Kip Miller, president of Eastern Industrial Supplies of Greenville, S.C., rates the PVF market in his area at about a 7 on a scale of 10. He says business is up slightly from last year, and is also better than it was three years ago. However, he is quick to point out that his company has been in "an expansion mode" -- adding three locations through acquisitions in 1998 -- so the growth he has seen may not be typical.

Besides adding branches, though, Eastern Industrial has also entered new markets. Miller reports that his firm has been doing more flow-control ball-valve automation. It also is selling to breweries, which has helped offset a drop in business from textile manufacturers as those firms suffer from imported products and increase the amount of production they send to overseas markets with cheaper labor.

Fewer imports, higher prices

"The low prices hurt every manufacturer and distributor in the United States," he says. "They all had to drop their prices to compete, and as a result they've been holding back money that they would normally spend on MRO or building new plants."

With the Asian economies recovering, he adds, prices are starting to rise to more reasonable levels. "Prices bottomed out in the third quarter of last year. We started to see them rise in the fourth quarter and into this year. As the Asian countries continue to do well, our economy will, too, allowing manufacturers to make some money to spend on repairs and expansions. The wild card is how rising interest rates will affect all of this."

Thad Chesson, president of The Massey Co. (Charlotte, N.C.), has seen similar problems from the flood of imports. The market for the actuated valves that form the backbone of Massey's business shriveled. He's optimistic about a customer base that seems to be making a comeback.

The Massey Co. has also undergone some internal changes that Chesson expects to further enhance the bottom line. Chesson agrees that customers have been very conservative about spending, but he expects to see those purse strings ease soon. Some old standby customers, such as textile mills, may be lagging, but other related industries, such as textile dye houses, are improving. Chesson says the trick is to find such niches and serve them well.

"For example, our new line of plastic line pipe and fittings is more of a specialty product," Chesson explains. "We think it's going to open some doors for us to a very large market here and in Georgia, and it adds some nice leverage to our valve lines."

High oil prices mean business

"About 70% of our revenue comes from the energy industry, which is why our business is as healthy and as busy as it is," he says. "The change in the oil industry means that money is flowing."

Hinke also sees improvement in other sectors. "Our two niche markets are power generation and gas. MRO is a good business for us; so are chemical and mining."

Meanwhile, Dennis Lehman of Lehman Pipe & Plumbing Supply of Miami sees nothing but blue skies ahead. He admits that his business is not what most distributors would consider industrial PVF, but he says that commercial and institutional projects and MRO come as close to industrial as one will find in South Florida.

"This area is extremely strong right now," he says. "There's a lot of commercial: high-rises, condos, seaport, airport, hospitals, schools."

Lehman Pipe has developed a strong relationship with overseas customers, too, with about 40% of its business in the Caribbean, South America and Central America. He also is planning for what he believes is inevitable access for U.S. companies to the Cuban market. "Cuba is a mess right now. Once it opens up, Miami is the only city that can rebuild it. It's got the money, the culture and the emotional ties."

Integrated supply and the independent

"I see overall business as staying steady for a while," he says cautiously. "A lot of customers who have plants across the country have gone to national contracts with national PVF suppliers. We're an independent with five locations, so we typically can't get into that kind of business. Our growth -- any company's growth, for that matter -- will come from specialty products and services and venturing into new markets."

The Massey Co. is equally content with its niche. "We are not nor will we ever be an integrated supplier," Chesson notes. "If we have an existing customer looking to consolidate or have someone run their storeroom, we usually can work something out, although we have to work a little harder."

Meanwhile, Hinke has seen a shift away from integrated supply by many large industrial-PVF customers. "Four or five years ago, we saw a huge initiative, particularly from the Fortune 1000 companies, testing the water to find out what integrated supply really meant. But in the last 18 months, we have seen a move away from integrated supply toward vertical commodity management. Instead of trying to roll up 12 or 13 commodities into one vendor trying to provide comprehensive services, customers are relying on four or five key vertical managers to provide those services.

"It's very tough to be all things to all people," Hinke continues. "There was a lot of pie in the sky and smoke and mirrors. When it gets down to where the rubber meets the road, though, customers were disappointed that their expectations on cost reduction did not materialize. It was easier to let distributors do what we do best. Customers understand that it makes sense for us to take care of these services. We can get another point or two, because our customers don't mind paying for it."

Sunny days for the Sunbelt

"The Southeast has several hot spots as far as development goes," Miller says. "It's a tremendous market. Any expansion in school or public-works projects will provide new opportunities for PVF distributors through mechanical contractors."

Lehman has seen no slowdown in the commercial market in the Miami area. "This is a big growth area," Lehman says. "And it's not going to stop, although competition is very strong. There will be ups and downs in the economy, but we'll be one of the last areas affected."

Hinke feels almost as optimistic. "We look for long-term growth through becoming better at what we already do. Customers are trying to do more with less, so they're want to shift more services to us -- services we have not traditionally provided but are capable of doing."

Hinke also believes that consolidation -- at least by the largest players -- will start slowing down as shareholders begin to see the benefits of separating business units by their functions.

"Those companies may be able to justify letting particular business units stand alone," he says. "In some instances, it will be harder for the big companies to justify what they've done."