November 2013, Vol. 240 No. 11
Features
Volvo CE Positions Itself For North American Market
In today’s fast-paced business world, there is a certain class of individuals who seem capable of running nearly any type of company. They combine academic prowess, problem-solving and people skills to a level few others achieve. Whether that unique skill set is recognized is often another question.
And then sometimes it’s also helpful to be in the right place at the right time.
For Pat Olney, those factors have merged to the point where the 45-year-old Canadian now heads a world-class heavy equipment manufacturer, Volvo Construction Equipment Corp. which is busily establishing a sturdy foothold in North America’s energy revolution.
In this interview, Olne offers his perspective of the North American construction market and Volvo CE’s increasing involvement. Last March Volvo CE proved its commitment to the growing North American market by relocating its management and production capacity in a $100 million expansion of its existing facility in Shippensburg, PA, the heart of the Marcellus Shale.
The site, which employs more than 1,000 people, will also house Volvo CE’s North American sales office, formerly in Asheville, NC and Volvo rents Headquarters. The plan is for Volvo to build in America 70% of what it sells here, including the first locally produced wheel loaders.
In his straight-forward style, Olney also explains what the industry has to offer rising executives such as he, and the sometimes circuitous route one takes before eventually being put in charge of a major enterprise. Not everyone who starts out as an accountant finds himself in the middle of a historic energy revolution like he has.
P&GJ: Your background is in accounting and business, so how did you wind up heading a major construction equipment company?
Olney: I earned an honors degree in business administration from the Ivey School of Business at the University of Western Ontario before qualifying as a chartered accountant. I worked as a consultant on taxation issues for five years at Price Waterhouse but left in 1994 to join Champion Road Machinery where I held several financial management positions. The company was acquired by Volvo in 1997 and I was named chief financial officer of the motor grader business in 1998. In 2001, I relocated to Volvo CE’s global headquarters in Brussels, Belgium, to become CFO of Volvo Construction Equipment.
Three years later I returned to Canada to take over as president of Volvo’s motor grader business line, making the transition from finance to general management. When Volvo CE acquired Ingersoll Rand’s road development business in 2007 I moved to Shippensburg to lead the road machinery business line. I returned to Brussels two years later to become executive vice president of Operations where my primary role was to ensure efficient organization of the global industrial footprint for all machines and their related supply chains. I succeeded Olof Persson as president of Volvo CE in 2011.
P&GJ: Earlier this year, you expressed a cautious outlook for the North American construction market for 2013. Have you revised your outlook and if so, why?
Olney: The prospects for the rest of the year remain modest, with the North American market predicted to hover around the minus 5% to plus 5% mark.
P&GJ: In what ways has the growing oil and gas shale play influenced Volvo CE’s business strategy in North America?
Olney: Oil and gas shale supply has ballooned in North America over the last five years. This means that pipeline and infrastructure construction is a big opportunity for us, particularly the pipelines that are built to carry oil from production areas to markets on the East, West and Gulf coasts of the U.S., as well as Chicago. New pipeline construction is estimated to be $40 billion per year in the U.S. alone, with an additional estimated $20 billion of construction in Canada.
The next phase is natural gas distribution. The U.S. has a glut of natural gas but has to continue to import it from Qatar because the infrastructure doesn’t exist to deliver it across America. Building this infrastructure will represent a tremendous opportunity for us when it comes to construction equipment. Five years ago, the oil and gas business represented roughly 3% of our market; today it is 7.5%, and that number is projected to rise to 10% by 2015.
P&GJ: What regions in N.A. is Volvo CE now involved in?
Olney: From a production standpoint, West Virginia, Ohio, Pennsylvania, Texas and North Dakota, British Columbia and Alberta have been the high-growth areas.
P&GJ: What are the key drivers behind new pipeline construction?
Olney: The primary driver is speed. The payback period on infrastructure investments is usually quite short. We receive a lot of large-volume, last-minute requests from contractors who are required to lay the pipeline in the ground, test it and make sure it’s installed safely on very tight timelines. Ensuring that we provide appropriate equipment to them is another key driver.
We are also continuing to deal with risk aversion resulting from the ongoing economic crisis; contractors are still reluctant to purchase the equipment they need for a job. It’s vital that manufacturers and dealers recognize these needs and provide the equipment necessary for customers to finish the job quickly.
P&GJ: What areas look most promising?
Olney: There is plenty of oil and gas activity in Pennsylvania-Ohio-West Virginia, Texas, North Dakota-Montana and British Columbia-Alberta. These areas are likely to have an increased need for our innovative excavator-based pipelayer solution.
P&GJ: Do you anticipate more oil and fewer natural gas pipelines, more gathering and fewer large transmission lines?
Olney: The price of oil relative to natural gas is higher, so there will be demand to move more oil to refineries, primarily along the Gulf Coast. We will see more long-distance pipelines taking oil to coastal refineries. More natural gas will be distributed as infrastructure catches up. If the U.S. begins exporting LNG to Asia and Europe, that will drive long-distance gas pipelines to ports; plans are already in place to do that for oil. There are more oil pipelines being built today.
Large transmission lines will be required to transport oil from smaller gathering areas to refineries and ports of distribution. We will see more gathering lines being built over the next few years at which point transmission lines will have to be built to catch up.
P&GJ: Is Volvo CE developing any new products that perhaps are specifically designed for North America due to varying types of geography and local and state regulations?
Olney: We are continuing to refine and customize our pipelayers and excavators according to the needs of each customer. The climates and terrains of the United States are very varied; the equipment needs in Texas are remarkably different from those in Pennsylvania. Our dealers work closely with customers to make sure that machines are customized for the regions where they’re working. Additionally, we work with governing bodies to make sure we meet or exceed the safety and emissions regulations of each state and province where we work.
P&GJ: What are some of the new products we should be aware of?
Olney: We are continuing to roll out the PL3005D and launch new models. Pipeline contractors are required to have machines with the most up-to-date emissions technology, and it’s our job to make sure we provide them with machines that are reliable and that meet or exceed emissions requirements.
P&GJ: Emissions standards are becoming an increasingly important issue in the U.S. What is Volvo CE doing to comply with the stricter standards?
Olney: We are launching our Tier 4 Final/Stage IV-compliant D8, D11, D13 and D16 diesel engines, which meet the forthcoming U.S. emissions legislation, improve fuel efficiency by up to 5% over previous models, and reduce running costs overall. Volvo CE engines have already used diesel particulate filters (DPF) to lower harmful particulate matter, but to meet the new requirements, selective catalytic reduction (SCR) technology has been added to reduce nitrogen oxide.
SCR has already been comprehensively tested in Volvo Trucks, which introduced the system in 2005 and the new technology has recorded more than 20,000 hours of testing in off highway equipment as well as engine test benches.
P&GJ: With the growth of the midstream operators, does this represent a different kind of business challenge to manufacturers such as Volvo CE?
Olney: Midstream operators require high volumes of equipment and have to work to tight deadlines. Volvo and our dealers have to be responsive and attuned to pipeline contractors’ unique needs and work closely with them to ensure that we can supply them with the equipment they need when they need it.
P&GJ: Lastly, what were some of your interests as a young man and some that you have today?
Olney: When I was young I couldn’t decide if I should be a fireman or an astronaut. Both are still sort of applicable today – when things go wrong at Volvo CE, I can get drawn in to a bit of firefighting! And if I had enough money to spare, I’d spend it all on one of these tourist space flights – I’d still love to see Earth from space.
I really enjoyed the book Darwin’s Dangerous Idea by Daniel Dennett, which reviews Darwin’s theories about evolution and the impact they had on the world. I like crime novels too, especially Gone, Baby, Gone by Dennis Lehane, which features Boston private investigators searching for a missing child.
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