Water/Wastewater:The Race Is On

As the first speaker at this year’s Market Outlook Workshop, Tom Decker started off with an appropriate symbol, a green racing flag. As Decker, vice president with CH2M Hill, who addressed the water/wastewater situation, explained, the green flag is symbolic of where the water market is today—still in the “go forward” mode.

For example, while materials price growth eased downward in the last year, the numbers went up by about 12% overall for the water market this year, which was higher than predictions made at the 2006 workshop.

“Last year we said it would nudge in at about 10%, but it came in at 12%—so how did YOU finish the year? If you were significantly lower, you might want to look for a new pit crew,” Decker joked.

He cautioned, however, that there are several yellow “caution” flags that need to be watched. For example:

The first caution flag involves the real estate market’s pain: Decker pointed out that new home sales fell 4% in June in the U.S. and new home construction was down 29% for the year. What that does to the water/wastewater community is slow down the rate of growth because it means less new customers and new service connections. He predicted the real estate situation will not cause major problems in the water/wastewater industry right away, but that “it’s something to keep an eye on.”

Decker also described an interesting dilemma for some communities regarding water conservation: “While everyone agrees conservation is a good thing,” it has actually meant decreased flows to some communities, such as Las Vegas, which paid customers recently to replace green lawns with desert scapes. The city’s water consumption has remained the same for the last few years, while the population growth has grown by about 65,000 per year. What that means for the city and for other cities with progressive programs is that a way must be found to replace revenue so the governments can keep up with infrastructure needs, he said.

The second caution flag Decker pointed to also means less money for infrastructure buildup: the “decidedly mixed and unclear financial picture” for state and local governments, as he put it. One factor contributing to that situation is the $1.5 trillion in pension liabilities those governments face, which he says “will come home to roost by the end of this decade going into the next.”

That money has to come from somewhere and Decker expressed concern that the somewhere might be infrastructure, including the water and wastewater industries.

At the same time, he also noted that governments around the world are spending less on water: from about 2% of GDP average per nation to about 1% currently.

The third caution flag Decker brought up was the decreasing supply of skilled staff and engineers.

 “What if you pulled into the pit, and there was no pit crew,” Decker said. The lack of talent due to less engineers graduating, as well as a “brain drain” as older engineers retire, combined with falling unemployment rates in the construction industry, mean labor is scarcer and labor costs are rising. As a result, Decker said contractors are becoming pickier in what jobs they’ll bid in the first place.

Going forward, Decker says that in the longer term, what will drive the water race is its “fans”—the people in need of water.

For example, in many countries now being developed there is a growing middle class who expect good water/wastewater services. “They are the little nugget that will drive the marketplace most solidly as we go forward,” Decker said.

At the same time, there are many undeveloped countries badly in need of water services. A United Nations report last year said water is now a global crisis around the world, Decker pointed out.

He said the “pace car” to watch around the world today—the trend that will affect the world going forward—is desalination: There were 7,500 plants in 1993; 17,300 by 2004; and 21,000 plants today.

FORECAST: Water/wastewater market growth will be about 9 to 10% through the remainder of 2007 and into 2008.