Two major reports about the construction industry released late last year contain similar prognostications: the industry will have a dip in activity in 2001 and rebound the following year to near-2000 levels. FMI Corp., in its Fourth Quarter 2000 Report, and CMD Group's North American Construction Forecast, see economic cooling as the main reason for slower growth.

FMI chief economist Thomas Loy sees the economy on a "glide path, homing in on another soft landing."

"The economy will continue to drift downward and will execute its soft landing about midyear, 2001, at which time it will begin a rather energetic rebound," Loy says. He expects construction put in place to increase by five percent in 2001.

Single-family housing will drop slightly from big years in 1998 and 1999, and will be down about four percent in 2001. New industrial construction will follow a slight downward path, too, Loy says, ending 2000 up six percent and showing a one-percent increase in 2001.

Bill Toal, chief economist for the Portland Cement Association, spoke at the North American Construction Forecast conference late last year. He expects a 1.3 percent increase in construction overall in 2000 to fall off by 1.9 percent in 2001, and rise 1.3 percent again the following year.

A third chief economist, David Seiders of the National Assn. of Home Builders, says that homebuilders and their suppliers face shortages of labor, labor skills and some materials. Overall, however, Seiders sees the same small dip and recovery over the next two years that was noted by Toal, including single-family housing starts which he expects to drop from 1.26 million in 2000 to 1.21 million this year. Seiders expects a gain to 1.24 million starts in 2002.

According to the 2001 Construction Industry Survey, a national survey by CIT Group, the "optimism quotient," a figure derived from survey answers, found that 36 percent of contractors expect more activity this year but 15 percent expect less. In 2000, only nine percent expected less new business.

So, while many markets will remain robust throughout the year, distributors need to be prepared for markets that may go down. There are mixed signals, but three areas of concern stand out: labor and hiring, transportation construction and the use of the Internet.

Jim Henderson of Dynamic Sales Co., St. Louis, says his company had a record sales year in 2000, and expects another very good year in 2001. Dynamic Sales specializes in welding equipment.

"There may be a small drop [overall in construction], but you wouldn't know it in the St. Louis market. We're building or rebuilding all of the Interstate 70 corridor. We're doing all the interchanges. There's a lot of new construction approved and I don't see a downturn coming," Henderson says.

His business is based on service at the customer's site and offices, and he is not concerned with "big box" suppliers that may move in. Distribution, he says, means service and delivery a Home Depot does not provide.

"The customer doesn't want to pay someone to go [to a home tools retailer] and wait around and search for products. We eliminate that problem," he says.

Jim Smith, president of Nail Fast, Inc., in Albuquerque, New Mex., says that construction put in place and new contracts in his area have been slowing for several months. He feels that contractors are "hanging in mid-air, with a lot of things suspended because the economy nationally is impacted negatively."

"I think [construction growth] will be a few percentage points slowed down, but the feeling here is one of 'wait and see'," says Smith. "Our biggest employer is Intel, Inc., and they are slow. We've seen that impact new housing, which has slowed substantially."

Smith notes that commercial construction has not been as hard hit as housing, but new home building is down about 12 percent in the last two years. However, government contracts, like schools and hospitals, have been holding steady.

Smith also sees 2001 as a year of more distributors and manufacturers battling for the same business. "Growing this year will be harder and harder. We'll compete against consolidation. One thing that will be difficult is to grow profitability. It's hard for a power tool distributor to bring in a new product, promote it and train for it, and have a "blitz," when the tool may be available at a big box and we make perhaps $10," he says.

A slowdown is evident in the market areas of Denver, Seattle, Portland and Salt Lake City, according to Jordan Bader, vice president of marketing and business development at Acme Construction Supply Co., Inc, of Portland, Ore.

"We're hoping it won't be like 1997-98, when [spending on construction] just stopped. It didn't even taper down. Our hot market for several years has been high-tech building, and that is cooling in Seattle and Portland, a very high-tech oriented area," Bader says.

The CIT Group 2001 survey found that 47 percent of contractors and 31 percent of distributors consider "the lack of a quality workforce" to be the most serious problem facing the industry. Eighty-eight percent of all contractors are concerned about being able to find qualified workers.

Associated Builders & Contractors' president Henry Kelly says in a recent report that "the most important asset to the continued strength of the U.S. construction economy is the skilled construction craftworker. We estimate that some 250,000 new craft workers are needed yearly."

Smith says that the employment situation in his region is very tight and many workers are not getting the skills they need to be promoted, or fill the open positions.

"We're small and won't add a lot of people, but the general contractor has no skilled workers. The problem for distributors and contractors is much the same. The people out there have few or no skills, and an attitudinal problem in that they seem to want more money for the same job, not to gain education to get a better job. Training gets to be something they don't want. People don't realize they need to want to learn," says Smith.

The advent of the Bush administration means that projects like a natural gas pipeline from Alaska to Canada and on to the continental United States will likely move forward. Construction projects like that, with the necessary support and subcontracting included, will mean many new jobs and new revenue coming into the industry in the next year, according to Engineering News-Record in December.

Huge contracts like the Alaska pipeline will take longer than a year to get into full swing (the research and application stages will take all of 2001), but the start of real growth in the non-building sector may well be upon us. BP, Phillips Petroleum Co., and Exxon Mobil will work together throughout the year on a $75 million program to research the route and design the pipeline.

But while the project holds great promise for some distributors and other suppliers, contractors face high prices of fuels like propane, natural gas, gasoline and diesel that rose to near-record levels last year and remain very high. The cost of fuels for major construction activities continues to be one of the major budget busters this year.

Henderson sees little weakening in road and bridge building and repair, but he knows that distributors will have to work harder and smarter.

Smith says road and bridge building, and other non-building projects, were the strongest segment in his southwest region last year and should remain that way for 2001. He thinks school building will be strong, as well.

And Bader, who uses information compiled by construction forecaster F.W. Dodge, says he expects road and bridge work to be flat, with perhaps less than five percent growth in the Salt Lake City and Seattle areas.

Some more encouraging news came for transportation builders from Bill Buechner, vice president of economics and research at the American Road and Transportation Builders Assn. He says that federal highway spending is expected to be up 11 percent in 2001. Work put in place in 2000 trailed that of 1999, he said, probably due to factors other than contractors' ability to accept more work.

The distributors we talked with were in various phases of "getting on the Web," but all acknowledged the need to have a presence and be visible — and keep a close watch on their competition.

Through last year and into this, much of the talk concerning Internet companies was about one thing: shakeout. Who would last in supply chain e-markets? Would new startups appear despite the closing of so many seemingly promising commerce Web sites?

Most importantly, how and with whom do you get involved? Is the time right?

They are difficult questions, and those with a limited amount of capital, and perhaps more importantly limited time and personnel, can ill afford to join a dot-com that imminently fails. One report on e-commerce in the industry indicates that only 0.5 percent of transactions in the $1.4 trillion market was done last year in e-commerce. However, e-Marketplace Shakeout, by Forrester Research of Cambridge, Mass., expects Internet B2B commerce to top 10 percent of the market by 2004.

Distributors can immediately take advantage of market-specific Web sites like buildpoint.com and buzzsaw.com by simply logging in and submitting name-and-address type information, and simply responding to public RFQs. You can choose the sites in which to make yourself known, and build a clientele without having special training and expensive software, and the extra personnel needed to run it.

Buildpoint.com has been in business for 21 months, and co-founder and vice president of business development Florian Aalami says that one of the wisest decisions the company made was to concentrate on concrete, electrical and mechanical markets segments.

"About [June, 2000], we were very focused on being narrower since we couldn't have bidding and procurement services that were a mile wide, but only an inch deep. This meant we could deliver a lot more back end integration on the buyer's side. For example, in concrete, we have a deep and specific catalog."

Aalami, who has a doctorate in construction technology from Stanford University, says by concentrating, buildpoint.com can deliver its services more efficiently, on a neutral platform, and save more time and money for customers. Over the rest of 2001, he says, buildpoint.com plans to solidify the three sectors.

"What really matters to the distributor [in doing Internet business] is the sheer volume of data coming for price quotes, RFQs, and follow-up. That needs to be simpler, and we can do that," he says.

Buildpoint's core business is project management services, and the company added product services later, he says.