17 August 2023

Managing the rising cost of waste

Managing the rising cost of waste

The waste management industry is capital-intensive by its very nature and navigating the evolving complexities of capital expenditure is at best challenging. 

The landscape of waste management has always demanded significant reinvestment into fleet renewal, a practice critical for maintaining optimal service levels for our valued customers. Yet, in the wake of the post-pandemic aftermath, coupled with the Ukrainian conflict and Brexit, we find ourselves confronting a new dimension of complexity in this arena.

It is evident that our industry is grappling with a substantial increase of 25% in asset costs. What this implies is that for industry giants accustomed to allocating £ 10 million annually for replacement capital expenditure, a sum of £12.5 million is now imperative to maintain the same standing. Similarly, smaller operators who traditionally set aside £100,000 for replacement capex must now earmark £125,000 to remain on par. The ramifications of these shifts are undeniable, compelling us to rethink our financial strategies.

Adding to the intricacy is the sharp escalation in the cost of capital. The past decade lulled us with historically low-interest rates, blurring our perception of the norm. However, current rates, while seemingly daunting, are closer to historical averages. This augmented cost, constituting approximately 5% of our escalated capex expenses, requires prudent funding and demands our astute attention. While we are only just beginning to sense the impact of these challenges in 2023, the reality is that they are poised to persist for the foreseeable future due to supply shortages in vehicles and equipment.

Adaptability is ingrained in our industry's DNA, as evidenced by our resilience in the face of the energy crisis, the cost-of-living crisis, and the recent pandemic. Yet, there is an imperative that we cannot afford to overlook – the true cost of our capital. Our commitment to sustainability extends beyond environmental matters; it encompasses the financial health of our enterprises as well.

The present climate necessitates introspection, challenging us to recalibrate our pricing strategies. As an industry, it is essential that we recognise the profound implications of these shifts and take proactive measures to adjust our selling prices accordingly. The temptation to maintain the status quo could well lead to a perilous financial precipice. The onus is on us to rise to the occasion, acknowledging the realities of increased capital costs and adopting a forward-thinking approach.

Effective waste management is an integral part of the UK economy and is essential for businesses to implement sustainable practices that contribute positively to the economy while reducing environmental impact. It is inevitable that costs will be passed down the supply chain and the market must seek robust providers offering the best value, advice, and guidance for the safe and responsible disposal of waste.

I firmly believe that our industry's enduring strength lies in its capacity to adapt and innovate. The capital expenditure landscape, though riddled with challenges, presents us with an opportunity to demonstrate our resilience again. By embracing the need for change and integrating the true cost of capital into our financial strategies, we not only secure our own stability but also contribute to a sustainable and thriving waste management ecosystem. 

The path ahead is formidable, but with strategic foresight, we can navigate these complexities, realise the true cost of our capital, and once again reflect this in our selling price for the years ahead, Those who don’t or wont, will sleep walk into their own financial crisis.

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