In the near future, carwash operators may face higher chemical prices along with the prospect of having no choice but to buy soap that is made from materials produced overseas.How it begins
The carwash chemical supply chain begins with the production of basic feed stocks, like crude oil from companies such as Exxon/Mobil. Feed stocks are then purchased by companies like Dow, which produce proprietary raw materials like primary surfactants.
Surfactants are then purchased by blenders and formulators who develop specific chemicals and products for the carwash industry.
Suppliers then sell the products to end users (carwash operators and private labelers) through a network of distributors and outlets.Supply and demand
According to an article in Purchasing Magazine Online, the companies that make surfactants are currently suffering through a period of lower prices and higher costs, despite higher demand.
This can be attributed to the growth in domestic and international demand for surfactants and significant increases in the cost of energy and raw materials.
For example, market researcher Mintel Group expects the demand for cleaning chemicals to push the demand for surfactants in the US by over 2 percent annually through 2008 and by as much as 4 percent annually in some Asian countries.
Natural gas, one of the fuels used in the production of surfactants, now costs $6 to $7 per million BTU's in the US as compared with $5.25 in Europe, $4.50 in Asia and $1.25 in the Middle East.
The price for linear alkyl benzene sulfonates, one of the building blocks for surfactants, has risen from $0.48 to a high of $0.53 per pound in 2004. As a result, many surfactant makers are suffering with thin profit margins.
Subsequently, the prospect of trying to squeeze every nickel and dime out of their products in order to stay in business has led many companies to abandon surfactant production in this country.
For example, there are now fewer than a dozen producers of primary surfactants.
Moreover, in a recent article, Business Week magazine reported that the scorecard on new chemical plants under construction costing $1 billion or more is:
In order to gain an industry perspective on the turmoil in the surfactant market, I spoke with the representatives of several of the leading suppliers of carwash chemicals.
This included Ron Kubala, Plant Manager for Cleaning Systems, Inc., Douglas Frano, National Sales Manager for Royal Sheen, Inc. and Bill Gorra, President, Simoniz USA.
Not surprisingly, there was a fair amount of consensus on this issue and the possible consequences of what is currently happening within the supply chain.
- Increased chemical demand from overseas markets— in particular China and India— combined with reduced domestic capacity, have allowed chemical raw material suppliers to significantly increase prices over the last 12 to 18 months.
- Crude oil and natural gas, both of which are used as chemical feed stocks and sources of energy in manufacturing processes, have increased dramatically in price and remain volatile.
- The carwash chemical market has become very competitive. The price of some of the raw materials used in making carwash chemicals have increased by 25 percent to 40 percent, but carwash chemical suppliers have only been able to pass along a small percentage of these increases.
- Slim profit margins may lead to some shrinkage and consolidation in the carwash chemical business.
- Slim margins may also hamper investment when research and development is most needed to look for lower cost alternatives and increased innovation.
The possibility of the US ending up as a net importer of lower cost raw materials may be exactly what is needed to increase profit margins and rationalize production capacity within the carwash chemical business.
According to the gentlemen that participated in this article, carwash operators can do a number of things to help alleviate inflationary pressures.
- Forget about chemical prices and buy value.
- Focus on the cost per car or cost per minute to operate the carwash and not cost per container.
- Look for a good chemical distributor that not only provides high quality chemicals but also value-added services.
- Watch all costs and continually look for ways to maintain volume and increase productivity.
Robert Roman is a former carwash, express lube and detail shop operator and is president of RJR Enterprises, a leading consultant to the carwash industry. Roman is a member of the International Carwash Association and PC&D's Honorary Advisory Board. Contact Roman at email@example.com or visit www.carwashplan.com.