Maintenance in Australia 2010?2025 is BIS Shrapnel?s fifth review of the maintenance industry. It reports that while overall maintenance spending fell in the economic downturn, activity will pick up strongly through to the middle of the decade across a range of infrastructure and non-residential building sectors.
For contractors, the report?s outlook is even rosier, given the rising baseload of work and outsourcing of more maintenance tasks in the next five years. BIS Shrapnel forecasts the market for contract maintenance will rise 25 per cent by 2014?15 to $21 billion.
According to Adrian Hart, senior manager of BIS Shrapnel?s infrastructure and mining unit, firms operating in the maintenance sector did it tough during the Global Financial Crisis (GFC).
?Maintenance spending from asset owners decreased in the economic downturn as firms cut all non-emergency expenditure to control costs,? says Adrian. ?Even when confidence was restored in 2009, private sector maintenance did not pick up right away. Tight budgets and pull-back in life cycle or periodic maintenance meant that maintenance spending was on pause during the GFC.?
Nonetheless, BIS Shrapnel forecasts that the $32 billion maintenance industry is on the cusp of major expansion.
?Stronger economic growth in the medium term will see assets worked harder,? says Adrian. ?Combined with rising incomes for asset owners, this should lead to a catch up of maintenance. High levels of construction pre-GFC will also produce an increase in maintenance requirements in the medium term.
?At the same time, some sectors like electricity and water require significant maintenance expenditure to keep assets at existing quality and service levels and this should provide a floor under utilities maintenance spending,? he explains.
RISKS TO THE OUTLOOK
BIS Shrapnel points out risks to the forecast growth in maintenance activity, including the success in implementing ?whole of life? asset maintenance strategies and likely skills shortages in the maintenance industry as the next construction boom begins.
?There are many sectors where assets have not been adequately maintained in the past and this situation may persist or get worse,? says Adrian. ?In some cases, such as roads, it comes back to inadequate public funding for maintenance over many years which mean older roads have to be rebuilt at substantial cost.
?Meanwhile, in the mining sector, it may simply be more economic to run assets down and replace them after several years, rather than incur significant maintenance costs to prolong their useful lives.?
BIS Shrapnel says the bigger threat to maintenance activity in the next few years will be the industry?s capacity to undertake the next cycle of work that comes through. The company has concluded that significant labour shortages are emerging across the industry sectors in the early stages of the next economic upswing.
Maintenance workers require a specialised skill set and in many instances substantial investments in training are necessary before workers are up to speed to undertake the work.
?The skilled labour shortages and the long lead times in training is a risk to the outlook,? explains Adrian. ?This is something that should be addressed without delay through appropriate government policy.?
CONTRACTORS WELL PLACED
BIS Shrapnel says that external contractors undertake over half of all maintenance activity. This proportion varies from sector to sector, and from State to State, according to public sector contracting philosophies.
?We estimate contract maintenance work was $16.7 billion in 2009?10, with the non-residential building sector the largest market,? says Adrian. ?By contrast, only a relatively small proportion of the substantial road maintenance sector is contracted out, given low rates of outsourcing in New South Wales and Queensland, the two largest markets.?
Adrian Hart believes contractors will win more work over the next five years as base levels of maintenance activity rise and as organisations look to more innovative contracting methods, such as alliances, long term agreements and ?build and maintain? options to meet maintenance requirements.
?Overall, we expect contract maintenance to grow 25 per cent in the next five years, with the strongest growth in mining, manufacturing and railways,? he says. ?Contract roads maintenance will also rise, and could rise further if State elections in New South Wales and Queensland bring reforms to maintenance arrangements. Relatively weaker growth is expected in telecommunications, non-residential building and defence estate maintenance.?
OUTLOOK FOR KEY SECTORS
Roads
While maintenance activity will be strong in the medium term, BIS Shrapnel forecasts road maintenance spending will decline in the next three years.
?We believe the positive drivers for activity since 2007?08 will come undone in 2010?11,? says Adrian Hart. ?The first signs of weakness in local maintenance funding was seen in 2009?10 and this will deteriorate further in 2010?11. Overall, road activity will record its first fall since 2006?07.?
However, BIS Shrapnel forecasts a strong rebound in road maintenance from 2013?14.
?This will become the sustained upswing road maintenance has needed for two decades,? he says. ?The rebound will be driven by improved funding conditions, growth in the asset stock over many years of high investment, increasing traffic and congestion and road life cycles nearing their ends.?
Mining
BIS Shrapnel says maintenance activity in the mining sector will grow strongly due to pent-up or periodic maintenance across many commodities. Strong demand for minerals, rising capacity utilisation, rising profitability, and another cycle of investment in energy, iron ore and coal will drive rising levels of maintenance work.
Rail
Rail maintenance expenditure will record robust growth in the next five years.
?This reflects an ongoing backlog of maintenance and the urgent need to return rail infrastructure assets to their steady State level,? says Adrian. ?The initial increases expected in maintenance will be driven by the public sector, with improvements in private sector maintenance emerging from 2012, when the commodity investment cycle ramps up again. Overall, maintenance expenditure on rail in the next five years will be 33 per cent higher than in the five years to 2009?10.?
Industrial
BIS Shrapnel believes maintenance In the industrial sector will be one of the strongest growing areas of activity. The maintenance backlog, built up in the boom investment period prior to the economic downturn, combined with improved market conditions and strong profits could see maintenance rebound for both the heavy and light manufacturing sectors in the next few years. A greater attack on the backlog will occur from 2012?13.
Source: BIS Shrapnel/Watterson Marketing Communications