Despite upturns in national and global economies, bid prices remain artificially low.
I attended a meeting recently with the HSBC bank’s chief economist in the UK, Dennis Turner who set about explaining the “alphabet soup” of recession and recovery cycles. “There is the V-shaped recession in which the economy dips into the red and then immediately comes back up again. There’s the U-shaped recession where markets go down and stay down for a while before climbing back. And there’s the W-shaped recession that everyone fears at present in which we go down, come back a bit, go down again and then eventually recover,” Turner said. “But the one we should all fear the most is the L-shaped recession.”
In truth, the world has just endured a U-shaped recession. There’s no question that it was prolonged; nor can there be any argument that it was Mariana Trench deep. But, the fact is, the world’s major economies went down, stayed down for a time, and then started their slow ascent back to some degree of normality.
And yet, against this backdrop, some elements of the demolition industry – and both sides of the Atlantic are equally guilty here – seem determined to talk and bid themselves into that nightmare scenario of the L-shaped recession.
What makes this even more bizarre is that it is both self-perpetuating and almost wholly confined to one business sector.
While the other market sectors that provide an accurate snapshot of the state of the economy – notably house building and car sales – are seeing month-on-month upturns, demolition appears determined to ride the recession horse and cart long after other industries have bought a Mercedes and driven off into in search of the next boom.
Why is this?
Well, the Dutch Auction regulations that insist that the low bid (generally) wins the contract certainly don’t help, and local authorities, city officials and private companies really do need some lessons in why low cost does not necessarily equate to best value.
But more often it is the demolition contractors that are shooting themselves in the foot with a barrage of low bids that has continued long after the worst of the recession (in most areas) is over.
What I fail to understand is why. Sure, demolition contractors are not generally the top of the academic tree. But what they lack in college degrees they more than make up with a healthy dose of street smarts, guile, cunning and enviable business acumen. The industry boasts very few qualified economists and yet contractors track fuel and scrap prices with the eyes of a hawk and the intuition of a commodities trader.
So why have they failed to heed the upturn in the markets? Why have they failed to adapt their prices to reflect the growing economic optimism in the allied construction, waste and crap industries?
As a very good friend of Demolition News pointed out to us, the current economy has “a theme of innovation, productivity and added-value”.
Those demolition contractors that conform to that trend will be on the U-train headed for a long overdue recovery. Those that insist on merely slashing prices just bought themselves a one-way ticket, riding the L-train to oblivion. We can only wish them bon voyage.
