How Higher Interest Rates Could Impact Wastewater Haulers

Low interest rates encourage spending and investment in a time when few people want to part with their money or take on risk. In response to the financial crisis in 2008, the Federal Reserve cut its interest rate (Federal Funds Rate) to virtually zero.

 

Though the prolonged low-rate environment has given businesses the cushion they need to grow, “the good times” have lasted so long that many companies have inadvertently priced low rates into their budgets. Now that the economy is on more solid footing, the Fed has been trying to normalize the Federal Funds Rate without shocking the economy into a recession.

 

Today we’ll look at several headwinds facing wastewater haulers and environmental services companies as the likelihood for a rate hike in December grows.

 

Change on the Way

 

Though the Fed did implement a .25 point increase in December 2015, none of the four .25 point increases planned for 2016 have come to pass. According to notes from the most recent FOMC meeting, the decision to put the hike on hold once again in September was a close call. Most policymakers agreed that:

 

• The case for a hike had strengthened
• Near-term economic risks and the risks from Brexit had faded
• Raising rates “relatively soon” will be necessary if the labor market continues to improve

 

For its part, the stock market appears to be betting on a hike in December.

 

Hike Impacts on Wastewater Haulers

 

A small rate hike, like the .25% increase in December 2015, has relatively little impact on businesses. Sequential increases, however, could do significant damage.

 

• Labor Costs

 

At a time when the entire trucking sector is suffering from driver shortages and severe competition, a 1% cumulative increase from the current 0.50% to 1.5% over the course of a year could spell serious trouble. But it’s not just high labor costs that wastewater haulers and environmental services companies have to contend with.

 

• Leased Vehicles & Equipment

 

During the current low-rate environment, from mid-2009 through 2013, average APRs on new vehicle leases fall more than a full percentage point, from over 3.5% to less than 2.5%. As a result, many wastewater haulers have taken advantage of low rates to lease the latest vehicles and equipment. Now that are APRs set to rise, some companies may find their current arrangement untenable.

 

• Repairs & Maintenance

 

As higher prices drive wastewater haulers and environmental services companies away from newly leased vehicles, increases in repair and maintenance costs can be expected.

 

• Fuel Prices

 

Another factor for wastewater haulers is the rising price of fuel. Thanks to falling oil prices, fuel accounted for just 34 percent of total annual carrier costs in 2014. Oil prices continued to fall in 2015, further reducing transportation costs. But now that oil is in the middle of a sustained price rebound that is still trending to the upside, those costs are going to rise. Especially vulnerable to price fluctuations are wastewater haulers and environmental services companies with small fleets, because they tend to pay higher fuel costs per-mile than larger companies.

 

Calculating Your Wastewater Disposal Costs

 

That’s why now is the time to calculate the exact cost of your current wastewater disposal solution — including everything from labor and fuel costs to interest payments — and switch to a more cost-effective option!