Industry outlook: Roadbuilding and aggregates

Forging ahead in 2019
Dana Filek-Gibson
February 11, 2019
By Dana Filek-Gibson
It’s steady – but not necessarily smooth – sailing for Canada’s roadbuilding and aggregate sectors in 2019.

As the new year gets underway, producers and contractors across the country are expecting similar conditions to last year, with steady growth and predictable investment in some regions – and volatility and funding challenges in others.

Across the country, the distribution of federal infrastructure funding continues to see setbacks. A total of $180 billion has been set aside for infrastructure spending over 12 years, starting in 2016, including $10.1 billion dedicated to trade and transportation infrastructure. However, an August 2018 status report from the Parliamentary Budget Office found persistent delays in the spending of federal infrastructure dollars compared to the government’s original 2016 timeline.

Canada Infrastructure Bank, the Crown corporation established in 2017 to facilitate private investment in large-scale infrastructure projects, has also been slow to invest its money. A $1.28-billion commitment to Montreal’s REM light rail transit system is the only funding to come out of the bank’s $35-billion coffers so far.

On a national level, housing starts are expected to decline gradually from a 10-year high in 2017 but will remain strong in many areas of the country, according to the Canadian Mortgage and Housing Corporation’s Fall 2018 Housing Market Outlook, as income and employment growth will continue to support new residential construction, as will new household formation.

B.C.
In British Columbia, the roadbuilding and aggregate industries expect to see the steady business of 2018 continue in the coming year. Housing starts have been strong across the province, though B.C. is expected to see a decrease in 2019, according to CMHC, as a record number of projects in Vancouver and Abbotsford-Mission are already underway. 

Derek Holmes, president of the B.C. Stone, Sand and Gravel Association, is optimistic about the aggregate industry’s prospects, citing major projects such as road improvements along Highway 1, the LNG Canada facility and the Site C Dam as highlights for the year ahead. 

“2018 was a strong year for the industry in B.C. and we're hopeful that 2019 will be as well, but the reality is that we're looking at mixed economic indicators on home prices being down and housing and construction starts having increased at the same time.” said Holmes.

But while the industry expects to stay busy in the coming year, Holmes also warned that government regulation could create roadblocks in future.

“The challenges facing us in 2019 lie with the regulatory regime and making sure industry and job growth is maintained through transparent policy implementation, cutting red tape, and tackling decision making bottlenecks by government at all levels,” he said. 

Meanwhile, Kelly Scott, president of the B.C. Road Builders and Heavy Construction Association, believes provincial infrastructure spending will continue to provide opportunities for the roadbuilding industry in 2019, particularly on the Pattullo Bridge replacement project as well as a series of four-laning efforts along Highway 1 from Kamloops to the Alberta border.

“2019 looks very strong on the order board. Government has indicated they’ll be continuing to spend money on improving the infrastructure of British Columbia and the economy, which is good for us,” he said.

However, Scott is concerned about labour shortages in the coming year; as well as the province’s Community Benefits Agreement. 

“The Community Benefits Agreement continues to be hanging over the industry as a concern – not so much the benefit agreement, per se, but the labour agreement that’s attached to it,” he said.

The CBA, announced last summer, promises to provide greater access to training and construction jobs for Indigenous people and women as well as workers living in close proximity to public infrastructure projects, however it also requires workers and contractors involved in a CBA-affiliated project – such as the Pattullo Bridge replacement and the Highway 1 four-laning efforts – to join a union for the duration of that project.

While Scott says the roadbuilding industry has always supported efforts for greater inclusion and apprenticeship training, he takes issue with project labour provisions in the CBA, noting that the majority of B.C. construction workers are not affiliated with unions.

The Prairies
Slumping oil prices and uncertainty over provincial infrastructure spending mean the Prairies are likely to face some economic headwinds in the coming year, though it remains to be seen where those impacts will be felt the most.

“Anything that is a feeder to the oil industry has to plan for volatility,” said John Ashton, executive director of the Alberta Sand and Gravel Association, pointing specifically to areas in the north like Grande Prairie and Fort McMurray, where oil has a greater impact on the local economy.

Across Alberta, housing starts are expected to see “more balanced conditions” in the near future, according to CMHC, however infrastructure spending in the province remains a question. Alberta’s 2018 budget laid out a five-year, $5.6-billion funding plan for major road and bridge projects and work continues on efforts such as the Southwest Calgary Ring Road, however Ashton anticipates the provincial government will pull back on infrastructure spending in 2019. 

“Depending on what the next budget looks like and who actually controls the next budget, there may be a serious discontinuation of infrastructure spending, especially on the road front,” he said. “That could be a very, very large decrease on demand… and that would definitely have an impact on the capital region and the Calgary areas.”

Still, Ashton cautions against making general predictions in the province. 

“Aggregate demand is, by its nature, localized, and Alberta’s a very, very big place. Because of that, there's really about six different economies happening in Alberta at any given time,” he explained.

Meanwhile, the Saskatchewan roadbuilding and aggregate industries are “cautiously optimistic,” according to Shantel Lipp, president of the Saskatchewan Heavy Construction Association, who expects to see “a small reduction” in the amount of work put onto the market in 2019.

Lipp also anticipates the carbon tax, which has not yet been levied in the province, could impact the amount of work the industry will be able to take on in the coming year as well as increase fuel costs for the heavy civil sector.

In Manitoba, the roadbuilding industry is facing another tough year after the provincial government slashed infrastructure funding in its 2018 budget, reducing spending by $152 million from the previous year for a total of $350 million in highway capital investments. 

Additional infrastructure programs also took a hit, as the province downsized its Municipal Road and Bridge Program from $14 million in 2017 to $2.25 million in 2018. 

“2018 was a very, very weak and poor year for industry in Manitoba as it relates to highways capital programs,” said Chris Lorenc, president of the Manitoba Heavy Construction Association, adding that he is “not at all confident that there will be any material change” in next year’s provincial budget.

Still, there have been some bright spots. Lorenc credits the City of Winnipeg with “sustained, predictable and incremental investments” in municipal infrastructure, which he anticipates will continue in 2019.

Ontario
In Ontario, a new provincial government and a handful of policy changes have the aggregate and roadbuilding industries optimistic about the coming year. 

Andrew Hurd, director of policy and stakeholder relations at the Ontario Road Builders’ Association, is looking forward to the full implementation of 2017’s Construction Lien Amendment Act, which he calls the “most important legislation to affect the provincial construction industry in decades.”

“Ontario’s Construction Lien Amendment Act, when fully implemented, will ensure that money flows quicker to contractors and workers, helping to keep companies competitive, bolster the economy and create jobs,” Hurd explained. “Our association continues to engage with the provincial transportation ministry regarding their transition to these new requirements, particularly on the incorporation of bonds into the ministry’s procurement practices.”

In terms of provincial infrastructure spending, concerns remain over the speed at which government-funded projects progress, however slower-than-expected timelines don’t seem to be impeding growth in Ontario’s aggregate and roadbuilding industries.

“My sense is that both the province and the federal government have moved more slowly than their stated budget commitments to the cause of new infrastructure spending,” said Norm Cheesman, executive director of the Ontario Stone, Sand and Gravel Association. “You would never know that, however, driving around the [Greater Toronto Area], for example, where new buildings are going up, and road repair and construction is now a year-round business.”

While he is optimistic about 2019, Cheesman notes there is still work to be done in bringing policymakers up to speed on issues related to the aggregate industry.

“I think the fact that we are now dealing with a government which is intent on making it easier to do business is contributing to a positive outlook on the part of the industry, but we have a big education job to do with both elected MPPs and officials in several ministries,” Cheesman explained. “It’s important for politicians to understand that these raw materials need to be available close to where they are needed for construction so that projects are completed in the most economical and environmentally efficient way possible.” 

Moving into the new year, Hurd says the ORBA is eager to learn more about Ontario’s infrastructure capital plans for 2019 and will also be keeping an eye on the effects of federal carbon pricing in the province. Hurd does not anticipate this will affect the asphalt industry directly but expects carbon pricing to impact fuel, energy and supply costs for the road building industry.

Quebec
The roadbuilding and aggregate sectors are looking forward to another good year in Quebec, where the province announced a record $100.4-billion investment in its 2018-28 Quebec Infrastructure Plan, adding $9.3 billion to the previous year’s budget. CMHC also reports that strong population growth is expected to continue to spur housing starts, particularly in apartment buildings and other multi-unit housing.

Gisèle Bourque, executive director of the ACRGTQ (Association of Road Builders and Heavy Construction Quebec), attributed last year’s success to infrastructure projects like the new Champlain Bridge and the Turcot Interchange.

Amid a positive time for the industry, however, Bourque cautioned that labour shortages could become an issue in the near future and raised concerns about Quebec’s ability to provide steady funding for the maintenance of provincial and municipal road networks while tackling major infrastructure projects at the same time.

“The region’s infrastructure should not be neglected in favour of large cities,” she said.

Moving forward, Bourque anticipates business in the province will continue to grow, provided the roadbuilding industry focuses on three main efforts: “stable, predictable and recurring investments” in the province’s infrastructure, increased annual investment in Quebec’s highways and an early launch of tenders to allow the industry to complete more work before the winter season.

“On the one hand, this effort would allow the renewal of infrastructures before they are obsolete and, on the other hand, would allow public contractors and contractors to better plan the work … that they will have to execute,“ Bourque explained.

Atlantic Canada
By and large, the East Coast is expected to hold steady in the coming year, with Nova Scotia, P.E.I. and Newfoundland and Labrador seeing sustained infrastructure investment from their respective provincial governments. Producers and contractors in New Brunswick, however, are in limbo as they await the coming year’s budget. Officials in the province recently tabled a $600.6-million capital budget for 2019-20, far less than the $865.6 million estimated by the previous government.

These latest capital estimates set aside $321.1 million for maintenance of transportation assets, however CBC reported following the budget’s release that New Brunswick will postpone work on several high-profile projects, including upgrades to Route 11.

For Tom McGinn, executive director of the N.B. Road Builders and Heavy Construction Association, these spending cuts spell uncertainty for the roadbuilding and aggregate sectors.

“We’re not quite sure what’s going to happen… everyone’s in a holding pattern,” said McGinn, adding that infrastructure work with local municipalities will likely remain steady. “There’s lots of water and sewer work that needs to be done so that end of the industry is going to be OK, but it’s our highways and bridge work with the provincial government that we just don’t know.” 

In terms of preparation, however, McGinn is pleased to see the provincial government compiling multi-year spending plans, as these long-term projections help the industry to see what lies ahead.

“Historically, New Brunswick has come out with a capital plan in December for the upcoming construction season, and they just go year by year,” McGinn explained. “We’ve been saying to government it would be nice to have a multi-year plan so businesses will know what’s coming not only next year (but) the next few years.”

Around the country

B.C.
In B.C., the provincial government is set to continue its $5.3-billion investment in transportation infrastructure through 2020-21. Major projects like the four-laning of the Trans-Canada Highway between Kamloops and Alberta will move ahead in the coming year, as will plans for the replacement of the Pattullo Bridge, which is expected to reach completion in 2023.

Both projects will be handled by B.C. Infrastructure Benefits, the province’s newly formed Crown corporation responsible for executing the Community Benefits Agreement announced by the B.C. government last summer. 

Alberta
Alberta’s 2018 budget laid out a five-year, $5.6-billion spending plan for major road and bridge work on projects such as the Highway 2-Peace River Bridge, the Grande Prairie-Highway 43X bypass and the Highway 15 bridge at Fort Saskatchewan. Construction on the Southwest Calgary Ring Road is also ongoing, and the road is expected to open to traffic in 2021.

Saskatchewan
Saskatchewan dedicated $2.7 billion to infrastructure spending in 2018-19, with $691 million going toward transportation infrastructure, such as rural highway upgrades, passing lanes on Highways 6 and 39 and interchanges at Martensville and Warman.

Manitoba
Manitoba’s 2018 budget saw infrastructure spending reduced from $502 million to $350 million, while the province’s Municipal Road and Bridge Program was cut by more than 80 per cent. In its 2018 budget, however, the City of Winnipeg unveiled a six-year capital investment plan that aims to spend $2.2 billion on the city’s infrastructure over that period. 

Ontario
Ontario’s 2018 budget commits $230 billion in infrastructure spending over 14 years, starting in 2014-15. This includes more than $106 billion set aside for new and upgraded transit and transportation infrastructure, $25 billion of which is designated highway spending.

Quebec
Quebec continues work on several major infrastructure projects, including a new public transit system in Quebec City and Montreal’s REM light rail system, while the province has announced a record $100.4-billion investment in its 2018-28 Quebec Infrastructure Plan, an increase of $9.3 billion from the previous year.

Nova Scotia
Nova Scotia announced in its 2019-20 Five-Year Highway Improvement Plan that the province will commit $300 million to major construction, asphalt and resurfacing, gravel roads and bridge replacement and rehabilitation, among other things, a $15-million increase compared to the previous year. 

New Brunswick
The province’s road building industry is expecting work to be postponed on major projects such as upgrades to Route 11 following the tabling of New Brunswick’s smaller-than-expected $600.6-million capital budget.

Newfoundland and Labrador
Newfoundland and Labrador continues to invest in a multi-year infrastructure plan first introduced in 2017. Spending for the 2018-19 fiscal year totalled $228.9 million in roads, bridges and marine infrastructure, while another $148.1 million in federal and provincial investment went to municipal infrastructure projects. 

P.E.I.
P.E.I.’s capital budget estimates for 2019-20 allot $56 million in provincial spending on highway improvements and bridge replacements, including $5 million to replace six bridges. This remains relatively steady compared to last year’s budget, which set aside approximately $52.7 million for infrastructure projects.

Nunavut
In Nunavut, Transport Canada will invest more than $35 million for an expanded cargo warehouse at the Iqualuit airport as well as the replacement of airport terminals in several locations. Nunvaut’s 2019-20 capital estimates lists airport improvements in its budget as well as the air terminal buildings in Chesterfield Inlet and Naujaat.

Northwest Territories
The ongoing Mackenzie Valley Highway project, whose Inuvik-Tuktoyaktuk Highway was completed in 2017, will continue in the coming year with federal funding from the National Trade Corridors Fund, which sets aside as much as $400 million to develop transportation infrastructure in Yukon, Northwest Territories and Nunavut, including ports, airports, all-season roads and bridges. Moving forward, construction is planned for a bridge crossing the Great Bear River as well as an access road from Wrigley to Mount Gaudet.

Yukon
Yukon’s five-year capital plan, released in 2018, earmarks a total of $70 million in infrastructure spending for the territory in the coming year, with $5-million incremental increases over the following three years.

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