Growing Pains

Glass companies celebrate the busiest year since before the recession, while preparing for the challenges of higher demand
Katy Devlin
January 30, 2015
COMMERCIAL, RETAIL, FABRICATION : FLOAT GLASS NEWS

The North American glass industry—first mired in the Recession and then in the construction market’s unsteady, sluggish recovery—is at last headed for a year of significant growth. U.S. employment has rebounded, confidence is high, and commercial construction is headed for double-digit growth, according to forecasts.

Quote 1“For the first time in 10 years or more, all of the economic segments [affecting the glass industry] are positive—in construction, institutional, hospitality, office, health care; in residential, new and remodeling; and automotive. All forecasts point to positive growth,” says Pat Kenny, director of marketing for PPG Industries.

“When we look at 2015, we anticipate more aggressive growth since the financial crisis,” adds Stephen Weidner, vice president at NSG Pilkington. “Most articles and major economic indicators show a U.S. economy that is stronger than the rest of the world. We are healing faster now.”

Companies throughout the glass supply chain are beginning to witness improving market conditions. “Some of the leading façade companies are sitting on unprecedented backlogs of booked projects. Our industry lags the market by a couple of years, so the workload for these companies should continue to ramp up through 2015 and remain strong at least through 2016,” says Mic Patterson, director of strategic development for Enclos.

However, as glass companies prepare for the busiest year since before the Recession, they face the pressures of increased demand in a much-changed industry. In the last six years, float plants have closed, lines have shut down—the industry has lost capacity. A substantial number of workers have left, and many aren’t expected to return. And, long-depressed prices and material costs are now beginning to rise. “There is enough building activity in the boom markets to stress supply chains, resulting in longer lead times, labor shortages and rising prices; all can be expected through 2015,” Patterson says.

“With the good news and growth come challenges,” says Jeff Haber, managing partner for W&W Glass LLC. “Good organizations with good plans should be able to navigate the next year, while everyone else is playing catch up.”

Capacity Concerns

Concerns over glass capacity came to the forefront in fall 2014, when the North American glass industry began to feel a pinch in supply as market conditions surpassed expectations.

Quote2“While our prediction models portrayed a stable growth curve, it unquestionably spiked and reached a pace that was not anticipated, nor were we prepared for,” says Garret Henson, vice president of sales and marketing at Viracon. “This was fabulous for our industry, but created a remarkable amount of capacity stress for many of us.”

These concerns are primarily focused on the future availability of float glass. “Glass is tight—it’s the tightest we’ve seen in a while,” Weidner says. (For information about capacity in fabricated glass and metal products, see the sidebar, Fabrication and Metal Capacity Begin to Rebound.)

In the last decade, float glass capacity has shrunk by about 30 percent in North America, sources estimate. As the construction market has improved in recent months, the trend toward capacity reductions for the architectural glass industry has only continued. In November 2014, Guardian Industries officials announced the closure of the company’s Floreffe, Pennsylvania, plant, scheduled to shut down this month; and in July 2014, PPG Industries’ Mt. Zion, Illinois, facility was sold to Fuyao Glass America Inc. for the production of automotive glass. (For more information on capacity reductions during the last decade, see Brave New World of Glass).

“There is very little doubt that we are heading towards a very tight supply/demand situation,” says Serge Martin, vice president of marketing for AGC Glass Company North America. “It is public knowledge that the North American production capacity has been reduced by about 25 to 30 percent over the last eight years, and the latest public announcements continued to follow this direction.”

“The entire group of North American raw glass suppliers has been very vocal on their concerns for future availability,” Henson says. “If their forecasts are accurate, float glass availability will be problematic for our industry. [Viracon] began to prepare for this more than a year ago. If you are starting to think about this now, you are likely too late.”

Industry officials say they don’t expect float capacity to rebound anytime soon due to the exorbitant costs of refurbishing and restarting a float line, let alone building a new plant, combined with payback uncertainty.

“Melting is hugely capital intensive. When considering adding capacity, companies have to first look to whether they should repair the lines they have,” says Martin, noting that AGC did restart its G1 float line in Greenland, Tennessee, in 2013. “Beyond that, they have to consider if they want to put a new line in place, which is three times the investment. Investors and shareholders want to see that strong business conditions are more sustainable before making such a large investment.”

“We don’t expect to see new float capacity coming into North America for several years,” Weidner says. “Even with $100 million to dedicate to building a new float plant, there are still big financial risks involved. The industry hasn’t been profitable, and [companies] have been reluctant in North America to add capacity.”

Maximizing Capacity

With capacity expansion unlikely in the near term, companies can take measures to ease strains on glass supply and take advantage of the better market by improving processes and supply chain management, sources say.

“We need to use a more organized approach to the existing capacity,” says Richard Beuke, vice president of flat glass for PPG Industries. “If we don’t, capacity will be strained. This is not different than what happens in many industries after an extended downturn. It takes a long time for reinvestment to occur, and for that reinvestment to ramp up.”

The glass industry during the Recession became ultra-transactional. Slow market conditions allowed for minimal lead times on almost any product type, sources say. “Over the last six years, a customer has pretty much been able to pick up the phone anytime, anyplace and get any glass they want. It’s not going to be as easy [this] year,” Beuke says.

“We will no longer be able to provide just-in-time service,” Weidner says. “We are telling customers to simplify their inventory—to reduce SKUs, eliminate sizes. We’ll have to do things a little differently going forward.”

Long-term planning and collaboration among all players in the supply chain will ease pressures. Glass fabricators, for example, should work closely with their manufacturing partners to determine when specific types and sizes of glass will be available. Ordering early, and ordering more homogeneous loads, can smooth the process and reduce capacity constraints, sources say.

Glass manufacturers have been pre- paring for the increasing demand. PPG, for example, has developed programs to help optimize the project planning and execution process for their customers, Beuke says.

“We have more forecasting tools available for our customers,” PPG’s Kenny adds. “For example, the Concierge Program [is intended] to help ensure our customers have the right glass at the right time. It won’t be easy, but I think we understand the challenges, the solutions, and we will have all the glass customers need to capture the upturn.”

Some fabricators are also instituting project forecasting programs. “We have set programs and tooling in place [to help us plan better and forecast for projects] to make sure our raw glass needs are met and to eliminate the shortage issues others are currently experiencing,” says Antonio Aftimos, director of sales for Cristacurva.

However, even with careful planning, longer lead times are likely. Companies, particularly those working with the end customer, should factor them into project planning and bidding.

Quote3“Communication up and down the channel is key for this construction cycle,” Henson says. “Glazing contractors should utilize their key fabricators as an asset during their project bidding process. It’s all about transparency, trust and execution against a project schedule. If we’re not helping them manage the project, the project will likely manage them. That’s not the outcome any of us want.”

More complex projects will require even more time, Haber adds. “As projects become more complicated, the glass takes longer to process. Get your slots with vendors early,” he says.

Labor and Logistics

Just as important as glass supply in the improving market is sufficient labor. Even if glass companies are able to get glass when they need it, they need to ensure they have the employees to handle increasing glass loads and access to the truck drivers to transport it.

Even before the Recession, the glass industry was faced with a two-pronged labor crisis—an aging workforce matched with a shortage of new employees. “Our industry is full of people who have been around for a long time. It’s top heavy—age heavy,” Weidner says. “We haven’t been able to attract new talent for quite some time. ... Glass manufacturing, fabrication and installation are not considered exciting professions to young people. But, we need to find a way to attract this new talent at all levels to bring vibrancy, new ideas and new perspectives into the market.”

Manufacturers and fabricators report that engineers and other skilled labor positions are the most difficult to fill. “Qualified technical staff is the biggest challenge. It probably speaks to an overall issue in the manufacturing industry and to the fact that the glass industry has not been the most attractive segment over the past few years,” Martin says.

“We frequently have openings for skilled labor and specialized engineers,” Henson adds. “We have spent considerable capital on automation within our facilities. This has created a shift in human capital needs towards computer engineers, software specialists, etc.”

Perhaps an even more immediate labor concern for the glass industry going into a busier 2015 is the shortage of truck drivers. “With the overall economy recovering, everyone is competing to get trucks. Transportation capacity has been reduced in the same way that float capacity has. ... We are going to feel the pinch as the market gets stronger,” Martin says.

“The current challenge is transportation—getting the glass to your location, especially when it needs to be delivered on a flatbed truck,” says Robert Krause, director of purchasing for Paragon Tempered Glass LLC.

“Transportation issues have affected our on-time delivery of final product to our customer base,” adds Rob Taliani, vice president of sales for W.A. Wilson Inc..

According to the American Trucking Association, the trucking industry is faced with a shortage of 35,000 drivers, and that shortfall could grow to 240,000 by 2020. Glass companies should prepare for transportation difficulties in the coming year, and should take steps to fully utilize all truck loads, sources say.

Cost Inflation

Wrapped up in concerns over capacity and labor constraints are rising cost pressures. As the overall economy and the construction market improve, glass companies have seen cost inflation across all segments of their business.

“Prices are driven by supply and demand in a free market, so there is little doubt that price pressure will be observed and that it will trickle down the entire supply chain,” Martin says.

Quote4“Industry authorities have been very vocal about cost inflation and they’re generally spot-on. Raw materials, labor rates, employee turnover, freight fees, health care, energy, equipment modernization, etc., all create meaningful impacts to a company’s business model that directly affect costing,” Henson says. “Generally speaking, these costs are rising and once they outpace your models, you have to react.”

One growing issue of cost concern for glass manufacturers in particular has been the availability of high-quality sand for the production of glass. “The glass industry in the U.S. is now also competing for raw materials—the fracking industry requires a lot of good quality sand. This is putting more pressure on the industry,” Martin says.

Sources say that cost inflation, combined with generally depressed pricing for glass, will lead to product price increases down the supply chain.

“We have all emerged out of the Great Recession, and raw and fabricated glass prices during that time were incredibly depressed,” Henson says. “Cost inflation was a necessity for survival for many of them. Glass fabrication is a highly engineered and customized offering. If demand outpaces supply in any market or industry, one should expect pricing pressures.”

The industry has already started to see some price increases, including double-digit increases for float glass products, according to industry reports. Several glass fabricators and metal suppliers also announced price increases in fourth quarter 2014.

“The whole supply chain suffered a belt tightening over the last five years,” Haber says. “As the economy gets better, it stands to reason that everyone should begin to benefit, particularly as the industry supplies more and more value-added products. However, the key is making sure no one party becomes unequally affected by price increases.”

Katy Devlin is editor for Glass Magazine. E-mail Katy at kdevlin@glass.org.