US operators gain new labor analysis tool to benchmark productivity
Craft labor supply is under pressure from rising construction demand and a new online tool is set to simplify productivity metrics and benchmark against other projects to cut costs and spur workforce development.
US craft labor productivity is in decline amid one of the busiest construction cycles ever seen in North American refining and petrochemical history.
Surging construction activity and competition between sectors has tightened the supply of skilled labor to petrochemicals projects.
Total U.S. construction spending has risen steadily since 2011 and construction employment increased by 36,000 jobs in January to the highest level since November 2008, according to an analysis published by the Associated General Contractors of America (AGCA). President Trump’s planned support for new infrastructure projects is set to re-energize the sector.
US annual construction spending
(Click to enlarge)
Gulf of Mexico craft labor markets are expected to tighten in 2017 as a resurgence in planned downstream maintenance activity will see operators compete against construction projects for roles such as pipefitters and welders.
Faced with labor poaching and an ageing workforce, companies must improve workforce development in order to raise output.
“The reality is we are losing construction workers at roughly twice the rate they are coming in,” Daniel Groves, director of operations at the Construction Users Round Table (CURT) and CEO of the Construction Labor Market Analyzer (CLMA), said.
“This could be attributed to the age of the workforce as skilled labor retires. It can also be a result of a project ending or a company having layoffs and the laborers look for another job in a different industry,” he said.
High demand for quality crafts is impacting productivity on petrochemicals projects, Tony Salemme, Vice President of consultancy firm Industrial Info Resources (IIF), said.
“With accelerated demand, the solution is to compete for travelers and you have to compete with traveler wages and pay per diem and incentives. Labor costs go up and then you have less productivity as well,” he said.
Total labor costs for a 1.5 million ton per year (mtpa) ethane cracker on the Gulf Cost in a base case scenario are estimated at slightly over $1 billion, representing a total of about 11,714,245 man-hours, according to Petrochemical Update’s U.S. Ethylene Plant Construction Costs Quarterly update.
Average hourly earnings for construction workers rose 3.2% over the past year to $28.52 per hour, compared with a 2.5% rise for all private sector workers, according to the AGCA. Average hourly private sector earnings are currently $26.00 per hour.
Southern hot spots
There are currently eight ethane crackers under construction on the U.S. Gulf Coast. Six of these are slated to come on stream by the end of 2017, representing more than 7 million tons per annum of new ethylene capacity. Ten more ethylene facilities have been proposed for the Gulf Coast and the U.S. Northeast, eight of which are in development.
The next wave of US ethane cracker projects
Source: Petrochemical Update’s U.S. Ethylene Plant Construction Costs Quarterly update
In addition, the U.S. could see around 40 downstream oil turnaround projects executed in the next five years as operators look to maximize profits from existing assets.
The Gulf Coast and South-east regions continue to be the tightest in terms of construction labor supply, highly-skilled crafts such as welding, ironwork, millwork, electrician, pipefitters, and operators, Groves said.
There are several U.S. metropolitan hot spots where supply of craft labor is not meeting accelerated demand, including Lake Charles, Louisiana; Houston and Corpus Christi, Texas; Los Angeles and San Francisco, California; Pittsburgh, Pennsylvania; New York City; Columbus and Cleveland Ohio; Augusta and Atlanta, Georgia; and Miami and Tampa, Florida, Salemme said.
Sprawling construction around cities like Houston has meant many project owners are still having to pay workers extra for travel, he said.
“Crafts may be available 70 miles from site, but then they don't want to make that drive daily or move their families.”
A trio of construction industry associations is to launch this year an online tool to track labor productivity and address declining performance levels.
The platform aims to create a common accepted methodology by which projects can be benchmarked through the CLMA. The platform uses productivity data from CURT and the Construction Industry Institute (CII).
The tool will allow companies to input projects into the CLMA in the planning stages and track productivity over the entire life-cycle, providing a forward-looking view and a simplified productivity score over chosen periods, Groves said.
"It will have the capacity to look at a number of key data points and translate this data into a single score so that companies can measure how productivity looks against other projects and other companies,” he said.
"We will look at many productivity data points, such as hours per million dollars of total installed cost (TIC), units installed, direct and indirect cost, and more, in order to settle on a common metric,” Groves said.
“A lot of people refer to the Gulf Coast Standard when considering craft labor productivity, but this is not a written, institutionalized way to measure productivity," he said.
Petrochemicals projects can be impacted by shortages in craft labor for residential construction sectors, as this shrinks the pool of potential entry-level industrial construction workers.
Residential construction, comprising residential building and specialty trade contractors, added 20,300 jobs in January and rose 128,200, some 5%, over the last 12 months, according to the AGCA.
“It creates challenges for productivity because the new labor we bring in is not skilled or trained enough and there is time taken away from the project to develop the skills for workers with less experience,” Groves said.
In high demand areas, headhunting of skilled labor is also driving up wages and impacting ongoing projects.
Improved workforce development in the petrochemical sector can help reduce the risk of employee poaching and provide more stability to project developers.
CURT has continued to recommend more focus be placed on employee development but Groves said the industry could do more to train and develop workers.
“Owners and contractors should be required contractually to invest in workforce development. This is not punitive...It will do for the workforce what safety requirements did for industrial safety," he said.
By Heather Doyle