Infrastructure Act could invigorate industrials while greening America

Where the money will flow

Makers of commodity building and construction materials and other parts of the infrastructure supply chain will likely be clear beneficiaries. Many of the investments in existing infrastructure are likely to involve a swath of industrial sectors. Consider the largest allocation: about $250 billion to modernize and expand the nation’s passenger and freight transportation networks spanning roads, bridges, airports, rail, marine ports and public transit. For such projects, central players are likely to be producers of commodity building materials, including steel, aluminum, copper, cement, lumber, aggregate materials (e.g., asphalt, sand, recycled concrete, geosynthetic aggregates) and advanced materials (lightweight metals and composites). About $100 billion would be used to modernize and upgrade public transport (bus and rail), engaging bus and railcar makers and their suppliers.

Clean water, EV initiatives are allocated modest funding.

The Act also earmarks $55 billion for clean drinking water initiatives, principally by replacing lead service lines. These allocations will benefit many industrials, including producers of water lines and commodity materials such as iron, steel, clay, concrete and PVC. 

Electrification of passenger cars and trucks receive modest funding, $7.5 billion. These funds  support the buildout of a national public electric vehicle (EV) charging network, which is crucial to meeting President Biden’s ambition to have half of the national fleet electric by 2030. This could lead to economies of scale (and lower costs for charges), help make EV charging a more attractive and viable business, and accelerate the buildout of the EV charger network. US-based EV battery production and research also get funding, which could lead to lower battery costs. Producers of cathode materials (nickel, cobalt, manganese) and lithium, as well as battery and charger makers, are among those that stand to benefit.

Secondary and tertiary players will also be needed across the spectrum of infrastructure projects, ranging from producers of heavy machinery (graders, excavators, aerial lifts, cranes, pumps and even aerial drones) to advanced manufacturing technology firms specializing in automation, industrial 3D-printing, industrial robotics, digital and information and communications technology, and cyber protection, etc. The Act also allocates funding to systems that capture and store carbon for power and other industrial plants, which may benefit industries that are developing such systems, such as the oil sector.

What should industrials consider now?

As state and local governments prioritize projects and get closer to awarding contracts and disbursing grants and loans, there are a number of steps industrial products and services companies can begin taking:

• Define what kind of role you can play — whether as a primary player (e.g., engineering and construction) or in a supporting role (e.g., makers of commodities, heavy machinery). 
  
• Get ahead of what could be a tightening (or already tight) labor market — and be prepared to pay a premium for that talent. Additionally, companies that are likely beneficiaries ought to prepare for scale-ups in operational capacity and employee base to cope with heightened demand.
  
• Consider which acquisitions, joint ventures and partnerships might better position you to secure infrastructure jobs. On a higher level, there will also be a need for all levels of government (federal, state and municipal) to establish the apparatus that engenders enhanced trust in the programs — and to confirm that the disbursal and use of funds is accounted for to help prevent fraud.
  
• Assess how infrastructure improvements — as they are carried out — could affect the global supply chain, and whether these improvements could strengthen the case to nearshore or reshore back to the US to add resiliency and competitiveness.
  
• Chemicals producers need to prepare for excise tax Chemicals manufacturers and importers should review their operations and possible product pricing, compliance, and other effects of the Act’s reinstatement of the superfund chemical excise taxes in preparation for its proposed July 1, 2022 effective date.
  

Although it is unclear how quickly investments would be disbursed in the short- and medium-term, it is clear that numerous industrials will likely become key players in the infrastructure buildout over the next several years. Companies well aligned with the areas of investment will need to secure the talent and production capacities — sooner than later — to fully benefit from their participation in this new infrastructure spending.