Supply Chain Snarls, Increasing Costs Impacting Trenchless Companies
What a few years we have had in the world of trenchless technology. So many extraordinary factors converging has resulted in a challenging economic model for contractors, manufacturers, utility owners and engineers. Simply put, it’s been tough to do business.
A global pandemic. Russia’s invasion of Ukraine. Natural disasters. Inflation. The Great Resignation. Supply chain snarls. Rising costs of materials. Labor and materials shortages. The list is long and impactful to all segments of the construction industry.
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How are all these things affecting and playing out in the trenchless sector?
We’ve been hearing from our industry insiders for the better part of two years about how the trenchless industry has been dealing with this “new business model.”Both rehabilitation and new installation sectors are feeling the squeeze of the supply chain delays, rising production costs, longer lead times for materials and labor shortages.
Have they ever dealt with anything like this before? No. Is it making them better at servicing their customers and clients? Surprisingly, yes.
We reached out to some of the top trenchless voices for their take on the ongoing economic climate they are working in for perspective to the question: How is the trenchless sector handling today’s extraordinary market conditions?
Their responses are enlightening, allowing us insight into their daily struggles to keep projects moving, product in their warehouses and on the jobsites. Flexibility, communication and creativity have all played integral roles in getting trenchless projects done in today’s construction industry.
Aegion Corp. is a longtime, key player and pioneer in the trenchless world, housing several trenchless rehab companies under its umbrella, including Insituform, Underground Solutions, Manufactured Technologies Corp. (MTC), FibrWrap Construction and Corrpro. The last few years have forced companies, such as Aegion, to re-think how they approach a project’s schedule. vs. past years.
“The issues around supply chains in the trenchless industry have changed the business environment in which we operate and highlighted the importance of talented teams capable of flexibility and high-performance in the face of uncertainty,” says Joe Lane, vice president of operations-infrastructure solutions at Aegion. “Building supply chain resilience, strong collaboration with key stakeholders and risk management are key areas on which we’ve been focused in order to adapt and perform at a high level. We’ve seen an evolution of tactics as supply chain issues mature and stakeholders fully grasp the impacts to their individual positions highlighting the need for greater collaboration to anticipate the long-term and strengthen business operations and resilience. Specific to our industry are federal, state and local purchasing regulations which often restrict price increases needed to absorb rapidly rising costs.”
“The supply chain for trenchless projects is volatile but less so than for new construction since trenchless projects typically require less raw materials. We have seen delays on lining materials, metal pipe and tapping sleeves/fittings, among other ancillary materials. Even lead times for materials that are typically easy to procure can be unpredictable,” says Cindy Preuss, P.E., water conveyance discipline leader at CDM Smith. Celebrating its 75th anniversary this year, CDM is a privately owned engineering and construction firm that provides client service and smart solutions in water, environment, transportation, energy and facilities.
Let’s talk about lead times for obtaining materials/products — what’s been the impact on a project’s schedule? Much longer lead times for products and technology is a common response when asked about delays in the supply chains.
“The supply chain seems to have stabilized on the chemical side; however, that does not hold true for all products,” says Dustin Schlachter, owner of OBIC LLC, which manufactures spray-applied polymers for water and wastewater rehabilitation. “With pipe supply, we are still seeing eight to 12 weeks out on some pipe and four to six months on others. I look at the supply chain as if we are baking cookies. There is one item that will throw off the whole recipe and makes the process come to a halt until the item is located.”
Schlachter notes that for OBIC, the biggest contributing factor to supply chain delays was Winter Storm Uri, which knocked out power in Texas in 2021. “The suppliers went off line for nearly six weeks, which caused all the reserves to dry up,” he says. “When the chemical plans went off line, it started the domino effect through all the petroleum-based products.”
Extended lead times are a frequent conversation topic amongst industry players. During the panel discussion — Rapidly Rising Costs on Trenchless Projects — at the recent NASTT No-Dig Show, the panel noted the lead times for products such as pipe, as well as other key materials, are pushing projects further and further down the pike. Panelists noted there has been a 20 percent schedule float for the delivery of these materials. The Trenchless Technology editorial roundtable, which was in our June issue, covered the impact that extended lead times have had on businesses.
RapidView IBAK builds about 85 percent of its inspection equipment product components in-house, minimizing the impact for key vendors.
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“As with all companies, we struggle to find van and truck chassis for our pipeline inspection vehicles,” says RapidView president Rex Robison. “At times, small items such as computers, monitors and other accessory items are difficult to source, or they have extended lead times. Other impacts have included finding delivery drivers to get the final product into the customers’ hands.”
Robison further explains that today’s market challenges have pushed his team to provide more extensive planning to ensure inventory is ready when ordered; this included implementing project plans that look more than 18 months out for needed supplies.
Beyond the supply chain issues, businesses are also dealing with the escalating costs for materials and everyday expenses, such as gasoline for transporting crews to and from jobsites, as well as operating their equipment. Costs for raw materials, particularly those that rely on petroleum, such as resins, are increasing at times on a weekly basis. Factoring those costs into bid packages is impacting companies’ a challenge.
“Petroleum prices have driven our biggest cost increases,” says Lane. “Diesel fuel is up more than 60 percent year-over-year (YOY), which considerably drives up freight and onsite operations. Resins are up more than 50 percent YOY and are a substantial material cost on medium and large diameter cured-in-place pipe (CIPP) projects.”
During the No-Dig Forum noted earlier, Bill Moore, P.E., with AOC Resins, talked about the rising costs of resins, as well as the shortage in materials and how that is affecting those costs. He noted that starting in fall 2020, inventories for a lot of raw materials were experiencing reduced levels, likely due to a rapid increase in demand as companies started back to work after the pandemic-induced shutdowns. Further crippling this market, Moore said, was Winter Storm Uri in February 2021, which took out a significant percentage of petrochemical production in Louisiana and Texas, resulting in many facilities sustaining significant damage and weeks of downtime.
Moore also pointed to the rise in prices of oil and natural gas. He noted that the ongoing Russian invasion of Ukraine that began earlier this year has created even more challenges for the energy markets. On the rehab side, he said the lack of availability of the main organic peroxide used to cure CIPP liners has forced contractors to find alternative products and for resin producers to adjust resin formulations to allow installers to use these alternative initiator systems.
Schlachter says the largest increases his company is experiencing are petroleum-based products. “These prices jumped and still continue to go up,” he says. “HDPE pipe has [also] been one that [we’ve] seen steady increases. The shipping costs are getting tacked on top for delivery or surcharges, which continues a snowball effect.”
Robison notes that RapidView instituted two price increases, which he described as “minor,” since the pandemic started due to the cost of raw materials. “The price increases haven’t had a negative effect on our company, and we have continued outstanding growth and record sales since the start of the pandemic,” he says.
Mears Group, a Quanta Services-owned construction and engineering company, handles an array of construction services around the globe for gas distribution, pipeline and facility construction, broadband, renewables and electric markets. In trenchless circles, Mears is known for its large-scale horizontal directional drilling (HDD) and Direct Pipe work.
Mears senior project manager Shai Joshi describes the last few years as “challenging,” particularly on the materials side to get their projects done on time and budget. Delays of those materials and the increased cost to obtain them are particularly challenging.
“The materials side of our business has had the greatest impact on current projects,” Joshi says. “HDPE, FPVC and PVC not only skyrocketed in price, but we are seeing lead times of eight to 12 weeks for delivery of large orders.”
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Joshi also points to rising costs for fuel and trucking impacting how Mears approaches its project schedule vs. before the start of the pandemic. “Availability of over-the-road trucks are scarce compared to pre-pandemic times,” he says. “This requires us to take a more strategic approach to mobilization and really think about how and when to move assets.”
Overall, the customers and clients who are on the receiving end of the companies’ services are paramount to everything. Our panel says, overwhelmingly, that the customers/clients have been understanding and supportive, as they are keenly aware of the supply chain issues plaguing nearly every aspect of the marketplace.
“Most owners that we work with have accepted that schedule delays and higher material costs are inherent and comparatively unpredictable in the current market,” says Doug Youngblood, project manager at CDM Smith. “While not ideal, the owner-design team must allow greater contingencies in both project schedules and budgets accordingly.”
Youngblood adds that owners look to and rely on design professionals, such as CDM, to advise and make recommendations based on the state of the industry — a now common discussion topic during trenchless rehabilitation project design meetings.
“For example, we have a large diameter pipe rehabilitation project in California in which both sliplining and spiral wound lining options were considered,” he relates. “Materials manufactured overseas introduced a higher risk relative to the project schedule requirements, so locally manufactured materials were included in the rehabilitation alternatives analysis to help offset or reduce some of the risk.”
Communication is critical during these volatile, complicated and unprecedented times, notes Preuss and other panelists. They say increased communication is vital so customers can better anticipate supply chain issues. “As planning and design professionals, we’ve emphasized a greater focus on communicating potential risks and challenges throughout the project as a team,” Preuss says.
Lane relates information from one of the NASTT No-Dig panelists with regard to regulatory challenges. “An additional complication in our industry is the regulatory side relative to administrative orders, which handcuff owners on the liberties they may employ to ease the impacts of supply chain challenges,” he says. “In some instances, these issues and rising costs have resulted in municipalities requesting additional funds, reducing project scope or delaying projects. All these factors have underscored the importance of increased collaboration by all stakeholders to set reasonable expectations for budgets, engineers’ estimates and construction schedules.”
Given all of today’s construction turmoil and unrest, the work still goes on. How are companies meeting schedules and project specs? Some are getting creative in finding needed materials, pre-purchasing materials or even including various trenchless methods in bid options.
“Several clients have requested various methodologies for trying to cope with these challenges, including ordering materials early and prepaying to lock in the cost with suppliers,” Joshi says. “Most suppliers will not hold their pricing for more than 72 hours, making bids that will not be awarded for 30 to 60 days and actual construction six to 12 months after the contract very problematic for contractors and clients.”
Preuss cautions that not all these strategies are feasible, particularly when it comes to working with municipalities, noting that higher costs and longer-duration construction have combined to stress utility owners’ budgets. “Many municipalities have very strict requirements governing procurement of sole-source materials due to competitive bidding requirements,” she says. “Pre-selection requires a large amount of coordination and a willing manufacturer.”
Impact on Trenchless Industry Going Forward
So, the big questions: How has it impacted our industry and when will these issues complicating business practices stabilize?
Most point to 2023 at the earliest for overall stabilization — but it could be longer, given the global scope of cost, lead times, inflation and the volatility in the world.
“I believe this is a longer road to recovery than most,” says Schlachter. “We are in an active recession, and I believe that this is going to take 18 to 36 months to sort out or longer.”
Schachter’s words are a common sentiment from the panel. Where does this leave the trenchless industry? Strategies and solutions need to include openness and flexibility — and a greater level of patience.
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“Understanding the customer’s needs, being educated about alternative solutions, presenting them and setting expectations,” advises Robison, adding this nugget of reality: “While it might be nice to have a particular option on their new inspection vehicle, it may be the difference of up to one year before delivery could happen.”
“Looking forward to 2023 and beyond is also unpredictable, relative to whether these issues will stabilize, lessen or intensify, or if any new issues will arise,” says Youngblood. “We are monitoring how these cost and procurement factors impact upcoming and future projects.”
Lane looks on the bright side of all the complications that the trenchless industry has faced. “The combination of these factors has forced us to be better,” he offers. “Better practices, more efficient equipment and increased stakeholder collaboration. In the face of escalating demand for trenchless services, limited capable contracting capability is causing owners and engineers to look at alternative contracting such as design-build or quality-based selection practices to better ensure successful selection of materials/methodology for a given project.”