Five Septembers ago: Metal fabrication and the financial crisis

September 17, 2013
By: Tim Heston

In hindsight, it’s ironic. It was early September 2008, and FABTECH was set to open in Las Vegas in a few weeks. Up until that point a hot bed of growth, especially in real estate. But then Lehman Brothers declared bankruptcy.

Still, even a few weeks into the crisis, the metal fabrication community seemed optimistic. The first day of the show, on Oct. 6, broke attendance records. Shop owners seemed optimistic. Sure, people in real estate, including many of those in and around Sin City, had a lot to worry about. But many fabricators are notoriously conservative when it comes to debt.

Over the next weeks, I called various companies, just to get a status update. How was business? Most told me that things were going just fine—no problems yet. Then, between November 2008 and January 2009, panic set in. Orders were pushed back, then canceled. Soon, I found myself updating my Rolodex®. People were losing their jobs. Many fabricators, some long-time contacts of mine, just weren’t there anymore.

Five years on, what has changed? Many fabricators find that they have fewer competitors, and that demand is on the rise, thanks in part to reshoring trends, though it depends on where a shop is located and its customer mix.

Does this mean they’ve been able to raise prices? Not likely. According to the recently released 2013 Financial Ratios & Benchmarking Survey, profits have stayed nearly flat for many, and margins remain on the low side. The EBITDA margin average is a little more than 10 percent. Despite increased demand and a decreased supply of fabricators (at least in certain markets), downward pricing pressure continues unabated.

What has changed since the financial crisis? For many, it’s been a time of bold moves. It’s not just about making piece-parts anymore. It’s about design and engineering services, and getting in on the ground floor of new part programs. More fabricators also are fabricating entire subassemblies, sometimes managing the entire manufacturing process, from fabrication to mechanical and even electrical assembly. As OEMs have downsized their own engineering departments, such tasks have been pushed down the supply chain.

We’ve seen a few large fabricators, like plate fabricator O’Neal Manufacturing Services, expand their national presence. But for the most part, this business remains a small-shop endeavor.  Still, among small shops, we’ve seen more companies compete through collaboration, with disparate, small, noncompeting companies joining forces to sell their complementary capabilities—from plate and sheet metal fabrication to powder coating and precision machining. (We’ll be covering one such group in an upcoming issue of The FABRICATOR.)

In short, many are marching away from the commodity, quote-and-bid business, and developing partnerships with customers—relationships that would be very inconvenient to break. That brings growth and, most important, stability. And considering the roller coaster ride manufacturing has gone through since the dot-com bust, stability is not something manufacturers take for granted.
Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314