2016 P&Q Roundtable & Conference: Part 1

By |  April 25, 2016

PQ_roundtable-logo-newThe Pit & Quarry Roundtable & Conference in Coral Springs, Fla., united aggregate producers, manufacturers and allied trade representatives in an idea-exchanging forum. It marked the 20th anniversary of Pit & Quarry’s first roundtable. Sponsored by Am Cast, Philippi-Hagenbuch, Sandvik Mining & Construction, Superior Industries and Terex Minerals Processing Systems, the event drew more than 40 people to the Fort Lauderdale Marriott Coral Springs, where discussions were had in two roundtable formats on the economy, employment, mine safety and other topics.

In addition to the roundtables, attendees heard briefly from Mike Johnson, president and CEO of the National Stone, Sand & Gravel Association, who addressed the FAST Act’s impact and the role of regulatory agencies. Mike Heenan, an attorney at Ogletree, Deakins, Nash, Smoak & Stewart who also serves as Pit & Quarry’s legal editor, participated in a safety-focused question-and-answer session. And George Reddin, a managing director with FMI Capital Advisors Inc., offered an economics summary and a look ahead to this year and beyond.

Following are edited and abbreviated transcripts from the first of two roundtable sessions. Look for Part 2 in the May issue.


Moderator: Darren Constantino, Pit & Quarry
Matt Arbuckle, Vulcan Materials Co.
John Bennington, Superior Industries
Myron Bowlin, Bedrock Resources
Jeff Carlisle, Douglas Manufacturing
Jean Casey, Florida Rope & Supply
James Cox, Cemex
Cory Danner, Trinity Materials Inc.
Mark Davila, Cemex
Chryl DeCrenza, Kleinfelder
Warren Hawkridge, Hinkle Contracting Co.
Mike Heenan, Ogletree Deakins
Karen Hubacz-Kiley, Bond Construction Corp.
Emil Jahna, E.R. Jahna Industries
Michael Johnson, NSSGA
Earon Lee, North American Mining Co.
Will Moore, Bedrock Resources
Mark Musselman, Cemex
David Owens, Sandvik Construction
Elton Sylvia, Bedrock Resources
Joe Teague, Polydeck Screen Corp.
Diep Tu, Florida Concrete & Products Assn.
Tomaso Veneroso, Am Cast
Hal Williford, Memphis Stone & Gravel Co.

Participants listen to a colleague during roundtable discussions. Photos by Clay Wieland.

Participants listen to a colleague during roundtable discussions. Photos by Clay Wieland.

CONSTANTINO: U.S. aggregates consumption continues to make solid gains as shipments catch up with the surge in construction contracts, says industry analyst David Chereb, who expects high demand to continue for the next 12 to 18 months. To the producers in the room: How do your sales expectations for 2016 compare with recent years? Has the mild fall/winter weather in the north extended the production season for any of you? To the manufacturers: What are your sales expectations for the aggregates industry this year? To all of you: What impact do you anticipate the new five-year Fixing America’s Surface Transportation (FAST) Act to have on sales in the coming years?

VENEROSO: The growth for any manufacturing company is a function of technology. More and more I’m experiencing, not only in United States, but all over the world, demand from producers for solutions to problems. For our industry, it’s a little bit slow when it comes to innovation. There is this fear of computers, fear of electronics and so on.

The focus for manufacturers for sustainable growth is definitely a point of development, innovation, problem solving, real problem solving with a new solution for the producers, and the key that we need to work around is clearly sustainability, as well as ecology and social responsibility.

So if we get as a manufacturer these three elements of the various degree of responsibility, using renewable resources or help the manufacturer use renewable resources and then use more efficient technology, possibly – also change a little bit of the made in China wouldn’t hurt – and believe again in the western world technology, I think that 2016 will be a great year. I’m very confident personally and I think that my colleagues are, also. 2015, we finished quite strong and looking forward for 2016. So that’s my part.

HAWKRIDGE: While the FAST Act provides some predictability on funding, unfortunately in Kentucky last year, our state government allowed our gas tax to go down from 32.5 cents to 26.5 cents. That’s going to hurt the aggregates industry in Kentucky. The new governor of Kentucky announced a $112 million reduction in transportation funding for this year’s budget, and I think that specifically ties back to the gas tax reduction that was allowed to happen last year.

So while I think the FAST Act does provide predictability, I don’t know that it’s the savior. It’s a continuation of existing funding levels. There’s not an increase in funding levels much. And from local and state governments we get, “no new taxes, tax reductions, do more with less,” it’s not going to be good for the aggregates industry in Kentucky.

ARBUCKLE: I’d like to contrast the Kentucky experience with what’s happening here in Florida where we’re going to have a $10 billion DOT budget. Under the leadership of our governor and state legislature, we have an indexed gas tax, and only 25 percent of our DOT funding is relying on the federal government. We’re seeing Florida separate itself from the rest of the Southeast in terms of investments and infrastructure and it’s making a difference just in terms of what’s going to be available with port development and creating infrastructure for a population that will go from 20 million to 30 million in the next 15 years, which is awesome. But I wish that the programs that were here in Florida were being exported to Georgia and South Carolina where there’s some significant deficiencies in long-term funding.

BENNINGTON: The FAST Act is nice for the stability. It’s OK. When they were debating the last road bill, the original target was $350 billion, and we ended up with $275 billion. Inflation tells me we should be at more than $300 billion at this point, but at least the DOTs can be planning things for more than six months at a time and three months at a time.

One thing we see from the manufacturing side is that many of our customers have been in a patch mode: fix the machine, make it work for a couple more years. They’ve been doing that since the Great Recession, which was eight years ago. The life expectancy of a lot of this equipment is in that 10- or 15-year range. So we’ve been patching equipment for eight years that was probably at least halfway through its life span when we started. It’s now past its life span. So we’re actually seeing a fair number of customers who are really between a rock and a hard place in the sense of there’s nothing left to patch.

JOHNSON: We have just gotten back preliminary data on a report that we commissioned with S.C. Market Analytics, the same group that [Pit & Quarry columnist David] Chereb works for, and they tell us about the impact of the FAST Act is this: An additional 114 million metric tons of aggregate over the four-year period that the bill will impact. It starts picking up heavily in 2016 and immediately spikes with about 26 million metric tons compared to no FAST Act. So 26 million metric tons more in 2016 related to the bill.

And then it continues to grow at a
 2 percent rate, as does the funding through 2018. Is it enough?

No, it’s not enough. We’ve seen really reasonable, well-thought-out forecasts that say we really need about $3 trillion to meet our surface transportation needs and restore our economy to the kind of infrastructure we need to have to compete on the world stage. And some states are doing better and have passed ballot issues that have brought in more revenue to help grow that pot of money to help the infrastructure even more.

Kentucky is frankly an unfortunate example of what happens when you get someone who doesn’t support the growth agenda. And that governor certainly ran saying that he was going to shut it down and he is.

We know we’ve got work to do. Not only is [the FAST Act] not enough, but the funding levels run out completely in 2020.

WILLIFORD: We’re a small regional company and we’re kind of somewhere in between Florida and Kentucky. We’ve got a governor who made a tour across the state talking about the need for infrastructure and about how we need to address the problem instead of kicking the can down the road. And I really think because the FAST Act has been passed, even though it’s not at funding levels needed, it sends a message to the states that, “Hey, this is
all you’re going to get for the next five years. You better come up with some funding on your own,” and I think it will probably produce some results.

In the two states that we primarily work in – Tennessee and Mississippi – I think we will get some type of additional funding.
In terms of sales, we’ve been pretty much flat
the last couple years. We expect about a 5 percent increase in our region
this year, but what has hurt us since the recession is
the housing market. We’re beginning to see a small uptick there. If that would take off, it would have as big an uptick in sales for all of
us as it would a robust highway bill.

CONSTANTINO: In regard to the indexing of the gas tax, is that something that would have to wait for another highway bill five years from now or is that something that can be done in the meantime?

JOHNSON: It could be done anytime, but that would require Congress to actually do something, and I think we’re now in the political silly season. It is a presidential election and a complete run for re-election of the house and a third of the Senate. So they are in campaign mode. And remember, the only elections that matter for just about every member of the house is their primary election. They’re going back home to districts that have been drawn to favor one party or the other. So that primary is the general election for them. Almost every house incumbent has someone running – if they’re a Democrat, to the left and if they’re a Republican, to the right – and saying they’re either not liberal enough or not conservative enough.
Where it becomes a real problem with us is with the house Republican caucus, because “not conservative enough” is defined by these challengers as having voted “yes” on just about anything.

So you could raise the gas tax and index it going forward, and the Highway Trust Fund would have a significant surplus for years to come.

HUBACZ-KILEY: We’re in Massachusetts, one of the bluest of the blue states, and we brought in a Republican governor last year, Charlie Baker. He has said that he is going to put an additional $25 million per year into our transportation fund, which is vitally important when we pay a 24 cents per gallon gas tax and one and a half cents of that goes toward our transportation.

We are a very small, family-owned, fourth-generation producer, and what has helped us dramatically so far this year is the low cost of fuel. It’s made a huge, huge difference for us.

When fuel prices go up, what do you do? You have to eat so much of that cost. Well, finally it’s gone the other way. So that’s a huge thing for us.

Another big thing: We’re in rural central to western Massachusetts, and solar has become huge. There are solar farms going up all over the place, and big ones, 20, 30 megawatts that would encompass 30 acres of land, and they need an awful lot of aggregate.

So for us, things look exceptionally positive.

TEAGUE: Our team covers the western United States, western Canada, Alaska and Hawaii, and in 2015 we surpassed our aggregates forecast. It wasn’t easy. We’ve done well in growing the aggregate business, but it’s been because of market share. It definitely hasn’t been because the industry picked up.

We’re starting to get a lot of projects to quote. And it’s exciting, because as far as quoting a complete plant, that’s something we haven’t gotten to do for a long time.

And it’s positive to see that Washington the state experienced a lot of what happened in the Northeast. They had phenomenal weather this year. They were able to run a long time, and it really helped out.

So we’re very optimistic going into this year and we expect to see some large growth.

DANNER: We’re in Texas, and much like Florida, we’ve taken the initiative to secure our own money and not be dependent on the federal government. I think you’re seeing that kind of across the country. The states that are taking the initiatives are the ones that are growing. Some that are not taking the initiative, like Kentucky, are going backwards.

We keep focusing on the
gas tax. How do we switch the conversation away from, “We’re going to take money out of your pocket” into “We’re going to fix your roads?”

Someone here mentioned that people don’t want to vote for a representative who is going to increase their taxes, and I’m one of those guys, too. I don’t want any more taxes. But I think people will vote for someone who’s fixing their problems. So I think if we can get the conversation to be about: “Hey, we can cut down on your commute time. We can cut down on your cost of transportation, your vehicle costs,” maybe we can get some people behind this.

FMI’s George Reddin shares insights on the state of the industry.

FMI’s George Reddin shares insights on the state of the industry.

CONSTANTINO: More than half of the current workforce in the U.S. mining industry will be retired by 2029, according to the Society for Mining, Metallurgy & Exploration. This will create a projected shortfall of more than 220,000 workers. How concerned are you about the aggregate industry’s ability to replace workers as they retire? Are there any positions for which you’re struggling to find qualified employees? How can aggregate producers better position themselves to attract talent against other mining sectors that may offer better pay?

CARLISLE: I’ve been 20 years in the military and I think that’s a group of people who are accustomed to being dirty, hot, sweaty. With all of our businesses, there’s an armory somewhere in your area and you can call and they’ll give you time to come in on a Saturday or Sunday and talk about job opportunities.

You think we’re safety conscious in this industry? The military is 10 times more safety conscious in the way we do things in a war zone. You’ll need to teach them the industry, but it’s a good, untapped resource. And with the military cutting back, there are going to more of those guys available.

BOWLIN: For us in central Florida as a base-material producer, we really don’t have an issue with management and above. Our issue is the dragline operator. Our issue is the mechanic. Caterpillar and John Deere will tell you the same thing. They cannot find enough mechanics to handle the work in central Florida.

And the guys and gals coming out of school today are not looking to work hard in the same way that we were raised to do.
There are dragline operators who can make $100,000 a year every year in our industry. These are great career paths, but you need to be a special person that’s willing to sit in Florida on the edge of a 100-ft. cliff looking down in the water. You know, it’s a scary operation.

How can we meet our industry’s labor needs without robbing from someone else?
I don’t want to take your dragline operator if you need him, but if the coal market is down, why not keep those employees busy until there is a turnaround? It’s a win-win for everyone.

LEE: As someone who started his mining career in high school, I think that’s where it needs to go. I’m originally from Jamaica, started in the bauxite industry down there, came here, and went into the aggregates.

The other commenters are right. It’s difficult finding a guy who can run a dragline, or finding a fuel mechanic. They’re just not out there today.

We’re always on the lookout for good operators, good people, and we’ve resorted to hiring attitude and potential, because most people just aren’t interested.

MUSSELMAN: I’m not sure I completely agree with the premise of the question. In 13 years, 2029, there are not going to be haul truck drivers. That’s not going to be a position. It’s going to be completely automated. We’re going to go to an even more capital-intensive industry.

I’m sure they had this conversation in the early 1900s when everyone was out there with a hammer, before they went to big machines. So I think we’re in for a big change that we’re not going to need 50 guys working in a quarry. We’re going to need one guy working on a computer wherever he’s going to be located. I hope so, at least.

PQ1604_pq-roundtable-4CONSTANTINO: Joe Main, head of the Mine Safety & Health Administration (MSHA) told Pit & Quarry in November that the line of communication between MSHA and the mining industry is as open now as it has been during his tenure as agency chief. What are your feelings about the relationship today between MSHA and the aggregates industry? Has the relationship improved? What more could MSHA do to make the industry safer without increasing the burden on producers?

HEENAN: If you prevent an accident, you’ve not only prevented the human problem, but you’ve prevented the legal problems that come with it. The challenge is in getting to the heart of what causes accidents.

MSHA has a set of rules. They’re reasonable safety rules. They’re reasonable for us to follow. And MSHA’s enforcement is focused on those rules. But with inspections, the focus is on things that usually aren’t getting anybody killed – like guards and insulation on wiring and cover plates and things like that. And if you looked at MSHA’s Rules to Live By, you’d see where people are getting killed, and a lot of those failures are based on what an employee does or doesn’t do while working.

Many of us think: “This [activity] will just take a minute, and nothing’s going to happen in that minute.” I’ve seen so many accidents that occur in that minute. Somebody feels like they don’t need to block the tires on their equipment, they don’t need to lock out because it’s just going to take a minute.

As an industry, we’ve very much improved relations with MSHA, and I think MSHA is expecting that our focus has to be on training people in their jobs and reinforcing what we’ve trained.

And I would hope that MSHA in its efforts to reduce accidents could focus on some of that, as well. Instead of going around and writing all the nickel-and-dime citations, if they could maybe watch people work and see if there’s a problem there – seat belts, things like that. Is the company complying with those things that really keep people alive? That’s what I hope to see more of in the future.

WILLIFORD: From our company’s perspective, we’ve gone from safety compliance to now what is a safety culture. We have a long ways to go, but I think if that safety culture is throughout the workforce, when MSHA comes on site, they see it, and it’s improved our relationship a tremendous amount with MSHA.

BENNINGTON: Aggregate producers with a couple of quarries in a single state or something like that, probably deal with maybe two inspectors, maybe three if they’re spread across an entire state.

As a manufacturer selling all across the United States, we have a different situation. We may have a customer in Texas who requires one set of guards and guys in California who require something different. Or you may have an inspector who isn’t clear about the requirements.

I don’t necessarily expect them to write a law that says this is the specific guard to use, but if there was more consistency from inspector to inspector, it would help. As manufacturers, we’re trying to build machines that are safe, but the problem is in making them meet everybody’s standards.

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