Critical Issues
We participate in both the municipal and industrial market segments. Each market group has its own distinct issues. From the municipal side, the real estate slowdown in the U.S. market is forcing foreclosures and/or property devaluation. As a result, local governments are faced with a double-edged sword-the tax base is reduced while the demand for services increases. The infrastructure of the sewer and water departments is being squeezed by lower budgets for routine maintenance and for upgrading of existing services.
A potential solution would be to fairly value water and sewer services through a separate user tax similar to the gas tax used for highway construction. Because implementing new taxes is politically charged, there would be considerable debate before the establishment of such a tax.
On the industrial side, we are a little skeptical about the state of the U.S. economy, as well as what the total impact of rising energy costs will be. With the upcoming 2008 presidential elections (history has shown a downturn in domestic business activities during elections) and the world getting smaller, an international effect is also likely.
Regarding rising energy costs, we believe that more users will concentrate on evaluating life-cycle costs of capital equipment as a means of establishing their chosen project equipment, so there will likely be a drive to improve equipment efficiencies, operational efficiencies, equipment MTBF and extended equipment warranties.
Current Trends
On the municipal side, the most likely disruptive trend will be the accelerating pace of privatization of municipal water and wastewater operations. The traditional, separately-handled design, public bid, project management and contractor construction cycle will likely be displaced by the design-build-operate-own concept that is currently sweeping this market. This fundamental change will definitely change the way this business is currently being conducted, as the new way makes one party completely responsible for the total design, construction and operation of these types of plants.
On the industrial side, the United States is currently benefiting from a weak U.S. dollar in growing international markets, thereby allowing domestic manufacturers to increase exports. However, technology improvements and capabilities from competing manufacturers in developing countries is improving and increasing competition for this same business.
In order to stay competitive, U.S. manufacturers have been forced to improve their own core competencies, reduce their costs and their expected margins. The "lean and mean" mentality of some have resulted in lower level of customer service and a higher concentration on bottom line financial performance because of the pressures in today's markets.
Additional Insights
Municipally, water and wastewater services are "out of sight-out of mind." They are taken for granted in this country. Much like the much-publicized conditions of the nation's bridges, the conditions of this vital infrastructure are rapidly deteriorating and need much more attention and focus. If the improvements necessary in these needed services are not addressed immediately, with some degree of urgency, the consequences may be dire.
Additionally, the increased global awareness of our overall environmental impact will lead to significant changes in the pump industry. Product development will be impacted by concerns for controlling fugitive emissions and increasing system efficiency. Energy consumption and effective use of materials will reshape manufacturing processes. (Already some companies refuse to accept shipping crates or wooden pallets-they only want the product.) End users may encounter more situations when the correct economical and/or commercial decision is in conflict with the correct environmental decision.
The last few years have been some of the best ever in the pump industry. Let us not forget those "other" times. We all have a responsibility to look to the future and predict it to the best of our abilities. However, no one has that completely accurate crystal ball. Issues change, politics change, events occur and natural disasters happen. We must all remain flexible, acutely aware of the environment in which we do business, and be ready to take the appropriate actions that are necessary to deal with these inevitable changes.
