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Business Expense Increases and How You Should Respond

As the owner of a portable sanitation business, you have almost certainly been experiencing a rise in business expenses. It costs more to buy units, sinks and sanitizing stations. It costs more for shipping. It costs more to fuel your trucks. There are other difficulties as well. Orders take longer to fulfill. Supplies are in short supply.

These business expense increases and disruptions to your operations are due to a number of circumstances that have severely impacted the portable sanitation industry. The results are higher costs to provide the key aspects of portable sanitation and the services that support it.

Most signals point to prices that are expected to remain high, so you need to stay informed and take action to reduce the pressure these conditions are putting on your business.

As Plastics Go, So Goes Portable Sanitation

The single most important driver of the higher cost of portable sanitation is the higher cost of plastic resins. Resins are raw plastic stock in the form of pellets or beads. The manufacturing of plastic portable sanitation units and products – in fact, all plastic manufacturing – begins with plastic resins. At one point earlier this year, prices increased about 33% — perhaps the largest-ever monthly increase, according to Plastics Today.

Our industry relies heavily on plastic. In fact, you could say that the portable sanitation industry is built on plastic. This is to our benefit, as we can all be thankful for the plastic portable toilet. The first modern portable toilets were made of wood and metal. They were heavy and hard to empty and move. Fiberglass replaced wood in the 1960s. These units were lighter, but the fiberglass trapped odors and broke easily. George Harding, a co-founder of PolyJohn Industries, patented the first polyethylene portable toilet. These plastic porta-potties revolutionized the industry and changed the way we spend time outdoors.

In the portable sanitation manufacturing process, polyethylene resin pellets are mixed with color, UV protection and other additives, then extrusion machines form flat plastic sheets from the pellets. Thermoforming machines mold the sheets into parts such as roofs, doors and wall panels. The pellets can also be molded into hollow parts used to make tanks and sinks through rotational molding. Injection molding manufactures solid shapes for plastic parts such as handles, latches and spigots.

Plastic Supply Drops, Costs Rise

A “perfect storm” of dramatic events in the United States and the world have led to this extraordinary rise in the price of plastic resins over the past year.

Much of the world’s plastic is produced in Texas and Louisiana. In 2020, these states were hit hard during the Atlantic hurricane season. It was a record year for storms – there were 30 named storms, 13 hurricanes and six major hurricanes.

Hurricane Laura struck in August. A category 4 hurricane and the strongest storm to make landfall in Louisiana, it forced many petrochemical factories in Louisiana and Texas to shut down, immediately reducing production of PE (polyethylene) and PP (polypropylene) by 10-15%. This significant drop in production led to a scarcity of supplies on a scale the industry hadn’t experienced. Costs were already high, and they continued to rise.

In February 2021, before the market had time to recover, freezing weather and severe winter storms in the region led to plant shutdowns, causing a further shortage of raw materials and disrupting supply chains around the world. The Houston area, a petrochemical-producing hub, was hit hard (plastic resins are produced as a petrochemical by-product). The result was a whopping 80-85% reduction in PE and PP production. It’s estimated that in two weeks at least 2 billion pounds of plastic resin went unproduced.

For more information, please read our article Rising Costs in Plastic Manufacturing.

Pandemic Complications

All through these disruptive events, the COVID-19 pandemic raged, adding another layer of obstacles to the battered plastics industry.

On the production side, there were mandated shutdowns, lockdowns and shortages of workers who were either sick or quarantining. Even before the weather made its mark, the pandemic had caused inventories to fall.

On the consumer side, as more people stayed home and received their economic stimulus checks, there was a surge in the demand for consumer goods – many made of plastic, of course.

Shortages Around the World

As a major exporter of plastic resins, the U.S. plastics industry didn’t have the option of importing resins to relieve the shortages. In fact, the problems in the U.S. sent shockwaves across the globe.

According to the European Plastics Converters (EUPC) association, Europe’s plastics converting industry, which relies heavily on U.S. imports, is experiencing “severe shortages of raw materials and [unprecedented] price increases.” In a poll of plastics converters, more than 90% said that they are affected by the supply crisis.

Mexico and many other countries also rely heavily on imports from the United States.

The Rising Cost of Freight

The higher cost of shipping (freight) continues to be a major cause for concern. The combined increased costs of plastics and shipping have been a one-two punch to the financial outlook of the portable sanitation industry.

Once again, the problem isn’t limited to portable sanitation. The U.S. shipping industry itself has been impacted by three major roadblocks: too few drivers, an increasing freight load and the pandemic.

The industry has been dealing with a shortage of drivers for a decade, and the problem has worsened considerably since 2019. The required use of electronic logging devices (ELDs) in 2019, and the federal Drug and Alcohol Clearinghouse in 2020, have taken thousands of drivers off the road.

The pandemic added pressure to the driver shortage. It motivated more drivers to retire, while others found other jobs. The pandemic also forced the closure of many truck driving schools. Increased driver salaries and benefits have greatly contributed to higher freight costs.

The pandemic has been a huge weight to shipping in other ways. It disrupted the supply chain, as online panic buying of staple goods spiked even as consumers were still ordering non-essential goods. Freight shipping by air (in the cargo holds of passenger flights) practically ground to a halt. Contract rates and the spot market rates for shipping jumped higher in response.

For more in-depth coverage, please read our article The Rising Cost of Freight.

Pain at the Pump

Meanwhile, gas prices have already returned to pre-pandemic levels. Diesel prices have also risen. Toward the end of March, prices in the U.S. hit an average of $2.88 a gallon, according to AAA. Drivers are already paying a lot more than $3 a gallon in some states. In April, according to GasBuddy, OPEC extended oil production cuts for another month, even though there has been an increase in global demand. Oil prices immediately went up 12%. This means more gas price increases are on the way as the summer season begins.

To learn more, please read our article Expected Fuel Cost Increases and How They Impact You.

All in the Same Boat

All these supply-chain issues eventually caught up to the portable sanitation manufacturing plant. Without the raw plastic stock available to maintain previous levels of output, order fulfillment has slowed to a crawl, as lead times grow exponentially. Some PROs are reporting months-long wait times for some new items.

As your preferred manufacturer of units and sinks raises its prices and as deliveries slow, you might be tempted to jump to another producer. Any relief you find will be minimal. All portable sanitation manufacturers are equally squeezed, feeling the pressure of rising costs, limited supplies and supply-chain issues.

The plastic shortage isn’t affecting the portable sanitation industry alone. A recent Wall Street Journal article mentions just a few major industries that have been battered, such as healthcare (sharps, medical face shields and protective gowns), electronics (semiconductors, smartphones and computers), auto manufacturing (parts, car-seat covers) construction (paint, siding, adhesives, insulation, PVC piping) and packaging).

Looking Ahead

The new reality is that the high price levels in portable sanitation look to continue throughout the year. We found a few examples of how some financial experts view aspects of the portable sanitation supply chain:

  • Plastic: The Harvard Business Review reports that surges in demand for plastic will continue in the U.S., worsening the current supply-and-demand imbalance. HBR states that many companies are already experiencing depleted inventories, price increases, higher rates of delinquent shipments and longer lead times for orders. Managing suppliers expect disruptions to last for longer than 12 months.
  • Shipping: According to U.S. Xpress, thousands of fewer available drivers and the second round of stimulus funding will continue to reduce truckload capacity in the U.S. through 2021. The combination of fewer drivers, driver pay increases, increased freight demand and reduced capacity will result in contract rates increasing between 8 to 15% during the year.
  • Fuel: Kiplinger projects the national average price of gas to reach $3 per gallon this spring, and diesel should also increase throughout this season.

According to Business Insider, a recent report from the Energy Information Administration (EIA) states that gas prices are expected to climb to a three-year high this summer. The EIA projects 15% more highway travel.

Perhaps even more alarming, the New York Times ran an article in March entitled Why $4-a-Gallon Gas May Be Coming Your Way This Summer!

  • Weather: North Carolina State researchers predict that the 2021 hurricane season will be active, with 15 to 18 named storms forming in the Atlantic basin. The number of named storms predicted is above the long-term average.

The U.S. National Oceanic and Atmospheric Administration (NOAA) will issue its initial seasonal outlook for the 2021 hurricane season in late May.

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Take Action Against Business Expense Increases

The logical and most practical response to these increased business expenses is to raise your rates. We think it’s practically a necessity, and we strongly support higher rates for the portable sanitation industry as a whole.

You are the last step of the supply chain that delivers portable sanitation units, sinks and sanitizers to the end-user. At practically every crucial step before you, costs have gone up, and your business is absorbing part of those costs. You should be responsive to the market just as the other suppliers are.

Other industries have responded similarly to the plastics shortage by raising prices for the products and services they provide.

Some PROs strongly resist the idea of higher prices. We know that raising your rates is a big deal. You don’t do it without careful consideration, and you know your service area best when it comes to what the market will bear. But given the remarkable circumstances that have caused higher costs and will probably continue to keep costs high, you run the risk of underpricing yourself out of business without an increase.

Raising Your Prices Strategically

When you do decide to raise your prices, don’t just plug in a few new numbers or use guesswork.

Review your plan

Begin by assessing your business plan to determine your new rate schedule. Review your business needs and goals. Then, do the math – how do the business expense increases affect the profit margin you hope to achieve? Calculating your additional actual costs is essential to establishing your updated pricing.

Entrepreneur recommends that you make any increases ample enough so you don’t have to raise rates again within a short time. Continually raising rates, even incrementally, may tarnish your business image.

Contact your current customers

Entrepreneur recommends that you personally contact (by phone or in person, not email) your top 20 customers and tell them you are raising your rates. The cost of plastic and the pandemic are compelling explanations for the increase that they should understand. Contact other customers via a friendly email with the same message, and ask them to contact you with any concerns.

Update your marketing

Update your prices if you list them on your website and in your marketing material. Do this as soon as possible to avoid confusion. Now, you have your future customers prepared with accurate information.

Trend in the right direction

It’s often said that pricing your services is both an art and a science. There are no hard and fast rules. Once you have new rates in place, review your finances on a regular basis (such as monthly statements) to see if you’ve hit that “sweet spot” of business performance that goes with a successful pricing strategy.

Additional Strategies to Address Rising Costs

You may have already trimmed expenses to the bone and tried other cost-saving measures, but there is a limit to how effective or how far that can take you. Also, traditional business advice says that the top-performing companies rarely compete on price or lowest cost. Nevertheless, beyond a price increase, there are other actions you can take that may help soften the blow of business expense increases.

Act on your inventory immediately

Check your business plan and try to anticipate what you’ll need for the rest of the year, if not longer. Start placing orders now for anything plastic so you can take delays into account.

For shipping, work more closely with your sales rep

Manufacturing sales reps tell us that many PROs consistently underplan when it comes to ordering. You can save money by getting the most inventory for the least shipping costs. This follows closely with the suggestion above to anticipate your inventory needs. Reps recommend:

  • Make fewer, larger orders. Your sales rep should let you know when your order is a light load.
  • Consider LTLs (Load Linking/Load Sharing) – When shipping LTL, several customers’ freights are all shipped in the same trailer. You pay for only the portion of the trailer that your freight uses. Give your rep enough lead time to receive your LTL order so it can be matched with other customers’ orders.
  • Avoid rush deliveries. They are always a more expensive option.
  • Evaluate customer pickup option – Pickup may be cost-effective if you are close to a distribution center, can spare the time and have sufficient hauling capability.

But don’t…

One thing you shouldn’t do – don’t cut corners! Don’t do anything that could jeopardize the health and safety of your workers and customers. Don’t compromise the quality of your services.

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