Let鈥檚 talk about the elephant in the room, the acquisition cost of assets for independent waste haulers. In this article, we highlight the importance of monitoring market rates and exploring opportunities like leveraging collective buying power to drive significant operational savings and right-size your spending.
By Cassidy Brauns
Waste haulers are trained to aim high and keep their eyes moving to 鈥渟ee the big picture.鈥� In a literal sense, drivers are told that we should check at least one of our mirrors every five to eight seconds. By seeing the big picture and constantly checking our mirrors, we set ourselves up to make an informed decision and deal with variable changes. While the industry implores that drivers check their rear-view mirrors, are you, as an independent waste hauler, checking your rearview mirror as it relates to your Capital and Operational Expenses?
Unfortunately, many independent haulers are often starting behind the 8-ball from the inception of their companies. They have no established credit, limited capital resources, and have gone 鈥渁ll-in鈥� to pursue the American Dream. However, these haulers possess a passion and a drive to inherently change their marketplaces and bring enhanced customer service to their end-users. With no business history to tout, new haulers often get rejected by vendors (or combat a 鈥渃ash up-front鈥� scenario), especially for higher-ticket items like trucks, onsite fuel tanks, and containers. Then along comes their saving grace: the vendor that gets it; the partner that is willing to take the chance; the relationship that puts the proverbial wheels of the American dream into motion.
Not only do these vendors and their staff become partners, but they also often become friends inside and outside of the industry. After all, they trusted the small hauler, gave them an out, and saw the bigger picture. However, over time pricing increases, and as a hauler鈥檚 demand for assets becomes greater, so does their pricing.
Photo courtesy of Gatehouse Purchasing.
Aggregating Buying Power to Bring the Big Picture into Focus
It is time to check the 鈥渞ear-view mirror鈥� of your business. We work with a wide array of independent waste haulers ranging from 10 trucks to fleets of 200+ trucks. The goal is to aggregate your buying power to acquire assets more efficiently. On average, an independent waste hauler of roughly 25 to 40 trucks has the opportunity to squeeze an average of $20,000 to $30,000 annually in OpEx savings and another $20,000 to $30,000 annually in CapEx savings out of their operating costs (depending on the Line of Business offered).
Oftentimes, the savings are even substantially higher than that. In a recent example, a lubricant vendor with a 40+-year relationship with an independent hauler had been overcharging them by ~$3.60/gallon on AW-46 (direct product specification match). That is a $50,000+ overcharge at an estimated 14,000 gallons in annual consumption. In another example, a tire dealer was charging a roughly $200-per-tire premium for a virgin 315/80R22.5 casing. At an estimated 125 tires a year, that was another $25,000 taken out of the pocket of a small hauler.
Checking the Rearview Mirror: Monitoring Pricing and Increasing Buying Power
So how do we fix this? The answer is simple: by checking the rear-view mirror. The rear-view mirror is the monitoring and analyzing a hauler鈥檚 pricing based on the increased buying power available due to their increased asset consumption. As we mentioned above, as a hauler鈥檚 demand for assets becomes greater, so does their pricing. So, how do we check the market?
Perhaps the simplest way is to request quotes from multiple vendors. However, anyone in the industry knows that manufacturing quality and customer service drastically vary not just from manufacturer to manufacturer but also from market to market. Additionally, pricing on products like front-load cans and roll-off boxes move with indexes that have volatile swings from week to week. That being said, measuring a product鈥檚 quality from an 鈥渁pples to apples鈥� perspective and understanding the timing of the issued pricing becomes incredibly important.
Other ways to check the market are understanding the ebbs and flows of commodities such as rolled steel and resin, following market trends and major movements such as the UAW strike and the impact that may have on pricing, using industry friends and veteran operators, or look for outside help. The market is a dynamic beast and there is no right or wrong way to do this effectively. Ultimately, checking the rear-view mirror does not mean changes are necessary. You might be able to stay in neutral, but it is important to remain aware of your surroundings to avoid losing focus on the big picture.
Ultimately, checking market rates and your vendors鈥� pricing is not only good for the health of your business, but potentially good for your pocketbook. With an average EBITDA multiplier of 7x to 8x in today鈥檚 market, a $50,000 pick-up to the bottom line could result in an additional $400,000 at exit.
Relationships Matter in the Waste Industry
Relationships matter and doing business with people who you trust and who trust you will always trump a dollar of savings here or there. As you take the 鈥渞ide up the elevator鈥� with your business, ask important questions along the way. Also, ask for constant feedback because at the end of the day jumping over dollars to save pennies does not always make business sense. Jumping over dollars to save $50,000 is a different story. | WA
Cassidy Brauns is President and CEO of Gatehouse Purchasing, where they work with a wide array of independent waste haulers ranging from 10 trucks to fleets of 200+ trucks. If you are a small hauler interested in learning more about market rates and how to effectively check them, call (704) 740-2383 or e-mail [email protected].