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2014 Trenchless Technology Roundtable

Manufacturersí Perspective on the Trenchless Market
— Jul 14, 2014

2014To gauge the pulse of the industry, Trenchless Technology annually hosts a gathering of industry leaders to discuss the trends and issues facing the trenchless market, as well as the future outlook. To help focus the discussion, we approach it from a certain angle or viewpoint. This year, we assembled some of the leading manufacturers in the market ó representing companies involved with new construction and rehabilitation ó to share their thoughts on where the industry is and where it is headed.

How would you rate the state of the trenchless technology market right now? What effects has the general state of the economy had on the trenchless market?†

RYAN ERGER: When I look at the trenchless market now, I definitely see things moving in a positive direction. We are seeing an upward swing in projects coming out. And looking forward, we are continuing to see a more projects in the pipeline. As for the economy, it has had a huge impact as to the amount of projects going out. We have seen many projects advance nearly to the point of construction, but pulled back due to lack of funding. I think we are getting to the point where some of these projects have been pushed back so long and now they have to get done.

PETER KURZ: The trenchless market is very healthy and I think it is growing. We are seeing a big increase in the lateral rehabilitation business, which is kind of the last frontier. As far as the state of the economy, we have always been buffered to a certain degree in this business because it is EPA driven. So, we see some peaks and valleys, but it is not like the private sector. We have been fairly stable. There has been some projects held back, but if you are under consent order by the EPA, you donít have a choice.

2014KALEEL RAHAIM: We have a different view of the economy in that we manufacture polymers for use in a wide variety of markets, including trenchless technologies. In 2007, when the market as a whole started going downhill and we saw a lot of our markets affected by the downturn in the economy, one of the bright sides of our business was the infrastructure market ó the CIPP part of our business. That market continued to flourish and grow when everything else was in the toilet. The CIPP market in particular has done nothing but increase. We are at the whims of the weather to a large degree and as a result, the first three months of the year were not good. But on the plus side, these pipes are not going to fix themselves and that work still has to be done. The other thing that I find encouraging about this industry is that weíre continually pushing the envelope.† In CIPP specifically, we are doing thicker, larger diameter, longer lines year after year after year. I know the same thing is happening in some of the other trenchless technologies, as well. As long as we continue to do that, weíre going to remain a healthy, viable industry.

SETH MATTHESEN: In our market, HDD rigs from 100,000 lbs and below, we have seen a healthy, stable market. We did see a slowdown with smaller drills after stimulus projects went away, but there is still a big need for data services and weíre going to have to build the infrastructure. The oil and gas have been driving a lot of our business today. Not only does the oil and gas market have a need to build pipelines to transport the product, but oftentimes the activity is in areas that may not have adequate infrastructure and they have to build that, too. We are a long way removed the market of the late 1990s when the business was going up at incredible rates, but I see it as being healthy.

KENNY CLEVER: From our perspective it is a little different in that the small boring units (SBUs) are primarily used in new construction applications and we havenít seen the growth in that sector compared to the pipe rehabilitation market or HDD market. The good news is that this is the first year that I can remember in a long time where I had contractors who stayed busy had work in front of them through the holidays and the cold weather. The main driver over the last 18 months has been gas lines. The pipeline business has been really good for us. We deal primarily in hard-rock applications and we were recently involved with a project putting a pipeline through the Appalachians. Weíre not seeing a huge amount of growth in our sector, but it hasnít gone down at all. It has been more consistent and steady.

LARRY KIEST: We continually see the market growing. In fact, I think that perhaps in the next year we may see prices start to rise because there are only so many of us out there doing this type of work and with the amount of work that is coming out, there is not going to be enough people to do it all. When there is not enough work every one wants to get the work and the prices are driven down, so when you get more work prices could come back up to a reasonable, fair price.

What are the main drivers for trenchless work from your perspective? Does this bode well for the future of the market?


ERGER: The main drivers that we see, especially in the water and sewer group, is deteriorating infrastructure. Itís a terrible situation in many areas. We are seeing projects coming to the forefront that should have been done years ago. We are finally seeing money being spent to get the work done. The future of the market I feel it is good and going in the right direction. There is going to be plenty of work that needs to be done hopefully we get to the point where prices do get up where they need to be ó and there is a good opportunity for that to happen with the amount of work that needs to be done.

KURZ: In the sewer rehabilitation market we all track the EPAís activity and that tends to be regional. In the regions where EPA mandates are active, the work is there. In some areas there is so much work that the prices are starting to go up because the municipalities are competing for the contractors ó the Mid-Atlantic, for example. Within the sewer rehabilitation market, laterals and private property I/I is another driver. That is an area that hasnít been addressed completely in the past, but when you look at the miles of private property piping out there, it is just incredible. The small diameter business is also very healthy and growing like crazy. We are also seeing an increase in the storm water market, again particularly in the Mid-Atlantic where everyone is concerned about the Chesapeake Bay and the runoff and pollution. I think we may see this whole new part of our industry bloom. Some people say it may be larger than the sanitary sewer market. Things are changing. The market is getting better. I think weíre all in a good place, at least on the sewer rehab end of it.

RAHAIM: The No. 1 driver for our market is the state of the infrastructure. As long as the infrastructure continues to deteriorate, we continue to have work with whatever technology is chosen. Thatís not going to stop. As the country gets older, the infrastructure ages with it. Until 100 percent of the aged infrastructure is fixed ó which none of us will see in our lifetime ó weíll continue to have opportunities. But an important factor for continued growth is education of the decision-makers, specifically in CIPP. They need to know about the tools and methods that are available for trenchless remediation so they can use them as opposed to digging and replacing. Lastly, we need to continue to innovate. As mentioned, the storm water and lateral markets can present opportunities and remediating drinking water lines is also a big need. So if we strive to become innovative enough to produce products that are viable for these markets, then we open up the opportunity to continue to have our industry grow.

MATTHESEN: The drivers depend on the market. If you look at telecommunications, itís data driven and who can get to the house first. If you look at oil and gas, it is transportation. But it boils down to infrastructure and the state of it. In some areas ó Nevada, Arizona, Michigan and Florida ó they have had five or six years of downtime and they are starting to grow and blossom right now.

CLEVER: Our products are primarily used by the oil and gas industry and for new infrastructure. There is not a whole lot of new housing being developed right now so that has been slow going. One of things that we have seen increase is storm sewer construction. Over the last several years we have had some flooding issues that are leading to projects to divert storm water.

KIEST: The private laterals represent a big opportunity for our market. For decades, municipalities have been lining sewer mains and they are not getting a full return on their investment because they are not fixing the entire system. It is unfortunate that the utility owners spend a lot of money, but are not seeing results. When they are able to seal the laterals and mains, they can begin to see the payback. That is important to understand. Trenchless is growing on the private side, with more plumbers and drain cleaners entering the market. It is also being used for downspouts, swimming pool drain lines, even HVAC ducts have been rehabilitated with CIPP. So there continues to be more opportunities for the technology to be used.

How do you view innovation within the trenchless market? How is the use of new technology viewed by contractors and owners?


ERGER: There is certainly innovation in the market. You can pick up any magazine out there and see something new in terms of equipment and products. Everyone is putting the best effort forward to get new products developed to make it easier for the customer and the owner to get the product put in. In many places it is generally well received but in some cases youíve got a lot of old-school guys who are pretty set in their ways. In those cases, you have to prove it to them. You have to show them how it is going to make life better for them. The contractors are very receptive. They always look for an edge to help them make money.

KURZ: In sewer rehab, if you take a look at where weíve been and where we are right now, it has been a pretty rapid progression. In CCTV equipment, for example, in 1986 when I got into this business, it was a black and white camera with a yellow pad and pencil Ė thatís how you did your inspections. Nowadays we are running a scanner through at 60 ft per minute. Everything is about data management and we are now storing data on the cloud for our customers. In a relatively short period of time technology has grown by leaps and bounds. We have also seen big changes related to lining products and resins. As far as the acceptance, I think that what you find coming out of the contracting business for 12 years, if you are a contractor you want to get that little edge over the competition, and whether it is the equipment or the products you are putting in the ground, you are looking for something that is going to make you a little bit different from your competition and that is going to make your customers want to come to you. So with a progressive contractor, the ones that really have vision, they welcome innovation with open arms.

RAHAIM: Innovation is one of the keystones for our industry being what it is today. We are very fortunate to have an organization like NASTT where we can come together, brainstorm and exchange ideas. One of the most important things within the CIPP business was the expiration of the Insituform patents that began in the early 1990s. When that happened, people came into the marketplace, bringing fresh ideas. We now have the opportunity renovate pressure pipes, manholes, drinking water lines. One of the most innovative new ideas in total systems rehabilitation is sealed systems ó you can fix the problem entirely. Other new innovations include optic fiber strips so that contractors can accurately measure the temperature of every foot of pipeline to assure you have a viable liner in the ground. Looking forward I can see developing robotics that have artificial intelligence chips so that they can go in and find a service connection and cut it out without ever having a human involved at all. We have gone from a slow innovation in the 1970s, 1980s and early 1990s, to where we are speeding like nobodyís business in the last 20 years. And, we have the prospect of being even more innovative in the next five years.

MATTHESEN: Within the directional drilling, we see incremental innovation. Itís more on-the-job changes. You have a certain customer base who still want basic equipment with parts that are easily adaptable. Then you have customers who want all the options they can get. Some of the areas where I see technology advancing are in obstacle avoidance, being able to daylight quicker and being able to map your bore.

CLEVER: As manufacturers, we all strive to be innovative. We all take personal pride in our product lines. It is our duty to the industry and it is our obligation as a manufacturer to strive to be more innovative and create products that help our contractors be more successful and more accurate. A lot of it comes down to the contractors themselves. They are out there trying to find and use cutting-edge technology because if they donít have the latest and greatest, it is really hard to be competitive in the market.

KIEST: I believe that innovation is driven by need. In my business, we support full-time research and development. We are constantly challenged by our customers. Often, our customers have pipe configurations that are not applicable to the products that we currently offer, so we are very open to being challenged. They will share with us their need. And if we can work on that and become successful, thatís where new products are born. Composite liners have been developed to provide stronger, thinner liners. VOC-free resins were developed for certain applications where it is needed. The development of air and steam cure was new, but now it is predominant within the industry and allows much faster cures. Wherever there is a need, it is an opportunity to develop new products.

What are the biggest issues you face as a manufacturer and how are you dealing with them? What can be done by the industry at large to help?

ERGER: One of the biggest hurdles we face on the manufacturing end is predicting where the market is heading. As we have seen at times, cities and customers will have projects ready to go but they are pulled back. So, we try to keep our ear to the ground and stay ahead of it as best we can. Continued education is needed to help expand our opportunities as an industry, whether it is education or technologies or products that are available or general education on the state of the infrastructure. If people knew the condition of the pipes, that might drive the trenchless market. Also the public needs to be aware that we donít have to tear up the streets ó we can reline, directional bore, all these different avenues.

KURZ: Because technology grows very fast, sometimes there is a lag time between technology development and our ability to manufacture it. You just canít seem to get that product out fast enough. You canít just throw it out there. It has to be tested. You have to go to a beta version of it, etc., etc. That kind of relates to one of the things that we see, and that is personnel. I know that all of us have probably gone through hiring processes and I know that I am shocked at how difficult it is to find qualified people to come to work for us. We hear about unemployment, so you think finding people would not be an issue, but it can take months to find a qualified person for manufacturing or sales. This is a huge challenge that I think that we all face.

RAHAIM: One of the issues that we face is educating the owners on the various technologies and on the success that these technologies can bring. I also agree that personnel is an issue. I heard from one contractor with more work than he can handle but that he canít expand because he canít find people to form new crews. In our business specifically, pricing is a challenge. Our business is based on petrochemical pricing so the cost of raw materials is a very important consideration and it is an issue that continually challenges us. We reformulate to take advantage of lower cost raw materials without sacrificing quality and then six months later we have to reformulate because those raw materials have now gone up in price.

MATTHESEN: Something that I think we all face is the fact that we need to meet what the customer needs today, while also knowing what they are going to need in the next five to 10 years. EPA regulations continue to be challenging as a manufacturer. The amount of resources that we have had to delegate toward clean emissions and safety compliance standards is staggering. It really hurts when you are trying to develop new products into the marketplace. Another challenge is resources, including the labor force. There is a new labor force coming in that embraces technologies like the iPad and iPhone. We need to figure out how to get them to want to be in our industry.

CLEVER: One of our challenges is that we are working in urban areas for water and sewer and there are so many existing utilities that we are trying to avoid, so we are forced to put in some sort of a guided boring system ó some type of machine that we can steer and maintain line and grade. Part of the issue there is that weíre trying to grow that technology and be more efficient at it and be more cost-effective in those areas, but the challenge is oftentimes on these smaller projects, the owners donít have the funds available that are required to have those smart systems. The technology costs money to put into a tunnel boring machine. So that is a challenge to make our machines as innovative as possible and utilize the technology that is available but maintain a cost-effective price point.

KIEST: The ability to locate high-quality individuals in the workforce is difficult. Another important factor for us is the lack of education on the technology specified by utility owners and their engineers. Too often it comes down to the best salesperson who walked through the door and tried to convince the owners of the alleged quality of their products. Time and time again I see specifications that are not based on sound engineering principles and when that happens the products donít perform as intended and rate-payers end up paying the price. For example, a CIPP liner that is installed and boasts a 50-year design life yet they leak in the first year, well the result is the rate payers not only paid for the work but they get to pay for continued transportation and treatment of the extraneous water that continues to enter the collection system. That is why I am a supporter of NASTT, NASSCO and other like organizations that work diligently to raise the bar and educate the entire industry because the more we are educated together, then the better opportunity for long-term results. By the way, at the end of the day we are all rate-payers.

How would you rate the evolution of the market? What obstacles still exist for the market at-large and manufacturers in particular?


KIEST: The market is thriving and technology is advancing, but sometimes a challenge is having enough time to promote and educate. The organizations that help promote the industry and educate are volunteer organizations that can sometimes be limited. Also, too often jobs are awarded based solely on lowest price without consideration given to quality. We want to push products that are going to last over the long haul and not be the quick, cheap fix. Actually the higher quality products may initially be more expensive but in the long run they are the most cost-effective solution.†

CLEVER: I agree 100 percent that one of the major obstacles is educating our municipalities and trying to make them understand that there is a value in not just taking the lowest bid. It always seems that we get a better project if we are able to consider contractor qualifications. There are a lot of contractors still out there who are still struggling, and they are out there bidding work really cheap just to get the job and turn cash. And that puts a black eye on everybody when the wrong guy gets a project. You really have to wonder when one bid comes in millions of dollars below everyone else. How are they going to make money? Why are all of the well-known contractors bidding so much more? He either makes his living on change orders, or he missed something. At the end of the day, if we can get good, qualified bids, thatís going to help everyone. And thatís where we need to drive the industry, to get everyone healthy again.

MATTHESEN: Any time you have healthy competition, which I believe we do in the directional drilling market, it breeds innovation. So that evolution is going in the right direction. But as far as the price per foot, it makes it very difficult as a manufacturer to build a machine for one customer who is working for $3/foot and another who is working for $40/foot and putting everything in that one machine for† both customers. Hopefully in the telecom industry the prices per foot can go up again at some point. I havenít seen that yet, and it makes it tough because at the end of the day you have to build a machine, an innovative machine, for a certain cost per foot for that customer or you are going to be out of their price range. The biggest obstacle we see is just training and integrating the technology that we have into our machines. A drill only makes money when it is spinning so having your mud, your downhole tools, etc., all working together on the jobsite is important.

RAHAIM: From an evolution standpoint, weíve seen most of our industries evolve to the positive with the innovative technologies that have come about to meet the needs the municipalities. And I donít think that is going to change. We will continue to evolve from the standpoint that we will find our customersí needs and weíll meet them in some shape or form. A couple of things that will probably evolve will be as we train contractors better, we will see more successful projects. One of the biggest things that I love about coming to No-Dig is going to the technical paper presentations, especially the papers on case studies. Most of the papers on case studies are positive papers that discuss good performance and successful projects. But every once in a while you run into a project that wasnít successful and to hear a case study about that, to me, is just as important about hearing about case studies about the successful projects, because thatís where you learn. Thatís where you become not the guinea pig but the person who learned from the guinea pig. We need guinea pigs out there in order for us to continue to evolve. We need people who are going to take the chances, and not all the chances are going to be successful. The other thing I think that will evolve to the positive is that weíll have more well-written contract documents to come out from the owners. We have to do that. We have to get more and more into dialogue with owners ó contractors have to do that with the owners to make better contract documents. One area of concern I see is when owners ask for a firm price in a contract that spans two or three years, which is unreasonable. In todayís market, our company cannot offer customers a resin and give them a firm price for longer than three months ó we donít know what oil prices are going to be like tomorrow, much less three months down the road. I think the industry will improve if that obstacle is taken off the table and if an owner and a contractor can establish escalator clauses that are reasonable and meaningful that benefit both. And, if you have one of those in your documents, you can start out with a lower price today then you could if you didnít have an escalator clause and you were bidding a three-year project.

KURZ: The industry ó at least our industry in the sewer rehab end ó has matured over the last 25 years. There are not many mom-and-pop businesses starting up in the mainline sewer rehab industry. It costs a million dollars to start a crew. So it is no longer this niche business. Itís big business with some expertise. That has changed drastically over the last 15 years. The technology is also moving very fast. What that creates is that both the owners and the designers canít keep up with the technology. We talked about qualifying contractors ó you have to have to have an understanding of the technology to be able to qualify a contractor, to know what a qualified contractor is. I too have seen bids where you may have five bids on a $20 million project all within 3 percent of each other, and you get this one guy who is 25 percent lower than everybody else. Chances are he doesnít know what heís doing. Even common sense will tell you that. But the designers and owners, if they havenít kept us with the technology, they donít have an understanding of that. They donít know what it actually takes to do the job. It is our responsibility industry-wide through NASTT and NASSCO to educate our industry on what the technologies are. And it is tough to do, particularly as a vendor or manufacturer because the perception is that you are only trying to push your product. But if we can all get together as an industry through these associations and organizations, then all of sudden there is credibility. It is not just one person pushing their product, itís Ďthis is where technology is going.í And it really is our responsibility.

ERGER: We all agree that the evolution is moving in a positive direction, but it important to remember that not every project is going to be perfect. Weíll all have great bores and great linings, but youíre also going to have some that are terrible. Education is the key. What we can do to help educate the operators is key because we donít see too many operators at trade shows. We need to try to do what we can to help all the customers out there ó every one of those guys who are down in those pits and doing the work so they can learn. We learn the hard way on a lot of these projects and if we can extend that knowledge itís going to be a big benefit to the industry and could help to curb some of the volatility of the market as well.

What types of opportunities exist for the U.S. companies in the global market?


KURZ: For our business, the international market is huge. Europe is far ahead us by 10 to 15 years, so we can learn from their technology and perhaps implement it here in the United States to give us an edge. On flip side you have South America, which is just in its startup stage in many areas, which is an opportunity to use our existing technologies.

MATTHESEN: International is very important to our business. India is another hot spot, but it tends to be a little more volatile than the U.S. market. There is a different need in Europe and within the different countries in Europe. It is interesting trying to meet all those needs as a manufacturer, but it is a very important part of our business.

CLEVER: With Robbins, our core business is large-diameter tunneling boring machines, so our small equipment line is kind of like a dingy tied to a cruise ship. With the large-diameter business, we do the majority of our business internationally. With the smaller equipment line, we are starting to see an increase in interest in the international market. Traditionally contractors have been using jack-and-bore technique and open-cut as opposed to auger boring or small-diameter hard rock boring, but they are starting to embrace these techniques and we are selling complete systems outside of the United States.

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