Big haulers: Pricing pressure increases
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By Jim Johnson | WRN senior reporter
Aug. 22 — Competition for trash volumes is intensifying around the country as garbage companies look to protect their business in a stubborn economy that continues to sputter along.
Both Waste Management Inc. and Republic Services Inc., the nation´s two largest trash companies, are reporting that pricing pressures have increased as competitors fight for their share of the waste stream.
“We are seeing some pressure on municipal contracts that are rolling through,” said CEO Donald Slager of Phoenix-based Republic Services. “We have done some price rollbacks, some extensions of business at flat rates to extend the business going forward.”
Over at Houston-based Waste Management, CEO David P. Steiner said his company also is taking action to protect its customer base.
“Local haulers often offer new business prices substantially below our prices. But, lately, we´ve seen our regional and national competitors aggressively reduce prices to maintain volumes,” he said. “We had to take action to retain profitable customers. And in the second quarter, we saw the highest level of price rollbacks since prior to 2004.”
Still, the company is better off fighting to keep customers than letting them walk away, he said.
Both men, during recent conference calls with securities analysts, said their companies are looking to continue to maintain discipline on pricing while working to protect existing volumes under attack.
“Job one at Republic is to protect the cash flow that we have and grow the cash flow from there,” Slager said. “We´re seeing more activity, frankly, in small haulers who are maybe living for today or who are looking for an exit strategy at some point in the business. We think the larger companies tend to be more active in the pricing environment, trying to increase the returns in their business.”
The nation´s prolonged economic problems, he said, are having an impact.
“You have had an economic downturn here that has lasted very long and you don´t see the organic growth in the market really happening. And that causes some strange behavior at times. But we´ll weather the storm and will continue to price and we will see our way through it,” Slager said.
It used to be that Waste Management would see pockets around the country where competitors would not increase their prices after Waste Management did so. But that has changed.
“Over the last couple of quarters, what we´ve seen is that those pockets have expanded to where it looks to us like it´s virtually in every one of our markets where we´re seeing folks who are not drafting à off our pricing actions anymore,” Steiner said. “They´re taking actions that are designed more to get volume than to draft on our pricing actions.”
This is how Slager described the situation: “Some of the smaller folks in the marketplace get a little twitchy and they do some silly things and you can only stand by and watch that for so long.”
At Republic, reviewing price has become a year-round activity. It moves prices to meet specific market conditions. That means Republic is more willing to defend its business, even at a lower rate.
“We might have been more willing to walk away from some business” previously, Slager said. “We´re very active in the market every month, the open market, raising prices and very effectively defending our business accordingly.”
Pressure on pricing, Steiner said, has become “pretty widespread” as the economy has not improved.
“We have taken a very strong approach in protecting our current business. And when competitors are calling, we´re fiercely defending that business,” Slager said. “We have not changed our pricing strategy or focus. We have not changed our return focus. But we´re simultaneously pricing, saving business and competing in the marketplace.”
Ronald J. Mittelstaedt, CEO at Waste Connections Inc. of Folsom, Calif., said the give-and-take between his company and local governments during difficult economic conditions can help the company in the long run.
“I think, generally, contractionary periods that bring about difficulties on the financial budgets of local governments who we deal with are generally opportunities for us,” he said. “It will generally bring about some give up on pricing. But, by doing that, we are expanding the scope of our services and lengthening the length of our relationships in our contracts with them. I think it´s an opportunistic environment.”
Those moves more than offset what the company gives up in terms of pricing, Mittelstaedt said.
“We as a company and we as an industry have to be very cognizant of pushing price in this environment and surcharges in this environment with local governments because of the financial condition many of them are in à ,” he said.
Contact Waste & Recycling News senior reporter Jim Johnson at [email protected] or 937-964-1289.
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