Labor shortage deepens after hurricanes

Many refineries and petrochemical plants along the U.S. Gulf Coast did not receive significant damage from Hurricane Harvey, but thousands of homes, businesses and infrastructure were not so lucky. Capital projects and rebuilding efforts will compete for labor, which could drive up costs and cause labor shortages, experts said.

The U.S. Gulf needed some 37,000 travelers to meet labor demand, and now hurricanes have exacerbated the situation. Photo: Fluor

Industrial investment in the U.S. Gulf Coast is expected to hit $51.9 billion in 2018, and will require an all kinds of  labor including pipefitters, ironworkers and other craftsman, according to Industrial Information Resources (IIR).

Investment in the U.S. Gulf Coast has been booming for more than five years as the industry takes advantage of low cost shale based feedstock. Since 2013, the total man hours required to meet labor demand in the metropolitan areas of the U.S. Gulf Coast has grown by some 40%, according to IIR.

“The impact of Hurricane Harvey on the timing of active capital projects along the U.S. Gulf Coast will be felt for months and perhaps even years to come,” according to Tony Salemme, vice president of IIR’s Craft Labor Group. 

“Labor will remain tight and wages should increase,” Salemme said. “Shortages in mechanical and electrical crafts will be the worst. Operators will be in extreme shortages and soft crafts such as painters will now experience shortages where there were none prior.”

Storm impact

Harvey was a Category 4 hurricane when it made landfall in Corpus Christi, Texas on August 25. It then went on to dump record quantities of rain along the Texas Coast and into Louisiana before dissipating nine days later. 25 trillion gallons of water total spilled over the U.S. Gulf Coast region, causing an estimated $190 billion in damage. 

The storm is responsible for the worst flooding in U.S. history, and is the costliest natural disaster in U.S. history, according to the Federal Emergency Management Administration (FEMA).

Image: Space Science and Engineering Center, University of Wisconsin-Madison

“The lasting damage is mostly confined to housing and small businesses like retail, bars and restaurants, dry cleaners, grocery stores, etc.,” said Bill Gilmer, director of the University of Houston’s Institute for Regional Forecasting.

Gilmer predicts about 18 months of rebuilding work in Houston.

“We are on the brink of a short but intense boom led by reconstruction,” Gilmer said. “After every storm comes the clean-up and repair, and we will see soaring sales of automobiles, wallboard, carpet, and furniture.”

There are hundreds of plants in terminals, distribution, manufacturing, food/beverage, metals, and other markets that will now have new spend to re-start operations, Salemme said.

“Equipment required to re-start these plants are not available or in inventory (supply chain), exacerbating the situation and construction schedules,” he added.

In the months ahead, there could be shortages of construction materials and items like valves, pumps and copper, Salemme said. "Everybody is going to want it all at the same time."

Hurricane Irma has compounded the situation, as repairs in Florida and the East Coast require the same laborers, insulators, copper wiring, and more, he added.

Labor market

Hurricane Harvey and its aftermath could exacerbate an already tight labor market for the affected areas in Texas, which include Harris County, the Houston Ship Channel, Baytown, Texas City, Galveston and Freeport. These areas have shortages of local journeymen in 10 of the 12 studied crafts, according to Salemme.

Image: IIR

“In 2017, the Houston metropolitan area has been experiencing a consistent pattern of skilled labor shortages in certain crafts,” Salemme said. "We have repeatedly said that we are in historic demand levels since the peak of 2015. The Gulf needed some 37,000 travelers to meet 'demand,' and now with Harvey the problem will be worse." 

Houston construction labor competes with Corpus Christi, Texas, and Lake Charles, Louisiana, which are paying higher wages and per diems to attract labor to the large mega projects that have been underway for several years now.  

A tight labor market has allowed for extra compensated journeymen in several crafts, including scaffold builders, pipefitters/plumbers, boilermakers, operators and welders.

“We are hearing that some owners and contractors are paying $85 per day per diem without travel restrictions,”Salemme said. “This is not necessarily a new practice, as owners and contractors have paid per diems, completion bonuses and other compensation in lieu of raising wages as a means of attracting labor these past few years.”

Millwrights, electrical and instrumentation persons are expected to be in high demand for plant re-commissioning, Salemme said.

“It will be important to assess how the delays at construction sites already in progress, which are already at high/historical levels of current man-hours, will affect the labor market,” Salemme said. “These uncompleted projects will have new shortages to face when the large number of construction starts begin, many slated for kickoff in the fourth quarter of 2017.”

Impact on projects

There are 20 active and unconfirmed capital projects, worth nearly $2.6 billion, in Harris County alone that are currently expected to kick off construction in the fourth quarter of 2017, according to IIR.

This does not include the balance of projects in the Greater Houston metropolitan area.

“These new construction starts will join the frenzy in the Gulf Coast Labor Market, which is already struggling to handle the 42 capital projects (worth $7.4 billion) that are now in the construction phase in Harris County,” Salemme said.

Image: IIR

IIR expects wages to increase and per diems to be more prevalent for projects with starts in late 2017 and in 2018, a situation that will likely cause recruitment challenges.

“Even in the forecasts prior to Hurricane Harvey, this region's level of demand for skilled labor was quite substantial, verging on near historic levels,” Salemme said. “The results of this storm will only prove to bump that demand a bit higher.”

By Heather Doyle