HDD Market Forecast

When asking manufacturers and contractors how things are progressing in theHDD market over the past several years, it hasn’t been a fun topic. Sales wereslow, work was scarce and spirits were low.

That mood has slowly changed over the last two years. In 2005, the consensusseemed to be that the market had stabilized and the industry was cautiouslyoptimistic about the upward turn in work and sales seemed to be taking. Numerousmanufacturers within the HDD industry pointed to several areas in which helpedHDD regain its fragile footing such as a growing economy, utility relocation andthe renewed emphasis by cities to upgrade their deterioratinginfrastructure.

The key to the brighter outlook in 2005, however, seemed to come from theresurgence of the fiber-optic installations and the positive effect it had onthe compact rig market.

When posing the question to HDD industry leaders on what kind of year theyare expecting in 2006, they cannot talk enough about the strength and overalldiversity that the HDD market appears to be producing — for manufacturers andcontractors alike. Stronger years appear to be on the horizon for both segmentsof the market.
The return to fiber installations got the compact rig marketoff and running about two years ago, with a continuation of those positive vibesexpected for the foreseeable future. Companies realized this and beganintroducing new compact rigs to the market — smaller and more powerful thantheir predecessors — to meet this growing niche.

While the fiber market generated the most talk and work in 2005, thediversity of jobs available in 2006 is what has HDD leaders excited. Work toinstall gas, water, sewer and underground electric cables are being awarded,ranging from the smallest diameters and lengths to the largest. An indicator ofsorts for the expanding HDD market could be seen through the actions of the HDDrig manufacturers. In 2005, the industry trade shows were abuzz with new rigs —from compact to maxi size — unveiled throughout the year from nearly all theleading rig manufacturers. New tooling was introduced as well.

With the larger drilling contractors working steadily, there has been aripple effect for some of the smaller, mom-and-pop type contractors as moresubcontracting opportunities have opened up. More talk about HDD has alsobrought about another popular competition for directional drillers — the firstOhio HDD Rodeo is set for May 11-13 at the Cuyahoga County Fairgrounds in Berea,Ohio, sponsored by the Ohio HDD Association. An HDD committee has beenestablished with DCA.

Trenchless Technology wanted the perspective of both the manufacturers andcontractors on what they believe will unfold over the next year — the good andbad — and what that will mean for their businesses and the industry as awhole.

“As a whole, 2005 was a banner year for HDD,” says Richard Levings, seniorproduct manager of trenchless products for Ditch Witch, a leading manufacturerof directional drilling rigs and equipment, based in Perry, Okla. “There was alot of expansion in the market from the standpoint of people utilizing HDD toinstall fiber and electric. The water installations have increased and the sewerinstallations are becoming more commonplace. A lot of that began to take placein 2005 and is now really beginning to be accepted in 2006.”

“It was a good year [in 2005],” says Ed Savage, underground market segmentmanager with Vermeer Mfg., a leading drill rig and equipment manufacturer, basedin Pella, Iowa. “Obviously we had a lot of fiber work last year that kept a lotof people busy but there is just a diversity of projects going on into 2006 andthat’s a positive for the HDD industry. There’s a lot of water and sewer workgoing on, a lot of gas projects, electrical rebuilds and obviously thecommunications stuff is still going on, which definitely helps the stability ofour market.”

“I would say that [2005] was the best year we have had in the last three tofour years,” says Phil Andrus, president of Environmental Crossings, a leadingHDD contractor based in Traverse City, Mich., with its operations office inConroe, Texas. “It was nothing like it was in the late 1990s and early 2000s erabut I have no complaints.”

Environmental Crossings works primarily in the United States and Canada butdoes maintain an office in Puerto Rico. Andrus, who had a background in the oiland gas industry before concentrating on directional drilling, started thecompany in 1993 and does all types of HDD applications — fiber, gas andunderground electric. Environmental Crossings has six rigs in its fleet, rangingfrom 90,000 to 1.2 millions lbs.

“We started to see some [of the diversity in work] last year,” Andrus says.“And it looks like it’s going to continue into this year. Some of it’sregionalized so it sounds like there may be some areas that are still kind ofslow for drilling.”

Savage notes that the South and Southeast United States are hot spots for HDDright now with the Northwest United States showing potential. “Even in otherparts of the world, it’s looking good,” he says. “China is still a pretty goodplace for us with HDD, as well as Australia. [Australia’s] general economy isimproving and that is definitely showing up in the HDD business downthere.”

What About 2006?
“For us, things weregood in 2005 and I think that it’s going to be as good a year, if not betterthan 2005, primarily because Verizon, in building the fiber-to-the-home, has metor exceeded the goals it set for Wall Street,” says Mike Jordan, regional vicepresident for the central region of Henkels & McCoy, a leading HDDcontractor. Jordan is an experienced driller and has been involved in the HDDmarket for 20 years so he has seen his share of ups and downs in the market andunderstands its cyclical nature.

“Verizon is our number one customer and most of that work isfiber-to-the-home, which means directional drilling in a lot of cases,” Jordansays. “[While other areas such as water and sewer are opening up] the fibermarket is still pushing everything.”

Henkels & McCoy has been in business since 1923 and has 90 officesthroughout the United States. The majority of the projects that Henkels &McCoy handles involve distribution lines to install and upgrade systems. Thecontractor also does a great deal of work for Verizon, putting in its FTTHservices, as well as gas work for Cinergy Gas and power work for a number ofutilities throughout the United States that involves putting in direct buriedcable or multiple conduits. Jordan estimates that the company has approximately60 rigs nationwide, 20 of those in the central region.

“Water has been real busy for a couple of years in the high population growthrate areas,” says Andrus. “I’d say the biggest up and comer for us has beenunderground electric.”

He attributes the move for more underground electric and cable to thetechnological changes that cable manufacturers have made where they can now makecables with a new drilling and grouting designs that prevent them fromoverheating underground. “They couldn’t do that before. They just became too hotin a closed environment…This lends itself to HDD.”

Andrus has optimistic goals for his company in 2006, based on the upturn inthe market over the last two years. “The overall outlook for us in 2006 is a 30to 40 percent increase in business over 2005,” he says. “That’s water, gas,electric, fiber…those would be the prime sectors.”

Savage also notes how contractors are looking how to use their HDD rigs indifferent markets to keep their rigs busy during any slow period. One example isusing rigs for culvert cleaning as Vermeer partnered with Harr Technologies todistribute this technology.

“We hear and see more and more that the contractors just want to be able todiversify their market offerings with their drills to keep the drills busy,”Savages says. “They don’t want to put all of their eggs in the fiber-opticbasket or all in the electrical basket. They want to have a diverse set ofmarkets they can go after to keep those drills out on the job.”

Jordan says that the increase in the workload for larger contractors thattake jobs as the prime contractor, such as Henkels & McCoy, is a positivedevelopment for the smaller contractors that take on subcontracting work. Thedirect beneficiary of this type of work is the mom-and-pop type firms.

“If we have a good year, then they’ll have a good year,” Jordan says. “Thephilosophy of bigger contractors is to subcontract work and the mom-and-popsplay a big part in that. We wouldn’t be able to do the work that we do withoutthem and we rely on them.”

From the manufacturers’ viewpoint, what they unveiled throughout 2005 speaksvolumes of what they believe would be happening in 2006. At the major industrytrade shows in 2005, such as ICUEE, the HDD manufacturers unleashed several newrigs to meet the expanding HDD market. Manufacturers such as Astec Undergroundand Vermeer introduced multiple rigs to their lines to meet the needs of thecontractor.

As 2006 begins, more technology will be announced.

“Is it a tip off [about the health of the market]? It’s definitely a signthat everyone thinks the market is improving,” says Savage, noting that in 2006that Vermeer will be introducing a new rock tool called the RAT (Rock or AnyTerrain), as well as the AutoDrill for its D36x52, an automated drillingfunction.

“There is a great need for HDD equipment right now,” Levings says. “Thepipelines, sewer and water are driving the big end and the day-to-day utilitiesare driving the need for everything below that. Any time that utilization of theequipment goes up, people are going to wear things out.” Levings declined todiscuss what plans Ditch Witch has for the year with regard to newequipment.

Savage says the customers Vermeer has been dealing with have either beenexpanding their fleets with new rigs or retiring high hour machines with newones.

Strength of Market
When asked what thestrengths of today’s market are, there is a plethora of responses. Most point tothe qualified and experienced drillers who were able to stick around through thehard times as key to the future. The flip side of that is the number of qualitycontractors that were lost to the industry in the early 2000s and those who buya drill and call themselves an HDD contractor. Industry leaders speak of theshortage of good, trained HDD contractors.

“You have a lot of guys who have been in business for a while and there’s alot of history with them,” Jordan says. “They understand what they have to doand they are starting to understand the costs associated with HDD… [Conversely],everybody’s got a drill now and everybody thinks they are a driller. People goout and do a lot of damage…There are a lot of training courses out there but Idon’t think a whole lot of people take advantage of them or care to. They justgo and start drilling.”

Levings concurs that the contractors who stuck out the hard times have anadvantage over other drillers. “People are just smarter and wiser in how to growand expand,” he says. “I think what’s going to help things is one, people havethe money to pay those who do the work and two, we’re in a situation wherepeople know how to charge for their service. The worst thing we can get into atthis point is to work so cheap that people can’t make any money.”

Andrus agrees that finding trained labor is a problem but he also cites adifferent challenge involving the engineering firms and HDD specifications.“Over the last few years as more engineering companies are getting involved withHDD, they are bringing with them much tighter constraints and requirements onthe HDD specifications, which are making our job a bit more challenging and it’smaking [getting] permits more difficult.”

Andrus also noted that there is an increasing push for design-build contractsthan before. “What we’re doing in Puerto Rico is all design-build,” he says.“Every drill is design-build and it puts more onus on the drillingcontractor.”

Sharon M. Bueno is managing editor ofTrenchless Technology.