Coping with rising costs

Perhaps the surprising aspect of the rising cost of raw materials now plaguing the industry is that there has not been a surge in the prices charged by laundries and drycleaners. This is largely because the suppliers of equipment and other goods have soldiered on soaking up most of the increases.

Yet the catalogue of price hikes makes horrendous reading. For example, steel, essential for most equipment, has jumped by as much as 70% in 18 months. The culprits are a 200% increase in coking coal costs and higher scrap iron prices.

Crude oil prices will have made their mark in world history this year.

They have touched US$140 a barrel, but even at today’s figure of just below US$100 they are well up on last year’s US$65. Supply has lagged as demand, especially from the emerging industrial nations such as China, has soared – hence the price.

Fortunately, better news comes from the UK Treasury, which forecasts a 2009 average of US$93.

That should be welcomed by everybody. Advertisements a few years ago delivered the message that if you possessed something a truck brought it. But the petrol used in the truck is now much dearer and the higher transport costs must hit the laundry and drycleaning industries.

Then there are plastics, derived from oil and also essential for the manufacture of machines.

The same pressures have led to price increases of between 60% and 90% in four years.

The Girbau company in Spain perhaps sums up the view of the whole laundry equipment manufacturing sector with the comment that the increases have had “a negative effect”.

Pere Girbau, the company chief executive, singles out stainless steel, aluminium, iron and energy costs.

All companies in the chain are affected, of course, but Girbau says the end user has not been made to suffer. Instead, the companies have all accepted reduced profits.

Nevertheless, some creativity has been needed to soften the blows.

Manufacturers have developed new alloys using less nickel than stainless steel to contain costs to some extent, says Girbau. The laundries have partly offset their bigger bills by being more sparing in their use of energy and water.

There is a hint from Girbau that the worst is over. He observes that in the second half of this year, costs have begun to stabilise and some have even fallen.

Customers’ attitudes have been have been key to the industry’s pricing policies. Peter Wennekes, the secretary-general of Cinet, the Netherlands-based international textile care umbrella body, says that the operators want to put up prices but it is difficult to convince customers of the need to do so.

Wennekes points out that when laundries or drycleaners eventually raise prices, the increases cannot be immediate, such is the users’ sensitivity. “Prices are increasing,” he says, “but the pace of increases in our materials is faster.”

The silver lining in this cloud is that the hardships are stimulating companies to find ways to be more efficient. “They are working on new concepts,” says Wennekes.

Despite the pressures, Wennekes retains hope for the industry. He expects the problems to be dealt with effectively so that no companies will close as a result.

Murray Simpson, chief executive of the UK’s Textile Services Association, keeps a watch on industry costs.

His association has recorded government calculations and noted that in the past year energy costs have risen by 17.3% and diesel costs by 34.6%.

He thinks the rises are “probably understated”. Operators are “a little afraid to raise prices in a competitive market” but Simpson believes: “The case for price increases is clear.” Customers, therefore, should be realistic, he says.

Simpson adds that: “They need to allow for price increases, instead of screwing the laundries into the ground, if they want a partner, not just a supplier.”

One of the most frightening cost increases has been in chemicals. At Ecolab, Jim Franklin, senior vice president and general manager textile care division for Europe, Middle East and Africa, describes the impact of the rises and his company’s approach to the situation: "We continue to experience unprecedented increases in key raw materials in spite of the recent crude oil declines.

“We are leveraging all available resources to identify alternate raw materials, reduce our internal costs and take advantage of our global purchasing volume.

“In spite of our efforts, we are asking our customers to offset a portion of these increases. At the same time we are working with all of our customers to find ways to offset these increases by optimising their operations with new solutions”.

At Christeyns, Charles Betteridge managing director for central Europe, examines some of the detail of the rises and the causes.

The price of phosphates has almost trebled in a year.

“This is apparently due to the increased use of fertiliser now that world food prices have made it worth the farmers’ while to invest more,” says Betteridge.

In addition, one of the three European factories closed and the laws of supply and demand have taken control.

“The end result is that we have been forced to move to phosphate-free products wherever possible,” adds Betteridge. “Markets such as Switzerland and Italy have been phosphate-free by law for some time and we have already successfully converted a lot of our customers, even for heavily soiled workwear.”

He adds that Christeyns had to warn customers that a sharp price increase was the only alternative to substituting phosphate-free chemicals. In any case, there will have to be some increase.

The burdens don’t stop there. In the course of a year silicates have risen in price by 8% and the de-greasant non-ionic surfactants by nearly 20%.

Detergents shock

Liquid detergents have given the industry another shock. The price of caustic soda has risen by nearly 50% in a few months. Most of this derives from sodium chloride and production is led by demand for chlorine. This demand has been affected by the massive wind-down in the building industry which uses one of the main chlorine derivatives, vinyl chloride.

Potash, too, has been a problem. It is in short supply, and therefore much dearer, because it is in demand as a fertiliser.

The reason is that more grain is being required to provide the protein for food products in fast-developing countries, notably China. The result is an 80% increase this year.

Christeyns, says Betteridge, supplies a highly competitive market, but he believes that there are too many laundries and drycleaners. All these factors, plus fuel, energy, packaging and plastic, mean Christeyns must put up the bills. Betteridge said: “We have looked at reformulating some products to move away from the very expensive raw materials but retain the need to achieve the required wash quality as our absolute priority.

“On this basis it is impossible to survive in the market without increasing prices, even though we are fully aware that we will still have to absorb a large slice of the rises ourselves.”

Betteridge sees the fourth quarter of this year as “fairly stable”, but also warns that: “The signs for January are not good, as supply contracts come up for renewal and caustic products in particular look likely to rise further.”

Milliken Europe, the fabrics company, has suffered the effects of higher oil and natural gas prices.

By-products from both these commodities go to make up the polyester for Milliken fabrics.

However, John Lancashire, the European sales manager, points out that Milliken products hold down costs for laundries because they can be washed at lower temperatures and the process time is reduced.

For all companies in the laundry and drycleaning industry, the escalating cost of energy is a big worry. However, when renewal notices come with scary price increases customers can often find switching to another provider gets them a better deal. In some countries consultancies do this job for worried companies.

Makeitcheaper.com, in central London, one of the UK’s typical specialist consultancies, has seen business expand quickly this year after utilities price rises of 30% and more.