The North American submersible pumps market is a mature market in an uncertain economic climate, especially in the United States. Suppliers face a number of key challenges: general economic malaise, a housing industry downturn that has dramatically affected various markets including construction, and the threat of eroded funding (which affects the largest user industry: water/wastewater) from federal, state and local budgets.
However, while the short term picture appears somewhat bleak, we expect the market to eke out moderate growth during the next seven years. As presented in the recently published "North American Submersible Pumps Markets" report, the submersible pumps market is expected to experience a compound annual growth rate fewer than 4 percent (2008-2014), on 2007 base year revenues of approximately $175 million.
Key Growth Factors
While there are a number of challenges for revenue growth in North America, there are also several compelling factors expected to support growth:
• Environmental legislation encouraging manufacturers to produce
• Increased focus on services and solutions from an end-user
perspective driving sales revenues
• Upgrading aging and existing treatment plants boosting sales
Environmental legislation and enforcement has historically been a key market driver in the submersible pumps space. The Safe Water Drinking Act, reauthorized in 1996, facilitated the emergence of a more advanced water and wastewater industry in the United States, creating a demand for products such a membrane-based filtration, as opposed to traditional gravel and sand techniques. Compliance with regulatory issues is a critical aspect of the market, particularly in the huge water constituency. Aging systems and population growth create challenges for water operators to remain in compliance and provide adequate services levels to customers.
As water is increasingly viewed as a precious resource, there will be continued pressure-in spite of economic trends-for water system operators to adequately maintain and expand their systems. These converging factors are expected to support continued spend in critical components such as submersible pumps.
Another avenue supporting submersible suppliers' revenues is the provision of services and solutions (as opposed to simply providing a piece of hardware). A variety of end-user industries face key constraints or trends that have helped the service sector blossom for pump suppliers in general, including:
• A lack of qualified engineers on staff to specify and/or maintain
• Downsizing of organizations, which exacerbates the problem of
availability of personnel to attend to equipment
• An increased trend towards outsourcing all but core value-add
functions in process and manufacturing plants
These factors, among others, have contributed to an environment where pump suppliers have been able to enhance incoming revenue streams by basically becoming an extension of their customers' operating personnel. Pump suppliers now provide design and specification consulting, help properly size pump and system components for specific applications and provide various services from installation/commissioning to maintenance and life cycle cost analysis, even on units not of their own manufacture. Even in a strained market, opportunities for revenue enhancement have come from an expansion of the role of pump suppliers in their customers' operations.
The Water/Wastewater Industry
As Figure 1 shows, the water and wastewater industry is estimated to be a sizeable portion of the North American market for submersible pumps.
More than 50,000 municipal drinking water systems are in the U.S. water infrastructure. As a whole, U.S. communities have spent in excess of $1 trillion throughout the last twenty years on water/wastewater infrastructure, operations and maintenance. Much of this infrastructure dates from the World War II era, which means that, considering an approximately 30 to 40 year life expectancy, many systems can currently expect extensive refurbishment. Estimates of needs for infrastructure investment for potable water over the next 20 years top $150 billion. This includes upgrades and also expansion for significant population growth expected by the U.S. Census Bureau through 2020.
Regarding U.S. municipal wastewater infrastructure, the Environmental Protection Agency (EPA) recently released a report that concluded that U.S. investment in wastewater infrastructure could exceed $200 billion, based on the trends of aging systems, rising water quality standards and population growth. The bulk of this estimate (65 percent) will be needed for waste treatment systems, with the remainder going to sewer overflows (25 percent) and stormwater management (10 percent).
Despite this huge need for spending in the near and mid-term future, municipal spending is largely dependent on local, state and federal budgets. The magnitude of the need is not at issue-it is how these needs will be funded over the next few decades. While water providers struggle with budgets and funding, the bottom line is the health and welfare of communities. Deteriorating pipelines that inappropriately release water can have major economic, environmental and human health ramifications. The U.S. EPA is also looking with greater interest at water quality issues in the distribution segment (as opposed to in-plant), realizing that, as systems age, more data and tracking are needed to ensure water quality throughout the system. Although the price tag is high, the industry must modernize water systems.
Figure 2 shows the forecast for submersible pumps in the North American water and wastewater industry.
Regarding other North American countries, Canada has spent approximately $14 billion on water/wastewater infrastructure from 2000 to 2007. On the wastewater side, Canadian laws requiring strict performance standards for water purity (based on concentrations of suspended solids, etc.) will mandate equipment upgrades for many municipal facilities. This is expected to be a significant portion of Canada's $33 billion 2007 Infrastructure Plan (2007-2014).
Mexico has recently (late 1990s) begun addressing the difficult state of water infrastructure in the country, particularly in large cities like Mexico City. Erratic billing practices (or no billing at all), aged infrastructure, competing factions for water control, social resistance to the "commoditization" of water and a lack of consensus on advancements have kept the country's water/wastewater services at less than state-of-the-art conditions. Plans put in place to address the vast need there are promising, but much of the funding is sought from world agencies (such as The World Bank), where funding can be unpredictable..
There is significant opportunity overall for growth in the submersibles pumps market in North America given the general state of infrastructure in all North American nations. Growth will be tempered by the reality of government funding levels, and the length of time key economies are in no-growth or low-growth economic scenarios.
Written by Laurel Donoho and Prasanna Mohan, Frost & Sullivan