IT LOOKS like this should be another good year for the truck fleets hauling cement, asphalt, and other construction-related materials. In fact, the biggest problem in 2006 may be that business is too good, according to our 2006 construction industry forecast.
Among other things, construction will benefit from a US economy that President George W Bush describes as “heading into 2006 with a full head of steam.” Recent forecasts indicate that the US economy should grow by about 3.5% in 2006 and around 2.6% in 2007.
Construction in the United States also is projected to increase by as much as 3.5% in 2006, and that's on top of an outstanding year in 2005. Highway and road construction are expected to grow by 5.4%, according to the American Road and Transportation Builders Association. Airport construction should continue its brisk growth, and the industry should see more mass transit construction projects.
New home construction is expected to soften more, but the housing slowdown will be more than offset by Hurricane Katrina rebuilding projects. According to the Portland Cement Association, the rebuilding of New Orleans, Louisiana, should go into high gear in the second half of 2006.
The Bush Administration has requested $2.3 billion in general fund revenue just to rebuild highways and bridges along the Gulf Coast that were damaged by Hurricane Katrina. Billions of dollars more in federal and private funds will be spent on other hurricane reconstruction projects throughout the Gulf Coast region.
Shortages of crucial materials (such as cement and steel) may prove to be the biggest drag on construction growth in 2006. Cement is a particular problem, and shortages of the product forced ready mix plants in some parts of the United States to shut down for a couple days a week during 2005.
The ready mix plant shutdowns are expected to continue into the new year. In addition, direct work contracts for large infrastructure projects in some states reportedly are being delayed or halted due to the cement shortage.
Import volumes of cement have been growing steadily and now account for about 27% of the total consumed in the United States. The Border Trade Alliance, a group that promotes better trade relations throughout North America, has called on the Bush Administration to lift the 15-year-old 55% tariff on imported Mexican cement. That's only a partial fix, though.
Longhaul transportation — or rather the lack of it — may have become one of the biggest factors in the domestic cement shortage. Railroads provide the primary longhaul transportation for imported cement, but the rail carriers say they don't have enough locomotives or hopper cars to satisfy demand.
The railcar shortage affects shipments from cement plants in Mexico as well as from US ports. At the very least, the Border Trade Alliance should combine tariff reduction with an aggressive campaign to convince the Mexican government to allow temporary access for US trucking companies to haul cement from Mexican plants to US customers. This would be a cost-effective solution for supplying ready-mix plants across the US Southwest and would help alleviate supply shortages for the rest of the country.