Tariffs spell trepidation9 January 2019
The US economy booms but experts hold their breath over the effects of tariffs while Canada sees growth in the healthcare laundry market while drycleaning is slow compared to the US. Kathleen Armstrong reports on interesting times on the North American continent
The US economy continues to grow, registering a 4.2% increase in real GDP in the second quarter of 2018, driven by increases in consumer spending, business investment, exports and government spending. On the other side of the border, the Canadian economy continues to grow, having weathered the oil price shock of 2018, with solid growth of 2.2% in 2018.
“The economic situation in the United States is very strong right now, with extremely low unemployment, high consumer confidence, relatively low inflation and continuing low interest rates,” suggests David Bernstein, president of Lapauw USA. “These factors have had a strong positive impact on our industry, especially in the hospitality and industrial workwear sectors.”
David Netusil, manager sales support and marketing for Jensen USA, agrees. He says that the industry is performing well in all regions of the US and in all sectors of the heavy-duty side of the business (healthcare, hospitality, linen and uniform supply, food and beverage). “Real estate development is on the rise yet again, bringing forth several new hospitality properties, restaurants, etc, which in turn creates growth within the laundry industry,” he explains. “In Canada the healthcare linen supply sector is still experiencing rapid growth. More and more hospitals are outsourcing their linen needs.”
However, there could be some clouds on the horizon. Businesses are waiting to see whether government policies brought in to protect the American manufacturing industry, such as the tariffs imposed on China and the renegotiation of the North American Free Trade Act (NAFTA), will result in an international trade war, which Bernstein says “could reverse the economic gains and strength we have enjoyed over the past several years.”
Joe Ricci, president and CEO of the TRSA, says the US government policy that has the most potential impact on the sector is that of the recently imposed tariffs on imported goods, particularly steel, aluminium and textiles. These have already resulted in short-term increases in steel prices in the US, affecting hangers and equipment manufacturers, as well as textile distributors. “How and when these price increases will be passed on to customers and the long-term impact is yet to be determined,” he adds.
Phil Hart, president and CEO of Kannegiesser E-Tech, agrees: “We utilise primarily US manufactured steel in our US factory so the impact of tariffs has been minimised. However, we are seeing the effects of the recent inflationary pressures on the pricing of steel, labour and other input costs that are necessary for our operations.”
In the meantime, the market continues to consolidate. In early 2017, industry giant Cintas acquired fellow giant G&K. This was followed later in the year by Aramark Uniform and Apparel’s acquisition of AmeriPride and Canadian Linen. Added to this were a number of smaller acquisitions, including California-based Encore Textile Services’ acquisition of Emerald Textiles. In addition, there has been an influx of private equity investment in the hotel and healthcare sectors.
Ricci says that while nearly 60% of the market consists of companies with revenues of under US$700 million, eight companies now account for almost 70% of the market – the above-mentioned uniform service companies, plus Prudential Uniform Supply (uniform/industrial), Angelica Textile Services (healthcare), Unitex Services (healthcare), Alsco (F&B/linen) and Mission Linen Supply (mixed).
The changes within the sector are opening up opportunities for suppliers. Ware says Lavatec Laundry Technology is taking advantage of new partnerships and updated software to help promote its new monorail system, Lavarail, in North America, including the installation of a third tunnel at a customer’s facility in Winnipeg, Canada, with its newest software technology, due for completion in early November.
“We plan to roll out this technology throughout the US and Canada,” he adds.
Unemployment is at a record low, which has helped to up consumer spending and the resurgence of the industrial sector, but it has also resulted in a shortage of manual labour.
“The strong economy is pressing on labour shortages unlike anything we have seen – shortages of technical people for maintenance, shortages of truck drivers for deliveries,” comments Rick Kelly, vice president of sales and marketing at Pellerin Milnor. “We are also seeing inflationary pressure, which we have not seen in more than a decade.”
Bernstein agrees. He says the low unemployment rate, along with a dramatically rising minimum wage in many parts of the country, has caused labour costs to rise dramatically, often without commensurate increases in the rates laundries charge.
The Tax Cuts and Jobs Act, introduced by the Trump administration in December 2017, cut the corporate tax rate from 35% to 21% from 2018. Keith Ware, vice president of sales at Lavatec Laundry Technology, says these have had a significant impact on business, many of whom compensated their employees with raises or one-time bonuses. “Some of this may be the result of low unemployment but how this translates to better a workforce remains to be seen,” he comments. “We have not yet seen an increase in sales as companies usually wait for the impact of these tax reductions on their businesses. It could release pent-up demand in 2019.”
Mike Floyd, president of Continental Girbau, says tis is leading laundries to look at ways to reduce labour through machine automation. “The biggest development is the use of wireless technology and internet- and cloud-based management systems, particularly in vended laundry market and payment systems,” he explains. “Vended commercial and on-premise laundries are installing high-speed, soft-mount washers in order to cut utility costs. These machines deliver higher G-force extract speeds when compared with traditional hard-mount washers. The result is a decrease in resulting dry time by as much as 50%.”
Another challenge the low unemployment rate, as well as the move towards more technologically advanced laundry equipment, has brought to the industry is finding well-trained technical support staff in laundries. Hart says: “Today, a laundry technical professional needs a good understanding of mechanics, electronics, PLCs and other technologies that drive the automated processes.”
Consequently, Kannegiesser E-tech has upped its technical training offerings. In addition, it is collaborating with the TRSA in its production training and maintenance training institutes.
The company has played a part in a number of large projects over the last few years. One particular sector that is seeing a lot of growth in automation is customer owned goods (COG) laundries in the hospitality sector. “In this sector, not only are the highest hygienic standards required, but also the additional challenge of tracking and keeping the same customer goods together through the laundering process,” Hart explains. “We have developed technologies and practices that optimise the logistics within the laundry that both increase productivity as well as the batch integrity of customer linens.”
Netusil says that more and more hospitals are outsourcing their linen needs – and the company has developed digital and other technology to help make their job easier. ‘Futurail Buddy’, developed by the Jensen Futurail team, is an app that allows laundry managers, floor management staff and engineering staff to direct line of sight system control of their Futurail system for production and maintenance purposes. “Real-time adaptations have never been easier,” he says.
Ricci agrees: “Investments in automation are being driven by labour shortages and higher rates. Customer demand for access to information and data is driving technology investment in mobile, hand-held devices for route/delivery drivers, RFID chipping and tracking and web-based customer portals, which also helps companies leverage ‘big data’ to improve performance and service.”
Within the textile rental sector, the demand for custom workwear is on the up, particularly for women and elderly, as well as for larger sizes, Ricci says. “There is also a higher demand for standards and certification for healthcare and food safety resulting in nearly 200 laundries earning the Hygienically Clean designations during the past five years and anticipated growth of nearly 20% annually,” he adds.
Saving water and energy
Environmentally, incentives to be sustainable are local in the US, with no national policy or incentive practice, although in many areas environmental practices are already well established. “Most end users are doing things to lower their energy consumption if it shows a return on investment,” says Ware. “The Environmental Protection Agency under President Trump has relaxed some environmental regulations, but none were directly related to the laundry industry. The mid-term elections later this year may change the landscape but it is still too early to tell.”
Ricci agrees: “The most challenging aspect of water regulation is with local publicly owned treatment works (POTWs) and allowable discharges of wastewater in terms of suspended solids, oil and greases and phosphates. Rates and regulations vary tremendously from city to city or county.”
With regard to the chemicals used by laundries, chemical suppliers are still struggling to convince laundries to wash without NPE solvent, banned in Europe almost 25 years ago, according to Rudi Moors, president of Christeyns Laundry Technology in the US. “We’re still changing laundry by laundry their mindset towards new technologies that allow them to use modern chemistry (very concentrated products without phosphates, Perborate, NPE, NTA and EDTA), to work more efficiently (higher productivity) and to save on water, energy, linen investments and labor. We’re convinced that we will reach pretty soon a tipping point that will allow us to slowly change the industry.”Christeyns’ ‘tipping point’ will be revealed in 2019, at the Clean Show.
Adapting in drycleaning
In the drycleaning sector, Bradly Bolton, business development manager for Cole and Wilson, says there has always been a consciousness about environmental impact but it is only now that he is seeing a shift in people’s approach. “Water and energy savings has become a very important factor. We launched Cole and Wilson in a small region of the US last summer and are having pretty good success with some ‘different’ processes than were typical for our markets. A big focus on water reduction, most times by as much as 50% compared to our competitors, has really aided in our approach as well as helping to preserve the life of garments by reducing chemical/mechanical damage. We are now working to expand our operations within the next few years.”
Bolton says there is also continued interest in wetcleaning because of its lighter environmental impact and the lower cost of entry compared to drycleaning. To cater more to the needs of busy customers, home delivery options are also growing.
Mary Scalco, CEO of the Drycleaning and Laundry Institute (DLI), agrees. She says more and businesses are increasing routes, lockers, etc to meet consumers’ changing definition of convenience – what has become a ‘want it now’ attitude. While apps have been slower to take hold, they are also on the increase. And the rise in wetcleaning can also be attributed to the casualness of the way people dress in the US.
With regard to solvents, perc is gradually becoming a solvent of the past, and in the US, it is no longer the predominant solvent. Scalco estimates its current usage at 60-65% and says hydrocarbon solvents have the lion’s share of the remaining 35-40% of the market, followed by the other solvents such as GreenEarth and K4.
Marco Niccolini, general sales and marketing director for Renzacci, agrees, saying the US market has been proactive in phasing out perc. In the Canadian market, it is also being phased out, sparking a lot of interest and debate about drycleaning. “The difference between Canada and the US in our industry is that the Canadian market is slower,” Niccolini says.The difference also applies to the ownership of drycleaners. While the Canadian sector is moving towards migrant ownership and operation, in the US migrants are already well established in the sector, primarily thanks to strong community support for those