Monday, September 30 2019
By Mark R. Smith, Contributing Writer
The fabricated metal industry is, in a way, similar to other industries, perhaps like the printing industry. That’s to say, the products each produces seem ubiquitous.
During the average person’s stops during the day, you may well see printed items: books, publications, brochures, folders, bills, mail, business cards, labels, etc. That list could go on, as it can for metal fabrication. Think about desktop computers, tablets, smartphones, door latches and handles, screws and nails, faucets, railings, hangers, etc.
You get it.
The point is in both industries, raw materials, software, equipment, deep thought and some elbow grease are required to create an infinite amount of finished products that many of we human beings use daily.
When querying professionals who cover metal fabrication from various angles, it’s easy to see how it seems so all-encompassing. Yet each company in the business, be it a job shop, a supplier or an ancillary business, has similar concerns combined with unique needs concerning workforce access, training opportunities and growth that could lead to expansion and the search for a new place of business.
By the Numbers
To illustrate the expanse of the metal fabrication industry, IBIS World, an industry research firm based in New York and Los Angeles, stated in its Industry Report 33231: Structural Metal Product Manufacturing in the U.S. (May 2019) that products offered to the market by operators in the industry with the focus on construction products, such as reinforcing bars, bar joists, railway bridge sections, dam gates, transmission tower sections and railroad car racks accounted for almost $50 billion in revenue.
These companies also manufacture metal plate work, such as bins, culverts, hoods, ladles and containment vessels; as well as prefabricated metal buildings. The majority of industry products, in the case of the report, are used in nonresidential building and utility construction.
The report stated that the metal fabrication industry encompassed 4,789 businesses that generated $49.8 billion in revenue, with $2.4 billion in profit. It also generated $1.4 billion in exports; and while annual growth dropped 0.6 percent for the five-year span from 2014-19, it’s projected to rise 1.9 percent from this year until 2024 (see sidebar).
That bright prediction is not a surprise to site selection industry veterans like Dennis Donovan, principal with Wadley Donovan Gutshaw Consulting, in Bridgewater, N.J. “The metal fabrication industry has been in a very steady growth phase for a half-dozen years in sectors including automotive, energy, residential and even health, due to construction of hospitals and clinics,” he said, also noting the sector of the market for “the devices these businesses need.”
Donovan estimates that the industry “is operating at about 80 percent utilization,” which he translated to, “Times are good and there’s room to grow.
“The biggest impact in metal fabrication today is that the industry is making major investments in robotics and automation,” he said. However, the flip side is “that requires upskilling and there’s a gap there. That’s caused a labor shortage, with machinists, welders, etc., in short supply.
“The dynamic in that part of the industry needs to change,” said Donovan, “because it’s cramping growth.”
On that point, how a company will secure the desired workforce in a chosen location “is an important aspect of any search,” said Frank Spano, managing director of Austin Consulting, of Cleveland, with needs for skilled workers encompassing certified welders, electricians, maintenance mechanics, tooling technicians and precision machine operators.
There are other factors leading to the dearth in qualified workers. “Automation, as with all manufacturing, has resulted in a smaller pool of workers; those that remain have a higher skill degree. In an overall tight labor market across the U.S., this has resulted in a shortage of available workers,” said Spano. “Skilled workforce shortages in the metal-working sector is especially evident within the traditional manufacturing belt (Pennsylvania, Ohio and Missouri) and in newer manufacturing regions in the Southeast, including Tennessee, the Carolinas and Alabama.
The key to address that issue, of course, is expanded training programs. “You want to research an area’s technical colleges, including two-year community colleges and even what is occurring at the high school level to gage how the community measures the importance of this type of education,” he said. “For instance, many high schools are catering to the tech industry to offer training to young people who have desired to receive an education in non-college preparatory classes and have the vision to receive training in the technical field.”
Given the shortage, Donovan said “most states” are taking action and have workforce development programs to get more workers in their systems.
“The states are working with community colleges and are working with the companies concerned to set up apprenticeship programs in places like Charleston, S.C., via the Charleston County Economic Development Department; and the Alabama Robotics Technology Park, in Tanner, Ala., near Huntsville, where supporting companies have donated state-of-the-art equipment,” he said. “They rank among the most successful in the country.”
The Skill Pool
Those workers who participate in training programs have various options. “There’s always a demand for not only workers for the shops, but for equipment maintenance technicians,” said Ed Youdell, president of the Fabricators & Manufacturers Association International (FMA), Elgin, Illinois. “Those jobs are tough to fill, too, because these are demanding careers due to the amount of travel involved for the technicians.”
Job shops and original equipment manufacturers are focused on developing and providing training to new hires and their incumbent workforce. “It’s the classic chicken-and-egg scenario with recruiting talent,” said Youdell. “Employers want well qualified people. However, they’re just not available due to the current low unemployment environment. This means the manufacturers have to develop their own programs to get people skilled up and productive, as quickly as possible.”
Recruiting students to pursue apprenticeships, technical degrees and manufacturing related fields of study “is challenging for sure,” he said, “Getting the students and keeping them in manufacturing is a challenge, though the various issues at play [are] really nothing new.
“We saw this in the 1970s with the heightened efforts to shift high school students into college prep programs,” said Youdell. “People who may have been interested in learning a trade lost the opportunity to participate in vocational classes because of the shift away from industrial arts. Then add guidance counselors, teachers and parents emphasizing to their kids that college was the way to go.”
Youdell’s words were echoed by John Freeberger, director of special projects and facilities with Holmotro, a global supplier of hydraulic equipment and services, in Glen Burnie, Maryland. “We started talking about this 10 years ago,” he said. “The issue was a moderate problem here before then, but at that point parents were pushing their kids to go to college, college, college.”
Today, Freeberger said, some of those kids who did go to college “are in debt or deep in debt, and are making less than $30,000 per year. I would have liked to have seen a swelling of the talent pool and the interest in manufacturing five years ago because now, we need to get more workers through the pipeline than ever.”
If it sounds like this issue is personal to him, it is. “Manufacturing paid for my education and it’s been very good to me. I love it, I’ve been in it for 51 years, 25 here at Holmotro. I get tremendous satisfaction when I see a young person come through our doors and ask a lot of questions.
“They’re interested,” Freeberger said. “We need more than that.”
Those frustrations aside, nationally, the industry’s workforce grew substantially in 2018. According to 2018 Bureau of Labor Statistics (BLS) data, industry employment grew 4.7 percent, the strongest growth since 2008 (right before the decline of 2009, due to the recession). This growth is “best explained by the resurgence of the industrial and manufacturing clusters,” said IBISWorld Lead Industry Analyst Nicholas Masters, “which can be explained by two economic events.”
First, industrials declined drastically in 2015-16, due to a culmination of several, ill-timed economic events including a crash in oil and commodity prices, which crippled emerging markets and led to severe declines in steel product exports; a run-up in the dollar and the first interest rate increase since 2006. “So, the industry’s workforce is growing because it is recovering from really drastic lows due to a more stable economic environment,” said Masters.
Second, the 2017 tax cuts were a boost to the industry’s growth. “A lowering of taxes naturally allowed some operators to expand operations, thus requiring more workers. The boost in employment and wages in 2018 is largely attributable to the tax cuts, but it is important to note that the industry was already expanding, albeit at a slower (natural) pace, before the tax cuts,” he said. “In essence, the tax cuts simply sped up the process of the industry’s recovery, which we are seeing/confirming now with these preliminary 2018 stats” from the BLS (the latest government data available on the industry).
In terms of employment growth, California has the fastest-growing steel products workforce in the U.S. According to the latest BLS data, industry employment grew 10 percent in 2018, the strongest growth since 2006. Major steel products manufacturers, like Nucor, have a significant presence in the state. Nucor operates four facilities under different subsidiaries in California; Texas also has been growing its workforce faster than the national average. The industry’s workforce in Texas expanded 9.1 percent in 2018, according to the BLS.
Speaking of advanced production technology, Don Schejedahl, principal at DSG Advisors, in Kent, Ohio, called its use “a lock-solid trend in manufacturing in general,” adding that the metal fabrication industry “a prime benefactor."
What’s needed now, he said, is what’s been needed for decades; but in this day, there’s an innovative twist. “We need more machinists, but the prevalent need in the industry today is workers who can do is machine coding, particularly with robotics. That’s an area of growth and it somewhat layers onto the work of machinists. In this case, however, the programing is done on the machine while it loads up the metal. So, there is an overlap of skills.
A considerable amount of new technology involves laser cutting, which Youdell said is “a particularly big deal” in Chicago, “with 65 percent of laser cutting estimated to take place within 500 miles of the city, which explains the abundance of suppliers that have located here.
“Manufacturing is getting more and more high-tech every day, with such technologies as laser cutting, press brakes, punching and automation all relying on sophisticated software to drive the operation of the equipment,” he said. “These new machines can cost between $500,000 and $1 million,” so companies need responsible, skilled operators.
"In regard to automation," said Masters, "it’s been a long-running trend that has sustained the industry’s growth, given the high cost of labor in the U.S. relative to emerging markets."
“Although it may seem contradictory for automation and employment to both be on the rise,” he said, “it is important to consider that growth in automation is a more broad, gradual-moving trend that has/is affecting the industry, while employment trends mentioned here are more indicative of what’s happening now, which is an overall expansion/recovery of the industry itself.”
And that’s a good thing. “The ability to make more complex shapes and forms, along with the adoption of more advanced production technology, provides the opportunity to create, and to contribute to, innovation every day,” said Schejedahl. “Our country has prospered due to such advances.”
During the site location process, companies within the metal-working/metal fabrication sector must consider many factors. Spano said companies first need to consider logistics.
“To analyze logistics, consider the following,” he said, “Where are the major sources of raw materials, mainly the inbound commodities that are responsible for the production of the product? In addition, the company must also consider the end product, namely finished goods, and where is the location of the ultimate customer [is].
“Also, what mode of transportation” in necessary, Spano said, “including common carrier truck, rail, air and in some cases, [access] to a port, if the product is to be shipped overseas. “[That] will play an important role in the location process.”
Donovan agreed that shipping is a major issue in the metal fabrication market. “Customers want fast services,” he said. “That’s meant that there are now more satellite-type factories and distribution centers around the country and the world.”
A company might pick a certain location for a variety of reasons. Donovan said with today’s strong economy has come increased opportunity for metal fabrication companies, “especially in smaller communities, many of which have some ecosystem and equilibrium in a labor supply that can require 100-200 employees.”
As for standout markets, he pointed to the southeastern states that comprise “Automobile Alley,” including South Carolina, Tennessee and Georgia, due to key factors such as proximity to a large and rapidly growing regional market, below average cost of operations, ample workforce with best of class training resources, ready-to-go sites (even in smaller communities) and fast track permitting.
Also know that in the major traditional market of Chicago, there has been significant investment along a major highway that’s made it even more desirable to companies that work from Midwest that can afford to locate there.
“There has been significant investment in the I-90 corridor, due to access to O’Hare Airport,” said Ed Youdell, president of the Elgin, Ill.-based Fabricators & Manufacturers Association International (FAM), “so all of the major suppliers have invested multi-millions of dollars for showrooms and to facilitate access to Midwest job shops, as well as accommodate new staff and equipment that’s coming online.”
While discussing hotspots for metal fabrication around the country and the world, he pointed to Tennessee, particularly the Nashville area; and to Texas as locales that offer solid tax advantages for manufacturing, in general. Interestingly, while there are many job shops in the Chicago area, the expansion activity around the I-90 Corridor “is mostly about the suppliers locating in the epicenter of the metal fabrication industry to create the best access for its customer and prospect base,” Youdell said.
Spikes in metal fabrication can also follow other industries. In the footprint of New Orleans-based Entergy, for instance, the metal fabrication sector is projected to grow by almost six percent from 2014 to 2019, with Louisiana and again, Texas, also considered prime locations for expansion.
Know that for every metal fabricator or supplier, a different set of parameters seems to come into play when choosing a site. Consider the needs of one Southern California-based metal fabricator that worked with Foote Consulting Group, of Glendale, Arizona.
Deane Foote, president of Foote Consulting Group, Glendale, Ariz., has worked on various aerospace metal working projects, including an endeavor with a Southern California company “that wanted to expand out of state to escape excessive red tape, high taxes and high wages, and needed a building for a foundry,” said Foote.
That client selected Carson City, Nevada (which is just over the California border and adjacent to Lake Tahoe), for its new site and moved about 100 jobs there. “Most of the company’s workforce moved to Carson City, which is near Reno and has a strong enough workforce to integrate with” as time went on, said Foote.
As often happens, it took time and diligence to come to a decision; and as often happens, there are so many considerations to contemplate when expanding across state lines that it took more than a year to pick the new locale. And even then, while the result was positive, that doesn’t mean it was perfect.
“The company ended up picking a location off I-80 with an existing building that had also been a foundry-type operation,” Foote said. “As it turned out, it probably should have built its own foundry for logistical reasons, because that would have resulted in a smoother [transition].”
While the tariffs applied to various goods by the Trump administration have been a topic of concern in the industry, “they have not yet had a major impact [in metal fabrication],” said Donovan. “Given the strong dollar, imports have been less expensive. Tariffs will lessen that advantage but the metal fab industry should be able to absorb the impact, so long as the economy remains positive.
“Business has been [very] good and has been and companies have become more efficient. China has retaliated by raising tariffs on U.S. exports. That, combined with a strong dollar, will adversely affect metal fab companies with substantial exports,” he said. “However, many companies in this industry do not significantly rely on exports for revenue/profits. Bottom line, the tariff dynamic will have less impact on the metal fabrication vs. other industries.”
Don Schejedahl, principal with DSG Advisors, in Kent, Ohio, offered another view concerning what he termed “our current lack of trade policy in the U.S. We put tariffs on metal, aluminum and steel that are coming in from different countries, notably China, and it’s causing issues for us,” he said.
What’s the result? “It’s put a squeeze on small companies that have small margins for sales of their products,” he said. “If you’re in the auto industry and you’re supplying metal parts to the carmakers, for instance, you have little chance to find a source to replenish that income.”
Schejedahl went on to relay a story he heard on a recent PRI’s The World radio broadcast. “It concerned a retired engineer who invented a pulley system in his garage to store his bike. He couldn’t find a domestic company to make it,” he said, “but when he went on Alibaba, he had offers from 10 Chinese companies within 24 hours. The U.S. companies weren’t interested since it wasn’t a big job and he couldn’t order from them in huge quantities.
“In other words,” he said, “a small company can’t sell a product if they raise the price to make money to cover what they lost in the tariff, so they’re looking to other countries where there is no tariff and they can get raw materials cheaper.”
Beyond the Borders
As for the international market, Youdell offered “the overall North American metal fabrication industry perspective: Past is prologue and we continue to see strong activity from job shops in the Midwest with Wisconsin, Minnesota and Ohio standing out in what is an overall healthy domestic market.”
Looking abroad, “Mexico and Canada have the potential for pick up once the United States-Mexico-Canada Agreement is approved by Congress,” he said. “The delay in approving the already negotiated agreement creates uncertainty for manufacturers, and uncertainty leads to an easing in capital investment and expansion activity. Approval for the agreement needs to happen as soon as possible to normalize manufacturing activity in North America.”
Spano said other important considerations for companies in expansion mode include utility needs, such as electric power, natural gas and water and wastewater needs; in addition, it’s key for metal fabrication companies “to research an area’s industrial base and determine similar industries in a given area that employ workers with transferable skills.
“A company may develop a comfort level by locating in an area that [is also home to] similar companies in the metal working industry, meaning they will have similar workforce needs,” he said. “This could help in overall recruitment efforts and show a new company that the area has a good history of developing a workforce within the metalworking sector.”
Lastly, another major consideration should center on overall regional wage patterns and demographics within the area, said Spano. “Regarding workforce availability, the company should not only be concerned with securing workers for current production, but in securing future workers as growth occurs. An areas demographic trend should be analyzed to see if population growth is occurring and the future trend looks promising.”
Key demographic trends to be analyzed should include “assessing population trends in the 21-to 44-year age category,” he said. “If there is positive growth forecast within this age group, it may demonstrate that the area is poised for future growth and a good supply of new workers.”
Given the need for a vast amount of information before setting up or expanding a metal fabrication concern, the final word still ends up being about what’s important to a given company.
Foote, his colleagues and his peers all know that all they can do is influence, not dictate.
“I was fine with the site my client picked in Nevada. All of these companies have their own agendas,” he said. “All we site selectors can do in process is make recommendations.”
About the Author:
Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties. Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
IBISWorld, New York/Los Angeles, Nicholas Masters, Lead Industry Analyst, 800-330-3772 and email@example.com
WDG Consulting, Bridgewater, N.J., Dennis Donovan, 908-864-5580/201-310-2598 cell
Foote Consulting Group, Glendale, Az., Deane Foote, 480-399-4854 and firstname.lastname@example.org
Austin Consulting, Cleveland, Frank Spano, managing director, 440-544-2687/216-346-3699 cell and email@example.com
DSG Advisors, Kent, Ohio, Don Schejedahl, principal, 828-772-9374 and Don@DonSchjeldahlGroup.com
Fabricators & Manufacturers Association Int’l (FMA), Elgin, Ill., Ed Youdell, president, 815-381-1317 and firstname.lastname@example.org, Dan Davis, editor, 815-399-8700/227-8281
Holmotro, Glen Burnie, John Freeburger, director of special projects and facilities, 410-768-9662 and email@example.com
Ady Advantage, Madison, Wisc., Janet Ady, 608-663-9218 and firstname.lastname@example.org
DSG CorPlan Consulting, West Orange, N.J., Bruce Hoch, managing director, 862-930-3990
NAM, Washington, Erin Streeter/Jamie Hennigan, 202-637-3000/316-6160 cell and email@example.com
Global Location Strategies, Didi Caldwell, 864 918-3816 and Didicaldwell@globallocationstrategies.com
Carter Fabrications, Millersville, Md., Jeff Carter, 410-987-9397
Site Selector’s Guild, Little Rock, AR, Rick Weddle, president and CEO, 501-904-5228/407-432-2134 and Rick@siteselectorsguild.com
U.S. Department of Commerce, Rebecca Glover, director of public affairs, 202-482-4883 and firstname.lastname@example.org
Schneider Consulting, Phil Schneider, 630 841-2953 and Schneider.email@example.com
Biggins Lacey Shapiro, NYC, Michelle Cummerford, 216-973-8872 cell
NAAMM Headquarters, Glen Ellyn, Ill., Jeff Church, executive director, 630-942-6591 phone and firstname.lastname@example.org
Garner Economics, Atlanta, Jay Garner, 770-716-9544 and email email@example.com
Transparency Market Research, Albany, NY, 518-618-1030
Strategic Development Group, Lancaster, S.C., Mark Williams, president, 803-748-1207 and firstname.lastname@example.org