Tough times

What a turbulent world we live in. A possible war with Iraq; nuclear weapons in North Korea; bombings in Israel, Palestine, Indonesia and the Philippines; rebel uprisings in Russia and Africa; a stalled stock market; and corporate fraud are just a few of the headlines that we read daily.

And in the midst of chaos, you need to live your life and run your business. As you know, this is not easy. Professional Roofing asked several roofing contractors throughout the United States about their outlooks for 2003 and how they are coping with a changing world and evolving industry. Following is what contractors had to say about the commercial (low-slope) and residential (steep-slope) roofing markets, growth trends, insurance coverages, economy, work force and other concerns.

Low-slope market

A recent poll on NRCA's Web site, www.nrca.net, asked, "Are new construction projects increasing or decreasing in your market area?" Forty-eight percent of the 152 respondents said new construction in their areas is decreasing. When Professional Roofing asked roofing contractors to discuss new construction trends in the low-slope roofing market, they agreed with the poll's respondents.

"I anticipate new construction will continue to be slow, and competition for what little [work] is available will be extremely fierce," says Ray Dengler, vice president of D.C. Taylor Co., Cedar Rapids, Iowa.

On the West Coast, Bo Meyersieck, vice president and regional manager of D.C. Taylor, Concord, Calif., does not expect new commercial construction to rebound soon. Meyersieck explains, "In the San Francisco Bay area, my belief is new construction work will decline during the next 18 months or so."

Hans Philippo, president of Holland Roofing Group, Florence, Ky., agrees new commercial construction will be slow for the next six months, but he says it then will increase.

For the low-slope reroofing market, Philippo says, "Reroofing will stay steady, and material prices will decrease for the next few months and then start to increase."

Conrad Kawulok, president of B & M Roofing of Colorado Inc., Boulder, has not witnessed a steady reroofing market.

"The reroofing market is behind typical activity because of drought conditions along Colorado's front range," Kawulok notes. "The lack of moisture this year has stymied demand."

As could be expected when interviewing roofing contractors throughout the United States, material trends varied during 2002.

For example, Phil McKinney, president of Evans Service Co., Elmira, N.Y., received more requests for energy-efficient roof systems and products that have obtained the U.S. Department of Energy's and U.S. Environmental Protection Agency's ENERGY STAR® label. He also mentions customers have requested more asphalt roofing products.

Other contractors report less asphalt use.

"We are seeing increasing use of white thermoplastic membranes and less hot-applied roof systems," says Greg Thirnbeck, vice president of contract administration for D.C. Taylor, Cedar Rapids. "We also are using more ambient-temperature adhesives instead of hot asphalt."

Steep-slope market

Mother Nature's wrath struck coastal regions and created a mess for residents. But heavy rainstorms, hailstorms and windstorms created work for some roofing contractors during the second half of 2002. Brad Beldon, president of Beldon Roofing Co., San Antonio, says steep-slope roofing work was slow during 2002 until the rains came. Beldon expects work to decrease within the next few months because his company almost has completed its weather-related projects.

Reid Ribble, president of The Ribble Group Inc., Kaukauna, Wis., also believes the steep-slope market is slowing after a bevy of reroofing activity during the past few years caused by hailstorms. As a result of the large number of recent reroofing projects, Ribble expects the market to be slow for the next decade. But he has a different outlook for new residential construction.

"New construction continues to grow at unprecedented levels," Ribble notes. "Low interest rates are key to maintaining this growth."

Randy Denchfield, president of Denchfield Roofing Corp., Silver Spring, Md., agrees. He says, "New residential construction will continue on course as long as interest rates remain low."

Denchfield also says weather affected work in his area and hopes patterns will change in 2003. He explains: "My company has been affected by three droughts in four years. When typical precipitation and weather patterns return, roof systems that are past their expected longevity will require replacement."

Unlike others, Rick Birkman, president of Texas Roofing Co., Austin, reports he has not seen growth in the new residential construction market. He hopes the market will rebound after "hitting bottom six months ago" and expects the reroofing market to remain steady. Birkman is optimistic his company's sales will increase 10 percent to 15 percent next year.

Similar to the low-slope market, residential roofing contractors have witnessed shifting material trends.

"We are seeing movement toward nonasphaltic-type premium steep-slope roofing materials, such as copper shingles," says Kent Schwickert, president of Schwickert Inc., Mankato, Minn.

Customers have dictated other trends experienced by roofing contractors. Kawulok notes, "Product upgrades are more common than in previous periods."

Denchfield adds, "Homeowners are demanding higher-quality products and longer warranties."

Growth areas

Although 2002 wasn't a booming year, roofing contractors experienced some growth areas in their businesses. Service and maintenance departments were key moneymakers for many.

"Service and maintenance appear to be primary sources of growth for our company," says Chris Jurin, vice president of Jurin Roofing Services Inc., Quakertown, Pa. "We are planning for significant growth in these portions of our company throughout the upcoming fiscal year."

Gary Rickert, vice president of operations for D.C. Taylor, Cedar Rapids, agrees and expects slow business operations to allow management teams time to focus on other projects, such as maintenance.

"Slowing business processes will cause some clients to focus on preventative maintenance in anticipation of full-scale operation," Rickert states. "Roof system repair and maintenance play a part in preventative maintenance and should experience a commensurate increase in priority."

Other roofing contractors have encountered growth because of increased material use.

Ribble says: "Metal roofing is the fastest growing area of our business. I believe this will continue because of metal's cost effectiveness and performance and the fact that it's recyclable."

Todd Kaska, vice president and regional manager of D.C. Taylor, Cedar Rapids, expects roof coatings to affect his company's profits. He states: "I foresee an increase in revenues from roof coating applications. These coatings include built-up roof (BUR) maintenance coatings and elastomeric coatings of metal, single-ply and BUR membranes."

Schwickert perhaps is the most optimistic contractor surveyed. Schwickert hopes all areas of his business will experience revenue growth in 2003. However, when asked about new opportunities to generate revenue, he said, "We don't have any rabbits under our hat!"

Insurance market

Steve Sutter, president of Sutter Roofing Co. of Florida, Sarasota, says the insurance market in his area "sucks." Sutter Roofing's insurance coverage rose 15 percent to 70 percent; the company's automobile insurance premium doubled. Sutter reports he has heard umbrella coverage premiums rose as much as 200 percent for some unfortunate roofing contractors.

Bill Taylor, chairman and chief executive officer of D.C. Taylor, Cedar Rapids, saw similar umbrella coverage premium increases. He explains: "Our umbrella coverage supposedly will come in at about 35 percent of the price of underlying liability coverage. The umbrella price rose from $120,000 to $210,000, and this supposedly will go up another 50 percent next year."

The insurance situation is no better in the West. Kawulok adds: "The insurance market was tough with limited carriers from which to choose and large escalations in premium costs. More coverage exclusions and larger deductibles in policies were offered in our market this year. We expect 2003 to be the same or even tighter."

Don Guthrie, president of Wayne's Roofing Inc., Sumner, Wash., saw similar trends. He notes: "The insurance market is in chaos. Liability insurance premiums for most firms in our area took on about 20 percent to 40 percent increases while adding exclusions and limitations on the work contractors can perform. Because of a poor investment market, the state-managed workers' compensation program is projecting a 40.5 percent premium increase for 2003."

The economy

What do contractors expect to happen with the economy in 2003? Many seem to think there will not be much recovery, especially during the beginning of 2003.

"The overall market is poor and competitive," Schwickert says. "Some pricing in the marketplace is really scary. It will be interesting to see how many [contracting companies] make it through the winter."

Although Beldon does not expect 2003 to be a particularly profitable year, he is "cautiously optimistic that 2003 will be better than stagnant 2002." He says: "If it had not been for the rains, 2002 would have been a horrible year. We hope we will not repeat the first six months of 2002."

Some contractors are consoled by the fact that roofing is a necessary service that cannot be avoided.

Ribble says: "The economic outlook in central Wisconsin is not good. However, roofing is a service that only can be postponed for so long. At some time in the near future, demand for reroofing is going to make the roofing economy good though the general economy may be soft."

McKinney agrees and notes: "Things are down but not out. There still is roofing work to be done and businesses still are spending money on roofing. However, I see things getting worse before they get better."

Although Guthrie says Washington's economic outlook is uncertain, he foresees military work opportunities.

Guthrie says: "The global economy coupled with our aerospace- and technology-driven economy is not providing any substantial positive indicators. Also, our state government has a $2 billion deficit. That leaves both private and public spending uncertain and likely lessened. The only possible positive growth is in federally funded military spending on local military installations."

Other concerns

For the past several years, Professional Roofing's industry forecast has reported a lack of workers was roofing contractors' major concern. Some contractors now say finding workers is not such an impending issue.

"The work force is not an issue anymore," Sutter says. "Layoffs by other roofing companies and other industries provide a pool of eligible workers."

Denchfield also has no problem finding labor. He says, "We are fortunate we have an excellent work force and continue to attract new workers during this downturn in the economy."

Beldon is concerned about workers' qualifications. He says: "Work force has not been a huge concern in south Texas. Sure, we could use another 20 field workers. However, laborers are not hard to find. Our concern has been hiring skilled roofing workers. We continue to fight this battle daily and see 2003-04 as being no different."

Other roofing contractors can't find workers as easily as Denchfield and Beldon. Kaska says: "The construction work force still is an issue, and I believe it likely always will be an issue. Finding and retaining quality employees is a daily topic [of conversation]."

Jurin finds himself on both sides of the work force issue—he can't find workers to install roof systems or drive company vehicles but has plenty of workers to perform maintenance. Apparently, some roofing workers believe maintenance work is less demanding physically and mentally.

Jurin explains: "We are finding it difficult to not only find quality employees but also employees with driver's licenses—no matter what their skill levels may be. It has been substantially easier to staff our repair and maintenance divisions with quality individuals mainly because of the decreased pressure that exists within that job profile."

Similar to others, Will Fort III, president of Fort Roofing & Sheet Metal Works, Sumter, S.C., is having a problem finding workers, especially skilled sheet-metal mechanics. In addition to this problem, Fort says his company is preparing for government regulations that likely will arise because of litigation and health problems that surround current issues, such as mold. Birkman also is watching mold litigation issues, as well as contractual liability, insurance premium increases and work force concerns.

In addition, roofing contractors are following global conditions. Philippo believes the threat of a war with Iraq has somewhat effected business and the economy only can improve when the issue is resolved.

"All indications are we might go to war by February of next year," Philippo notes. "If we are or if we are not, the economy will improve once this has passed."

New view?

The phrase "cautiously optimistic" has been roofing contractors motto for many years when describing their outlooks for the economy and industry. However, only a few contractors said they were cautiously optimistic about any issues this year. This may indicate global issues, economic trends, government regulations and insurance prices are hindering roofing contractors' success.

Next year's forecast will reveal whether contractors' views improve and more can become at least cautiously optimistic.

Kate Gawlik is associate editor and Christina Koch is assistant editor of Professional Roofing magazine.