The NDT market can be broadly classified into two categories; equipment and inspection services. The NDT equipment market is a well-researched and understood market with products and technologies distinctly defined. As a result, often, the contribution of the inspection services market and the personnel involved gets overlooked. Although the advancement of NDT technologies provides an undeniable boost to the industry, the importance of actually implementing these technologies and analyzing the data to provide actionable intelligence is of equal importance to the industrial world.
Calm in the midst of the storm
The NDT inspection services market is huge, not just from a revenue perspective but also from the standpoint of competitors actively involved in this industry. It is also one of the few markets that performed impressively despite the global economic downturn. To accurately comprehend the key factors behind this relatively low impact, it is important to understand how revenues are generated, from an end-user perspective.
The revenues generated by the third-party NDT inspection service providers can be segmented as being derived from CAPEX (capital expenditure) and OPEX (operational expenditure). Revenue derived from CAPEX involves NDT inspection performed during the construction of new projects, while OPEX comprises of inspection performed during the operational maintenance of already constructed infrastructure, which is generally compliance-based inspection. Now, an economic downturn would have a significant impact on the CAPEX side but less or negligible impact on the OPEX side of business. During an economic downturn, most industries try to cut costs by postponing or cancelling new construction projects. Hence, if revenues are largely being generated from the CAPEX side, then any economic instability is likely to have a strong negative impact. Conversely, if revenues are generated from OPEX side, end-users are required to perform the inspection, despite financial constraints.
A good point of reference for this is the revenue generated by the various regions in 2010. 72.1 percent of global NDT inspection service revenues were generated from North America and Europe. In these regions, the number of new construction projects is comparatively low. For instance, in the USA no refinery has been built in the past 35 years. As a result, maximum revenues are generated from the OPEX revenue stream.
Foundation for high growth
Frost & Sullivan's analysis pegs the global market at $3.05 billion in the base year, 2010, with a revenue growth rate of 7.0 percent. It is expected to grow at 9.0 percent compound annual growth rate (CAGR) to $5.5 billion by 2017. A key growth driver for this market is the aging infrastructure in developed economies and resulting corrosion issues. The exorbitant cost and challenges involved in repairing existing infrastructure or building new ones has resulted in a desire to extend the useful life of infrastructure, especially in North America. The average age for a refinery or a pipeline in the United States is approximately 40 years, yet these assets are required to run at high capacities. The main predicament with ageing infrastructure is corrosion. These aging assets have to be inspected periodically to guard against corrosion and prevent catastrophic failures. The high level of maintenance required to preserve these assets and run them at full capacities has created immense demand for NDT inspection services.
Compliance-driven inspection due to strict government regulations is another growth driver for the NDT inspection services market. With accidents such as the British Petroleum (BP) oil spill in the Gulf of Mexico and the pipeline explosion in California coming under severe public and media scrutiny, there has been increased focus on inspection performed, especially in refineries, pipelines, and off shore oil rigs. The existing regulations have become stringent to cover a wide net of industries which has resulted in an increase in the amount of inspection that needs to be done, irrespective of financial constraints. These stringent regulations have aided in the strong performance for the global NDT inspection services market, during the economic downturn. Although there was less new construction and a few projects were stalled, the need for compliance with government safety regulations negated any factors inhibiting growth.
Consolidation market trend
A familiar trend that continues to occur in this industry is that of consolidation. Many companies recognize the importance of expanding geographically and acquiring middle-market companies in regions where they have minimal presence, giving them greater global reach. It is also used as an effective strategy to accelerate growth in such a fragmented market. Applus RTD set the ball rolling with the acquisition of Staveley Services, Quality Inspection Services and Valley Industrial X-Ray & Inspection Services in 2010.
In 2008 Applus RTD had completed a $50 million acquisition of JANX. Acuren, a leading US-based inspection company owned by Rockwood Services Corporation, kicked off 2010 with two Canadian acquisitions: Bretech Inspection and Remote Access Technology. These were followed in August 2010 by the acquisition of Extech LLC. In 2011, Intertek Group PLC acquired Moody International for $730 million. This is one of the biggest acquisitions to be witnessed in this market. With this acquisition, Interntek Group PLC is expected to become an important player in the NDT inspection services market.
The trend of consolidation is expected to continue since the number of competitors in this market is huge. There are over 1,000 active competitors vying for revenue and market position in this industry. For the well-established companies, mergers and acquisitions form an integral growth strategy to remain competitively relevant.
Lack of skilled technicians
The lack of availability of skilled technicians is, perhaps, the biggest challenge affecting this industry. PQNDT's 2006 salary survey found the average age for an NDT technician to be 41.5 years. The same survey done in 2010 reveals that the average age for an NDT technician is 45 years. Considering this trend, it is clear that the number of people taking up NDT inspection has significantly lowered over time. Stricter government regulations and increasing sophistication of NDT methods have led to an increase in demand for skilled inspectors. This demand for NDT technicians currently is outweighing the supply. Also, a significant number of technicians are pursuing visual inspection certifications as compared to other NDT techniques.
The primary reason behind this trend is the minimal number of training hours required for visual inspection certification. For example, the minimum hours of work experience for Level II visual inspection certification is 140. In comparison the minimum hours for Level II ultrasonic inspection certification is 1600. These factors have led to a severe shortage in skilled NDT technicians. Since, the NDT inspection services industry relies on the technicians for revenues, their shortage poses a significant problems for effective growth.
The global NDT inspection services market is characterized by high yet stable growth. There are very few factors that can upset the positive development of this market. Also, it has immense potential to be realized. High growth regions such as Asia Pacific contribute only 16.5 percent to the global market revenues. The rapid rate of infrastructure development presents immense growth opportunities. If these opportunities are tapped at the right time, market participants can expect robust growth in the coming years. l