HUNG OUT TO DRY

Who would have thought that hoteliers would have to cap their capacity despite their being a huge demand for accommodation. But suppliers are affected too by staff shortages and the impact of of the pandemic and Brexit too. Nicola Young takes a look at the laundry sector in depth.

There has never been such a demand for rooms. But who would have thought that this unprecented demand would be so stressful to hoteliers? However staff shortages, and supplier issues are adding a whole new element to a hoteliers life. We all have a view on the issues around staff shortages but why do you think there is such an issue around laundry? It’s not just a shortage of staff although that too is an issue.

“There are massive inflationary pressures bearing down on our industry,” explains David Stevens, CEO of the Textile Services Association (TSA), which represents commercial laundries in the UK. “Commercial laundries are already on their knees, having had virtually no government help through lockdowns, despite seeing volumes drop by up to 80%.

“Now they’re being hit by price increases they can’t absorb – they simply don’t have the resources.”

The cost increases faced by laundries cover just about every area of operation and amount to double digit inflation. Labour shortages have led to wages going up by between 10% and 25%. Chemical costs are up 15%.

Many laundries also supply textiles services such as linen hire to the hospitality industry. Here the prices are skyrocketing, with sheeting and bedding up by 55% and container freight costs by 300%.

Commercial laundries servicing hotels operate on tight margins and quick turnround times.

It is common, as you will know, for companies to either rent linen to hotels for about three years or agree a number of washes to clean dirty sheets and towels within 24 hours. e.g 100 washes.

However like most businesses the majority of laundry services shut operations last year and furloughed staff.

The laundry sector, like hotels, also employed a high proportion of overseas workers and many returned home or found ‘more stable’ jobs elsewhere in the market.

The FT have already reported that Blossom and Brown, one of the UK’s oldest laundry companies, and a supplier to the Royal family, have not been able to recruit enough staff to service hotels since reopening and rather than running two shifts per day they can only operate one, with turnaround time 48 hours rather than 24.

The Textile Services Association reports that, of 25,000 jobs in the sector, 4,000 were unfilled. An estimated vacancy rate of over 15% - and in a sector that already struggles to attract staff.

And now, like all businesses, the energy prices are going to hit hard.

“Energy typically amounts to around 10% of a laundry’s cost base – but the increases we are facing are off the scale,” says David Stevens, CEO of the TSA. “They make the previous record highs of 2004 pale into insignificance.”

For example, in March 2021 the cost per therm of gas was around 42p. Today the cost has breached 160p. Similarly, electricity in

The most serious supply chain issues are focused on textile supply, although utilities and chemical costs are also rising at alarming rates. Some of the figures being reported from the supply chain sector include: Container freight costs up 300%, Sheeting and bedding up by 55%, Chemical costs up 15%.

HUNG OUT TO DRY

March was around £54 per MWh. Today’s settlement price is around £140 per MWh. “It doesn’t end there,” says Stevens. “The first week of September saw sixteen settlement (half hourly) periods with pricing in excess of £1000 per MWh. Nine of these were above £3000 per MWh. The highest was an incredible £4000 MWh.”

UKHospitality is aware of the situation, saying that 94% of hospitality businesses are already experiencing difficulties with the supply chain, through shortages, delays and inflation.

For the hotels, restaurants and health clubs that rely on commercial laundries, price increases seem inevitable. The TSA has published an information bulletin to inform end users of the likely impact. The highlights note that current cost being reported include: - Drivers’ wages increasing by 25% and production wages up by 10%.

The cost index is available to download from tsa-uk.org/laundry-cost-index and was compiled before the rise in energy prices.

Returning to linen, the question is why is there a linen shortage and when will it end.

The cost of producing and delivering the linen products to the UK hotel industry depends on the cost of raw materials (mainly growing cotton), currency exchange rates, manufacturing (weaving, dying, stitching and packing), overseas shipping (freight) and domestic freight.

According to Monarch Brands, on average, cotton makes up about 60% of the cost of the product.

Since October 2020 the price of cotton has increased 55%. It is estimated that an increase of 10% would reflect in a 6% rise in the FOB price (price before ocean freight and duty). Of note is that the cotton price had been unusually low from the summer 2019 until the pandemic struck in early 2020. It therefore seems unlikely the price will fall back to early 2020 levels for some time, if ever.

Cotton is traded in USD. When the dollar trades at a lower rate it takes more dollars to purchase cotton. The dollar index reached historic lows in May this year with prices down to levels not seen since February 2018. Prices have improved since then but they are still much lower than at any time since that year and a long way below the early 2020 prices.

This all means that because mills pay for cotton in their local currency, they will need more of that currency - not only because the price of cotton is higher, but also because their local currency now buys less dollars.

Once the mills have their cotton they now need people to make the linen. Manufacturing typically runs multiple shifts with hundreds or thousands of workers in close proximity to each other. Once COVID struck, this meant that the working environment resulted in large numbers of COVID cases and shutdowns and restricted working. All of this was taking place as demand was starting to rise, particularly in India, reducing supply and leading to an upward pressure on price.

Added to this, in India at least, farmers wanted guaranteed minimum pricing for crops. Protests and gatherings at the end of 2020 and into 2021 lead to road blockages disrupting the supply of raw materials causing delays for months.

The final part of the cost equation is the cost to ship the product. By the summer of this year rates to Europe had jumped 142% and by 103% to the Mediterranean via the Suez Canal. It meant that overseas freight costs had risen by 50%-85% depending on Country of Origin. (Monarch Brands/ Freightos data Refinitiv Eikon).

At the end of September 2021, the Drewry World Container Index shows that shipping prices were, by then, 292% higher year-on-year.

Add to this the UK’s new border and import requirements coupled with internal driver shortages for these containers, driving prices up for delivery as wages rise to attract drivers. All of this causes delays and creates supply shortages. High demand and low supply usually always increases price.

It’s clear that freight and linen faced a perfect storm during late 2020 and 2021 and some of the issues will not apply in future years - but some will remain and depend on currency and dollar prices for the raw supply.

The dollar price is starting to improve but it is still a long way from the prices in 2019. With labour market changes in producing countries it is also possible that prices won’t ever be at the lows of 2018 and early 2020 again.

It all means that prices will improve but it’s possible they won’t get back to the prices enjoyed during the autumn months of 2019.

Experts in Hospitality Marketing

Click2Convert is a full service digital marketing agency delivering innovative websites and successful marketing strategies for leading hospitality brands across the UK.

Check out our client testimonials at: www.Click2Convert.com/case-studies

“The team at Click2Convert take the time to fully understand our business needs and have developed a marketing strategy which ticks all the boxes. We’re delighted with the year-on-year results!” Allan Reich, Resort Director, Cameron Lodges

Design & installation of superior furniture for Restaurants and Hotels

tables • chairs • fixed seating• re-upholstery• bedroom furniture• beds • bedspreads • curtains• sofas • lighting • carpeting

Scotland’s Premier Showroom: 2a Colvilles Place, East Kilbride G75 0PZ

01355 26 36 49 l design@select-contract-furniture.com l www.select-contract-furniture.com

HIT SCOTLAND’S POETS LUNCH

THE FIRST EVENT FOR THE HOSPITALITY INDUSTRY TRUST TOOK PLACE RECENTLY AT THE DOUBLETREE IN GLASGOW. THE POETS LUNCH... AND WHAT A DAY IT WAS. GREAT TO SEE SO MANY PEOPLE GETTING BACK INTO THE SWING OF THINGS AND THEY WERE GENEROUS RAISING SOME £40K FOR THE CHARITY.