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Katrina hits construction industry across U.S.

The impact of Hurricane Katrina can be felt on the construction industry as far away as Hawaii.

The impact of Hurricane Katrina can be felt on the construction industry as far away as Hawaii.

"I was already concerned over the last six months over the rise in construction costs," said Jeff Arce, chief financial officer of The MacNaughton Group, a Hawaii developer. "This in all likelihood is going to make it worse."

Prices for diesel fuel and other petroleum and natural-gas products, cement and tires for heavy equipment are already rising, the Baltimore Business Journal reports. Prices for lumber and labor are expected to soar. And delays in projects are likely coast-to-coast.

Damage to refineries and pipelines caused the spike in fuel prices. Cement and rubber prices have risen because of closure and damage at the Port of New Orleans, one of the nation's busiest ports. Ken Simonson, chief economists for the Associated General Contractors of America, told the Baltimore Business Journal that 9 percent of the country's cement imports came through New Orleans and the devastated city is also the entry point for the nation's imported rubber.

"It's already bad enough," Tom Dondlinger, president of Dondlinger & Sons Construction Co., told the Wichita Business Journal. "I'm just really worried about it. I think if the prices start escalating in our industry, owners might decide to postpone building projects because of the cost."

Lumber gets pricey
But those aren't the only worries for those in the construction industry. The cost of lumber will also rise because of damaged mills in the deep south and as demand increases with the rebuilding of communities nearly leveled by Katrina. Already, some contractors are seeing hikes of 8 percent or more in the cost of lumber.

"We do anticipate seeing some price increases," said Mike Schlegel, president of Bozzuto Construction Co. in Greenbelt, Md. "The scariest thing right now for us is the uncertainty in the market."

For some, that uncertainty is already a certainty, with their costs going up but their contracts already set.

"Anybody that is on a fixed contract is getting hammered," said Bob Yeske, president and owner of 43rd St. Concrete in Lawrenceville, Pa.

The hammering has begun for one Pennsylvania contractor. John Zang of Zendoco Construction Co. in Penn Hills told the Pittsburgh Business Times his company had received notice of an $11.50 fuel surcharge per truckload of concrete.

"Most of us can't pass that on," Zang said.

Jeff Nobers, spokesman for 84 Lumber Co., a lumber company in Washington County, Pa., told the Pittsburgh Business Times that his company would be passing on increased costs to customers soon. The company has 485 stores in 40 states, and its clients are mainly in construction.

"I don't think it's anything that should be unexpected; from coffee beans to gasoline to lumber, you can run down the litany of products and supplies that will be impacted for some period of time," he said.

For some firms, though, the impact has been direct and immediate. Walton Construction Co., of Kansas City, had 60 employees working on $220 million in projects in New Orleans when Katrina slammed the coast. Greg Walton, the firm's chairman, told the Kansas City Business Journal the New Orleans employees are safe, though spread from Houston to Mississippi now. The firm's office in Jefferson Parish didn't sustain much damage. But there's little infrastructure there to consider it an ongoing business, said Lee Turner of Walton Construction.

He said once things are at least marginally running in the city, his firm would work on three hospital additions. As for its $100 million Harrah's Casino project in downtown New Orleans: "Right now, everyone's doing the same we're doing -- trying to find out exactly what they have to deal with so they can make good, informed decisions about how to get back on track," Turner said.

Gene Gibson, president of Jameson Gibson Construction Co. of Memphis, said his crew, working on a Memphis casino project, lost architectural woodwork, equipment and trailers in the storm. What now? "The guy I was working for doesn't even have an office anymore," he says. "It's just going to take a little time for somebody to assess before things happen."

The cost of many materials, such as steel and cement, have already been on the rise thanks to booming construction demand here and abroad. In the South Florida market, which has seen a big ramp up in condo construction, construction prices have gone up 30 percent, Richard Horton, president of the Builders Association of South Florida, told the South Florida Business Journal.

"Right now, if you are a developer, it's like being at the craps table," Horton said.

Higher labor costs too
For South Florida and other markets, though, the materials crunch may wind up as the least costly component of their business in the near future. As rebuilding gets under way on the Gulf Coast, they expect the labor market to tighten.

"The biggest challenge to the construction industry may not be the cost of gas. I personally feel the real problem we face is the drain on an already stretched-thin workforce," said Dale Scott of SIKON Construction in Boca Raton, Fla. "When the rebuilding of the Gulf Coast starts, it will probably deplete the labor force throughout the entire eastern half of the country."

That labor drain won't just be in people who work directly for construction companies. It will be in subcontractors who see both a duty and an opportunity in all the work to be had as rebuilding money pours into the now-stricken region.

That's happening for Kristal Wingate, owner of RoofTop Services in Winter Springs, Fla. She and her team of roofers have been ferrying supplies to the Gulf Coast in trailers, she told the Orlando Business Journal.

Soon, she'll be taking a five-month trip into the region to work on rebuilding. "I've put new work (in Central Florida) on hold," she says. "With construction, it is feast or famine. With every construction trade, unless you've got a builder who'll keep you busy, subcontractors are going to go where the work is."

But when that time comes, said Turner, of Kansas City's Walton Construction, that could bring still another headache. Contractors working in the disaster area will have to find a place for all those workers to stay. And such places are hard to find along the rubble-strewn Gulf Coast.

"Baton Rouge, for example, is so inundated with additional population right now that no lodging is available in any form right now," Turner said.

American City Business Journals, Inc.