Whether you, as a producer, are charging a fee or not, there are environmental costs associated with the ready mixed business and they are affecting every load. Some producers choose to attempt to capture the costs within the price of the concrete, while others have established set load fees to cover the impact. In this issue, we discuss and identify the reality of those costs, as well as look at what producers can do or are doing to cover them. As in previous issues, we will also look into areas to potentially find savings and add value.
In general, I have yet to see the environmental movement reverse in direction, and like it or not, there are likely more controls to come. In recent years, there have been a few victories to mitigate or delay regulation for good reason, but at steep costs. If anything, these victories show that having solidarity of a voice is key, which is why participation in local and national associations is important. Interestingly, in many cases, state and municipal regulations are becoming even more restrictive than federal guidelines—making compliance difficult to monitor and track. Overall, the increased regulation and the financial impact of following, managing and fulfilling these rules add to your costs and needs to be covered.
The current financial impact points of this increased environmental focus within the ready mixed business come from a variety of sources—not all affect every producer. The costs are spread throughout the business in areas like water and air permits/fees; oil, tire, fluid and battery recycling; costs related to managing washout areas or operating reclaimers; disposal of waste concrete and slurry; cost of time associated with managing site wash down when regulated; and, fees charged from suppliers on raw materials. As mentioned, some producers or plant locations have the benefit of avoiding a few of these costs for now, while others seem to get hit across the board. There are areas where these real costs exceed $2–$3/cubic yard. Whether the financial impact is $0.50 or $3/yard ($5–$30/load), if not covered, the costs will negatively impact your business.
One of the challenges for many ready mixed businesses is that these costs can be “lost in the stew,” so to speak, and not understood. If you haven’t already done so, you may want to consider tallying or having someone consolidate your true environmental costs. If you are unaware of the total, it becomes difficult to have a sense of urgency about it, and you might be surprised. The reason this total is often elusive is because it impacts your business at different levels, making it harder to track. Typically, it falls into the multiple cost buckets of plant, delivery, maintenance and operational expenses, making it difficult to see as a whole. A worthwhile exercise is to take a look at the totals because, who knows, there may be some opportunities to recapture costs and/or add value. A good real-life example of this was a 2 million-yd./year business that for years prior had not truly measured their total concrete waste disposal cost. The costs were lost in general plant costs and there was a level of historical comfort that plant operations were in line. When measured, the total concrete waste disposal was over $2 million/year, or more than a $1.00/yd., solely for disposal and not taking into account the other costs. Mitigation methods were quickly put into place, and overall costs were reduced by $700,000. That’s real money to the bottom line, but if not measured, would be lost every year.
As increased regulation and environmental costs rise, there is a debate as to whether to cover some of these costs in the form of a fee or just raise the price of a product proportionally. Some producers take the position that these are just “the costs of doing business,” while others see a need to capture them as a real throughput cost and charge a fee. In a current snapshot around the marketplace, fees range from $0–$25/load, with many at the $10–$15/load range. I can appreciate both positions, as long as the costs are not eroding your business' profitability. By isolating them as a fee, there is a level of protection that they won’t be sacrificed in a price negotiation (or at a minimum a conscious decision needs to be made to do so). On the other hand, building them into your pricing strategy keeps it convenient for the contractor customer and has benefits as well. Either way, it all starts with awareness of what they are and their impact on your business.
The old saying “perception is the only reality” holds true in this area, and if your employees and customers don’t know about these costs, there are real chances they will be lost. In discussions with a few contractors, they admitted that the fees can be waived by their local sales representative many times just for the asking. Surprisingly, with further discussion in most of those cases, the contractors were unaware of all the environmental hits to their supplier, but at the end of the day, it's money in their pockets and out of their suppliers'.
Obviously, there is an opportunity to pick and choose what to put in the bucket, but building awareness is key and a good business exercise especially if you want to “hold the line” on capturing these costs. You might find that conceding an environmental fee or price increase to cover environmental costs in the future does not happen so fast if it is understood, and awareness further creates an opportunity to help your customer better understand why it is needed in the first place. Take a look at your cost, and if possible, try to pull the same information from previous years to see the trend.
Many producers capturing no fees fall into two categories. One group claims the challenge is with the proverbial “other guy,” or they feel that the market just won’t accept fees. The other group has found comfort in the belief that the costs are covered in the overall price therefore a nonissue. As mentioned, capturing these costs within your sales price creates a convenience for the contractor and your business if you are confident it is maintained and not lost.
In reference to markets that appear resistant to fees, it once again begins with individual producer awareness. When looking at current areas/markets with fees, there is no set pattern, and the producers are found in many business shapes and sizes. Some were pioneers in their markets, and others have learned, conducted their own introspective and followed. But for the most part, the events leading to the issuance of a fee were always driven by an awareness of the impact on their individual business. As an interesting side note, in almost all cases with environmental fee-based companies, 100 percent of the COD customers accept the fee.
At times, an environmental strategy can add value. Take for instance the increasing state-by-state trend (following the new Environmental Protection Agency guidelines) that all site chute wash water needs to be captured. These regulations are changing our business and forcing our industry to come up with solutions. The washout status (finish pour to job site departure) has always been widely variable due to site conditions and construction types, causing a wash down window variability from five to 30 minutes (avg. 16 minutes), or in concrete terms $0.60–$3.50/yard minimum on a 9-yd. load. Because of the new regulations, solutions have been developed changing the way we do business, and wash down times of three to seven minutes maximum (no matter what the site conditions) are now available. Even without regulation, the development of these environmental solutions will add value and consistency to the ready mix producers everywhere. Without regulation, who can say how long it would have taken for our industry to develop a solution for this efficiency—and potentially value-adding—issue?
It is fairly clear that the environmental impact on your business will increase, so it is important to understand the issues, measure the impact, build awareness and ultimately have a strategy within your business to cover the costs and potentially add value.
Next Month: Optimization — "Maximizing additional value within your business"