas to celebrate the income statements for any company smart enough to head for water.

Designers across North America have gone nuts for LEED green buildings. The U.S. Green Building Council says that there are 31,000 certified green buildings, 62,000 accredited professionals and a 30% growth rate for green buildings, even in a recession. There will be hundreds of thousands of green building projects on the drawing boards in 2009.

Developers and owners are in green Boy Scout mode: They're gathering merit badges for the technologies that make buildings more functional. Get past the building shell and, everywhere you look, water delivers the goods:

The engineer says, "Let's use water-source heat pumps and radiant tubing to space heat and let's cool from the ceiling, because it's cheap to operate."

Tenants want constant domestic hot water circulation to save water and energy and to avoid waiting for their showers.

Moms want a rainwater system for washing clothes in soft water.

Accountants want solar thermal domestic pre-heat because of the 30% tax credit.

The City wants rainwater and greywater systems installed, because they're facing new EPA stormwater mandates and water re-use downsizes detention basins.

The landscaper wants a low-flow irrigation system for the shrubs on the ground and for the plants on the green roof.

The insurance guy and the fire chief love it when fires go out in 20 seconds.

The marketing folks want reverse-osmosis treated water in the break room because, with all the BPA and pharmaceuticals in the drinking water, they're afraid they won't look like Jennifer Aniston or Brad Pitt.

Bonus: The reverse osmosis filter makes crystal-clear ice for the margaritas.

Sure, that's a lot of trades and technologies, but that's what the telecom guys used to say before they figured out how to bundle services. Now you get your long distance, local calls, cellphones, 3G high-speed data, teleconferencing, internet, cable-TV, movies-on-demand and security services from one obscenely profitable giant Mega Corp. Today that's AT&T; tomorrow that's Google and soon it'll be a pimply 14-year-old kid in his bedroom with an i-phone.

Housing starts are sick and won't get back to 2006 levels for a decade or longer, if ever. If you like the idea of bundled water based services, you won't be crying. Tract houses in Vegas weren't customers anyway. The market in 2009 will be smaller, but smarter. Wilder, but wetter. Redder, but greener.

Engineered, value-added and integrated water technologies are waves of opportunity for smart companies. That's why most companies won't get it and why I predict I'll be saying the same thing again in 2010.

But I'll buy a cool, tequila-enhanced drink for anyone who proves me wrong.

In 2009 Expect Fire Sprinkler Industry to Promote More Best Practices in Response to Growth in Residential Market and Greater Labor Demands

By Mathew Kuwatch

Despite cutbacks in the building industry overall, the residential market for fire sprinkler systems continues to show growth. It is likely that this growth trend will continue, although modestly, throughout 2009 largely as a result of improved education along with updated building codes and ordinances.

Regardless of any decisions that might be made in 2009 relative to recent changes to the International Residential Code (IRC), most people in the industry agree that the demand for fire sprinkler systems -- especially those that have proven to be cost effective -- will continue to increase on the residential side. This is true not only in the US, but also in countries that have historically not been strong advocates of fire sprinkler systems. Specific examples include a number of countries in Europe, along with a growing interest in Australia. In other areas of the world, including some Third World countries, we are not only seeing more interest but more focus on upgrading standards and codes that govern the installation and sizing of fire sprinkler piping. This, again, is a result of better education and awareness.

The outlook for CPVC fire sprinkler systems is even brighter since these systems offer significant material and labor cost efficiencies compared to metal — a major benefit during an economic downturn when profit margins are being squeezed. With more projects to complete, contractors are drawn not just to options that can minimize costs, but also to options that save time to finish the job. CPVC fire sprinkler systems are faster to install than metallic systems, offering a cleaner joining process. This makes CPVC fire sprinkler systems a more time-efficient, desirable alternative for time-crunched installers.

One of the key challenges identified for 2009, and beyond, is finding a trained labor pool to keep up with the anticipated increase in demand for fire sprinkler systems overall and, more specifically, CPVC systems. No one should underestimate the value of properly trained installers when dealing with something as critical as a system used for life safety. That’s why BlazeMaster fire sprinkler systems, for example, has been a long-standing supporter and promoter of installer training, not just for new installers who are unfamiliar with CPVC, but also veteran installers who can benefit from updates and reminders, as well as information on the newest products and procedures. These fire sprinkler system training programs have been recognized as the standard in the non-metallic fire sprinkler system piping industry.

The fire sprinkler industry, as a whole, is now working together to promote training as part of a movement toward a best practices model. In 2009, expect to see more communications and efforts around best practices at a level never before realized. Manufacturers and contractor organizations, alike, are getting behind the push for best practices when installing CPVC fire sprinkler systems. Key points in the best practices program include: proper training to ensure consistent, high-quality installations; compatibility guidelines regarding the exclusive use of ancillary products that have tested compatible with CPVC pipe and fittings; and full disclosures regarding special handling instructions to homeowners and other trades on the job site that are likely to be working around or have contact with the CPVC pipe and fittings.

As more people move toward best practices, the building industry will be in a better position to effectively keep up with the increase in demand for fire sprinkler systems. Properly trained sprinkler contractors are key to the reliability and integrity of the CPVC systems that are installed. The quality of the fire sprinkler system relies not only on high-quality materials and products, but also on the knowledge and skill of the installers. We are fortunate that more and more organizations recognize this fact and are adopting standards that improve product performance and installer know-how.

Mathew Kuwatch is global marketing manager for BlazeMaster Fire Sprinkler Systems.

Forecast for an uncertain radiant future

By Lawrence Drake
Executive Director, Radiant Panel Association

How does one make an industry forecast in times such as these? Although faced with serious obstacles, it is a time of great opportunity. So much depends on a staggering economy and a new administration. What is the most likely scenario? At this point, it is anybody's guess, so I will make the best one I can. As one of my favorite sayings goes, "plan for the worst and hope for the best."

It is ironic that people seem to be at their best when times are worst. And, in most cases, we are at fault for creating our own bad times. I think we all knew we were building homes faster than we could occupy them, using credit beyond our ability to pay, overindulging in goods and services, driving fuel guzzling cars and relying far too much on foreign energy. Yet, we continued headlong into our current crisis until the system couldn't handle it any more and broke down. Now, faced with the reality of what we have created, we are looking for change.

Change comes when people are pushed out of their comfort zone. When times are good and things are comfortable, no one wants change. If you are sitting in a nice cozy, warm house with a full stomach, you don't want change. Put out on the street hungry and cold, you want change.
So, I guess I am saying that tough times can be good times, because they can bring change, and some of the changes in the wind are how we use our energy, how we treat our environment and how we design for healthier homes and business places. This is where the opportunity lies for the radiant panel industry.

Here is the challenge. As much as people want change, it has to be affordable. "Green" has become the catchword for much of the change people want, but at what cost? If experience teaches us anything, it is that there is a limit to what people will spend on an ideal. When gas prices and interest rates soared in the late 1970s and early 1980s, the government jumped in with tremendous tax incentives for alternative energy. The auto industry was enticed into making smaller cars, highway speeds were limited to 55 mph, and the government practically paid for solar systems with tax credits. Mother Earth News and Energy Fairs were in. Geodesic domes sprung up like mushrooms and houses all over the country got ugly black boxes tacked to spindly scaffolding bolted to their rooftops to heat water and save energy. We were all going to save the planet, and the government was going to pay the bill.

When Uncle Sam got tired of paying for all this "change" and the energy crisis waned, the public enthusiasm for saving the planet died. It wasn't that people wouldn't have liked to build a super insulated, earth bermed, solar heated house; they just couldn't justify the expense. There were more important things to spend their money on, like hot tubs, upgraded kitchens or third garage stalls for their mobile homes.
So, what does this all have to do with my forecast for 2009? Well, I predict that, as in the mid-1970s, the enthusiasm for the "green" movement by the government and the people will open a window of opportunity for products such as thermal solar and geothermal. Of course, radiant heating enhances these technologies and can hitch its wagon to that rising star. There will also be a flurry of highly efficient heat sources that can take full advantage of radiant heating. No doubt, new government incentives will be created to help jumpstart this frenzy toward energy independence.

How smart will the radiant industry be? Will we design and price our systems to take advantage of the new tax incentives, or will we produce truly affordable heating and cooling systems that happen to be energy efficient? The modern radiant heating system was reborn in the Mother Earth movement of the '70s. It barely survived the crash of the solar industry when the tax credits disappeared. It has struggled for the last 25 years to make a mark in the HVAC market.

The industry has been successful in educating the public on the comfort and energy benefits of radiant heating. It has not been so successful in being price competitive with conventional HVAC systems and, therefore, remains a niche market product. There are definitely areas and applications in which radiant is very cost competitive. People want radiant heating until they hear the price. Unfortunately, they are willing to tolerate a lesser heating system so that they can spend their hard-earned money on other things that they feel are more important or desirable.

The good news is that the industry is beginning to focus on ways to cut costs, increase performance and become more contractor-friendly. If the industry can continue on this tack and, at the same time, take advantage of the fervor over green technology, without falling into the trap of pricing for the tax incentives, we could see a long-term growth with staying power. Either way, there will be opportunity in the short haul, but not nearly the opportunity that is available to the industry if it can make its product affordable to the majority.

My forecast for 2009? There will be a lot of buzz over solar, geothermal and biofuel driven radiant systems. Some affluent people will pony up and spend the extra to save energy, but the vast majority of people will not. This will provide opportunity for some contractors and products, but I don't believe it will be a large or sustained market. The housing market may start to recover, providing some relief, but the real growth will come in affordable retrofit systems and some new construction. Commercial construction could see some good growth because radiant in that market can be cost competitive and can also save a considerable amount in energy.

I believe the radiant industry will hold its own overall, but that there will definitely be pockets of decline and pockets of growth. 2009 will be the year that we set the stage for the future. If our industry is wise, it could be a great launching pad for unprecedented growth. If we are lulled into relying on government-subsidized programs, we will remain a small industry in a niche market.