By Mark R. Smith, Contributing Writer
“It’s an underappreciated industry.”
That’s the basic observation of Dennis Donovan, principal with Wadley Donovan Gutshaw Consulting, of Bridgewater, N.J., when he was asked about the importance of, the health of and the potential of the metal fabrication industry.
A look at the breadth of the sectors it serves gives some insight into why Donovan offered that description. While it may not always garner the glitz of other more frontline sectors like headquarters locations, tourism or digital media, consider the integral connection metal fabrication provides to such industries as defense, transportation equipment, energy, furniture and medical equipment.
Another reason is it’s projected above-average growth in the coming years. That will be “due to increasing demand and as well as reshoring of manufacturing locations back to the U.S.,” said Donovan. While that was happening to a degree even before the COVID-19 pandemic, it was exacerbated by the millions of businesses that suddenly had needs that no one was contemplating just weeks earlier.
Still, the metal fabrication industry has its issues, often concerning the supply chain and the labor shortage; in this case it’s a dearth “of skilled and semi-skilled workers,” he said, though quickly adding that automation – i.e. robots being powered by artificial intelligence – is being rapidly introduced to not only combat the labor shortage, but to also enhance innovation and boost profitability.”
‘Wait and See’
Exactly how the metal fabrication industry is performing at present depends, to a degree, on who you’re talking with. If one asks Jerry Szatan, they’ll hear about “a mix of results and potential.
“In both machinery manufacturing and fabricated metals, employment has been up since 2020,” according to the U.S. Bureau of Labor Statistics, “but it’s still not quite back up to pre-pandemic numbers,” said Szatan, principal of Szatan & Associates, in Chicago. “Yet the number of establishments in both sectors increased from 2020 to 2021 and is the highest in the last decade. That is, perhaps, a sign of future employment growth, as new establishments ramp up,” also according to BLS.
He thinks several recent developments should be positive for the industry’s long-term success. Reshoring is one, though Szatan has more of a “wait-and-see” outlook as to how deep its impact will be.
Echoing Donovan’s observation, Szatan said, “Reshoring is not as new as people think it is. COVID-19 triggered heightened interest due to increased transportation costs and uncertainty, such as China shutting down entire cities that may have been a link in your supply chain. We’ll see more of it in the next few years.”
While it may seem like many companies are moving to reshore operations to the U.S. at once, know that this trend has different layers. “It took more than a decade to make China the manufacturing center of the world,” Szatan said. “The industry can’t unwind that kind of depth in a couple of years.”
What else might happen as the world adjusts to an eventual (hopefully) end to the pandemic? “I think Mexico will be a beneficiary of this trend, simply due to geography. It’s closer,” he said. “Companies would rather have to wait a couple of days because a truck was stopped at the Mexican border than wait for weeks at the Port of Long Beach for a shipment.”
The recently signed federal Infrastructure Investment & Jobs Act will lead to more construction, said Szatan, “which will require parts, equipment and machinery. The world’s efforts to go green provide another reason for his optimism.
“I think the areas that are the strongest are those that are supporting electric vehicles and other investments in green energies, such as solar and wind,” he said. “The Inflation Reduction Act signed by President Biden includes incentives to further develop and use green power, which should help those metal vending companies that supply that market.”
He also addressed the labor problem. “The demand for skilled labor remains very strong. I think training and better wages will be part of improving that situation,” Szatan said, noting that “workers in skilled trades were in high demand before the pandemic. I always wonder why we can’t train more of them, especially given the examples we have of the government and the private sector coming together to make this happen. This seems to be more of an emphasis with Biden, so I’m hopeful going forward.”
As for where clients have been looking to locate metal fabrication hubs, Szatan said that often depends more on where their clients and suppliers are located.
“One example is when a business came to me after their major clients reshored an operation into Texas. My client wanted to be closer to that company,” he said, “and considered establishing a branch plant nearby.
Logistics count, unless we’re talking about high-value items like pharmaceuticals or electronics. That means paying a freight penalty is a lesser issue – as long as a product is high value-added and freight costs are a smaller part of total costs.”
On the location front, Donovan noted recent location updates in the industry, such as the QuaLex Manufacturing expansion in Ridgeway, S.C.; the new AMADA America plant and technical center in High Point, N.C.; the Acme Alliance reshoring to Northbrook, Ill.; and SAF’s new plant in Temple, Texas, as well as factors that lead to similar decision by metal fabrication executives.
He also listed today’s hot site selection factors, including talent pool depth, especially machine operators and skilled crafts; availability of vocation-technical training (at public high schools and two year-college) programs to strengthen the talent pipeline; moderate competitive demand for requisite skillsets; labor costs at or below the U.S. average; and excellent highway linkage and transportation services; and availability of green energy and sustainability policies at the state and local levels, among others.
While pointing out the overall health of and outlook of the industry, Szatan is somewhat reserved about the immediate future. “In the next several months, I think we could see a slowdown in investment activity,” he said, “due to uncertainty about the direction of the economy and rising interest rates.”
But just because the industry isn’t is in a state of perfection doesn’t mean enthusiasm isn’t running high. For instance, Larry Gigerich, executive managing director with Ginovus, of Fishers, Ind., is among the many stakeholders who are bullish on metal fabrication.
“It has remained strong for an extended period of time. The manufacturing of precision metal products, metal finishing and metal components has continued to be in high demand,” he said, citing such industries as aerospace, defense, consumer products and medical devices as the main drivers.
Gigerich observed a few important trends that have been fueled by that demand. “Metal fabrication companies have continued to invest in new equipment to support the manufacturing of components that must be precise due to their intended uses,” which is a positive, but, “this industry sector has also continued to struggle to find talent to fill open positions in their companies.”
While that second trend rears its head in many industries, he said it’s “more acute” in metal fabrication due to “employees typically being older, thus a large number deciding to retire during COVID-19.” As the worker shortage relates to the supply chain problems, the biggest impact the industry is facing is in the area of raw materials.
“This industry sector has continued to experience high growth due to the demand for metal components and products,” said Gigerich. “When you then add the impact of COVID-19 on the delivery of metal (steel, aluminum, coated and other products), the issue becomes even more acute.”
In addition, Gigerich said, due to countries like China and India requiring so much aluminum and steel to support their own construction and economic growth needs, the U.S. has experienced a reduced supply of raw materials in the metal fabrication space for the past 24–30 months.
Gigerich’s observations all lead back to the investment, which is intended to address those issues.
“Clearly, we are seeing companies invest in robotics and automation to help operate more efficiently and as a work-around to the shortage of labor,” he said. “In addition, we’ve reached a point where technology, and the associated cost of it, has allowed for an acceptable return-on-investment time period to justify the infusion of capital.”
While Gigerich also thinks foreign-born workers may help alleviate short term-labor shortages, “The key point is that we need to build a sustainable pipeline of talent to support this industry,” he said. “Industry-recognized credentials and certifications offer a great path forward.”
Jay Garner, president of Atlanta-based Garner Economics, also addressed those points, saying that the industry needs “more supply chain optimization and regionalization, with a dire need to find skilled talent that can work in manufacturing, such as computer numerical control (or CNC) operators and welders. If communities can demonstrate their ability to find this kind of talent, then they will win projects,” he said. “Talent is the new currency.”
While that may be true, the foundation of that pipeline that Garner, Gigerich and Szatan are calling for is in its early stages. “The biggest point to note is the lack of folks pursuing industry-recognized certifications, credentials and apprenticeships,” said Gigerich. “Some positions in this industry pay very well and can sustain a family. We need to encourage more people to pursue careers in this industry sector.”
When looking ahead, Gigerich looks way ahead. “We do not expect to see much of a difference six months from now, even with a recession coming. Many metal fabrication firms still have backlogged orders that they are trying to catch up on coming out of COVID-19 due to the raw material shortages. Depending on the length of the recession, the picture could look different 12-18 months from now.”
What’s the view from the perspective of a metal fabricator? One can ask Drew Greenblatt, president of Marlin Steel Wire Products, which operates from an enterprise zone in Baltimore, as well as a recently purchased facility in Indiana. The company fabricates steel and wire and has grown, despites the pandemic, at 20-plus percent annually for four consecutive years; much of its business emanates from the medical and pharmaceutical device field, with other clients including aerospace and industrial concerns.
A key factor in that impressive run has been client attitudes about reshoring. “We’re seeing huge reshoring opportunities, since many companies no longer trust buying products or materials from China,” said Greenblatt. “We’re looking at new relationships with many clients who are bringing operations back stateside. They don’t want the drama anymore.”
That’s the root of what he terms “a very optimistic time” in the industry because people are upset about Chinese products for various reasons, be they “the lack of timeliness in shipping, disappointing port issues and overall costs,” he said. “Vice presidents of logistics, purchasing managers,” etc. “are just throwing up their hands.”
How attitudes have changed: that approach was much different pre-pandemic, Greenblatt said. “At that point, those executives would just go to buy the cheapest place. But now, especially given what’s happening in the Ukraine with the Russian takeover attempt, companies are afraid that China will do likewise to Taiwan. That’s just one more reason they’re bringing operations back to the United States.”
With the growth that Greenblatt described on the micro level has come comparable job growth; lately, of course, that success has also brought its share of problems. To date, almost 500,000 U.S. factory jobs have been created to address this issue, according to Harry Moser, president of the Reshoring Initiative.
“But now the challenge is finding enough workers,” Greenblatt said. “That’s causing big ripple effects. There are not many people available to hire, so we need immigrants to move here to learn and perform those jobs.”
And that points to the next obvious problem that most businesses are dealing with. “The supply chain is a mess. We’ve gone from one- to two-day deliveries to what can be five months or more,” he said, “And some vendors don’t even give quotes because they’re sold out for the next two years.”
That severe dearth of supplies has led to many companies stocking up on what they need to produce goods. And that can get expensive. “It’s a bad problem that’s led us to reduce inventory because we basically warehouse 150 percent more materials than we used to,” Greenblatt said. “It’s a huge cash drain, but we have to make sure that we have enough materials for our employees to produce products.”
“So we can’t rely on our vendors anymore,” he said. “Everyone in the supply chain is getting hurt.”
What to do? Increase investment, Greenblatt said.
“We bought $2 million in new robotic equipment during the past few months to help address the worker shortage and keep up with the demand. We want to reduce our lead time to two weeks. That’s also led to our company having an additional 56 percent more floor space to accommodate more equipment,” he said, adding that enhancing benefits and conditions for its 100 employees between its two locations are also part of the strategy at Marlin.
The worker shortage has meant that “The trend to utilize more technology is gaining steam,” said Phillip Hoppman, chair of Dallas-based Big D Metalworks, “specifically utilizing 3-D scanning to plan and design projects.”
“These scans are also integrated with 3-D modeling to reduce potential rework. Given the skilled workforce shortage facing the industry, reducing rework is a necessary component in maintaining a schedule and controlling costs. Costs are an ongoing challenge, given high materials prices, and schedules are extended as key subcontractors and suppliers encounter materials delivery challenges,” said Hoppman. “Finally, designs on interior finish seem to use more modular components, which are more customized to the individual tenant needs.”
Looking ahead, count Greenblatt as among the many who are bullish about what lies ahead. “Our investment says it all. We are leaning in on the American manufacturing renaissance. Our employees are enjoying the reshoring surge. We’re very optimistic and excited about the future.”
On that note, generally speaking, it sounds like metal fabrication is, indeed, a hot industry to invest in.
While “there is concern that increased interest rates, coupled with higher materials prices, could cause projects to be delayed or canceled. Labor costs could begin to escalate at a faster rate as labor shortages and the higher cost of living push employees to press for higher wages.” said Hoppman. “Our demand and backlog are solid, so the next six months look positive.”
Garner looked even further down the road. “Automation has been playing a role in the metal fabrication industry,” he said. “Technological innovation has enabled advancements in CNC machines, as well as welding processes. These have helped improve precision and quality, as well as production volumes.”
“It’s a hot sector and shows no signs of cooling off,” he said, pointing out the ubiquity of metal in daily life. “People are still buying items like cars (even gas and diesel).” All told, from automobiles to aircraft to tools, metal components are part most every product.”