STEELCAPS: return of the coffee crisis

Oh horror of horrors, little more than a year after the crash which was supposed to have restored the free flow of caffeine, coffee shops are again hanging out their “staff wanted” notices, and some are not bothering to open on Mondays.Afternoon coffee is, of course, a tiny example of what it means to have a labour and skills shortage in a fast-growing economy. There are much more serious examples, as a series of recent surveys and public comments from corporate leaders have highlighted – including a nasty reminder from Woodside Petroleum that a skills shortage equals higher costs.For Woodside the skills issue was summed up as “lower than budgeted productivity in both onshore and offshore construction”. Translated, those 10 words equate to a $1.1 billion cost overrun on the Pluto gas project which will now cost somewhere north of $12 billion.Woodside is definitely not alone as Australia rockets out of “the recession we never had” on the coat-tails of the rampant Chinese economy which appears to be delivering a classic V-shaped recovery, something which most economists said would not happen.For SteelCaps, the recession that never was and the recovery which is faster than forecast are part of the same event, and a reminder that economic forecasting is a game best played with crystal balls, tea leaves and sheep’s entrails, because those medieval soothsaying tools are about as accurate as spreadsheets and modelling.The issue, for everyone in the contracting and construction industries, is not about projected economic growth rates, it’s all about ensuring that you have the money and the people to (a) bid for a job and, (b) complete the job under budget.It’s those issues, money and people, which are the uncomfortable reality of the recovery we had prayed for, but which is coming much more quickly than some contractors can manage.Before looking at the skills situation consider the first part of the immediate challenge facing contractors, assembling the capital (and debt) to bid for the big jobs flowing out from resurgent iron ore and coal industries, and looming even larger from the biggest resource development boom in Australian history – LNG.Australia’s banks were hit, but not too severely, by last year’s global financial crisis, and have emerged in better shape than their overseas cousins. Not that this means raising an overdraft has suddenly become any easier. If anything, bank debt covenants are the tightest SteelCaps has seen in 40 years.Layer the tough new banking rules – especially those governing the value of property offered as security over a debt – on top of the skills shortage and you have the makings of a tough set of conditions.Industry leaders and lobby groups to issue warnings about the skills shortage include BHP Billiton chief executive Marius Kloppers, Leighton Contractors boss Wal King, the Australian Industry Group, and the Victorian Employers Chamber of Commerce.The AIG is forecasting a skills shortage “within 12 months” as trading conditions improve and because companies have not recruited new staff or trained apprentices.Based on a survey of 500 chief executives, the AIG report revealed that 37% of respondents planned to cut the number of trainees because of the effects of the GFC, while the number of new apprenticeships would fall by 11%.AIG chief executive Heather Ridout said declines of that sort meant that “as night follows day, when we come out of this downturn we are going to have a re-emergence of the skills shortage that we had in the lead up to the downturn”.Wal King agrees. He told a seminar in Perth that a skills shortage similar to that seen at the peak of the last resources boom would emerge as oil and gas projects were launched.King said the biggest constraint to Leighton’s growth would be a shortage of labour resources. “The question now is how much do you need to bid up the prices to get people, and bidding up the prices in those remote areas will affect the labour market in other places, not only skilled labour but the range of labour you need.”Marius Kloppers said it was important for Australia to have “the right labour, used in the right way”.“Just two years ago there was a massive gap in talent in the resources industry. My view is that this gap is going to return.”The view of SteelCaps is that those warnings ought to be taken seriously. Contractors who have retained their skilled workforce during the downturn will be rewarded by being first to share in the returning boom, whether it is V-shaped like China, or just a conventional U-shape recovery.Contractors who cut too deeply will be scrambling for labour, and probably reduced to raiding the workforce at the local coffee shop – just stay away from the haunts frequented by SteelCaps, please!Managing a skills shortage is one challenge. A more serious issue is how a skills and labour shortage presents a free kick to militant unions – especially when aided by management incompetence.Last month, SteelCaps watched in amazement as the American managers behind the giant Gorgon LNG project played into the hands of the unions by refusing to detail how much of the work on the project was going to Australian contractors.In a silly exchange, news media representatives, egged on by union leaders, asked Gorgon management for a local content breakdown. There was no satisfactory answer, just a time-wasting suggestion that the media ask contract winners who, in turn, said only Gorgon management could provide the answer.Waving a red rag at the media is one thing. Waving it at the union movement at the same time is daft.*This article was first published in Contractor magazine.

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