Chemical Quandary

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As you've noticed, a lot of pool chemicals cost more this year. Last December, BioLab announced it would raise prices up to 35 percent on all its products containing chlorinated isocyanurates, and the prices of its other pool and spa products would be increasing by up to 10 percent. Advantis Technologies also raised prices on many of its chemicals earlier this year.

The main reason for the substantial price hikes is the rising cost of raw materials — especially chlorinated isocyanurates, which are used to make trichlor and dichlor.

But chlorine is not the only key ingredient that's gone up. "Just look at the price of gasoline," says Scott Newton, director of marketing for BioGuard, "look at the price of crude, look at the price of natural gas. All of those things are used to run a plant. And look at the price of plastic. It has increased by about 30 to 40 cents a pound. That's dramatic and that's the stuff you package it in."

In addition, says Mike Moore, vice president of marketing for Advantis Technologies, "We have, as well as our suppliers, for several years absorbed all the cost increases for resin, gas, other raw materials, packaging and transportation."

"So everything to do with the manufacturing is at much higher costs than it has been historically," says Antony Hand, vice president, sales and marketing for Clearon Corporation, a domestic supplier of chlorinated isocyanurates. "And at the same time because of the unfair competition, prices [for chlorine] are at their lowest level they've been historically. You know yourself that equation won't work, not for long anyway. You can't sell at massively below your cost ongoing and survive."

The Chlorine Tariff

This situation led Clearon Corporation and Occidental Chemical Corporation to petition the U.S. Department of Commerce (DOC) in May of 2004 to investigate whether foreign producers were engaging in trade practices designed to harm U.S. manufacturers by dumping isos into the U.S. market.

"Dumping occurs when a foreign producer sells a product in the United States at a price that is below that producer's sales price in the country of origin, or at a price that is lower than the cost of production," says the DOC. "The difference between the price (or cost) in the foreign market and the price in the U.S. market is called the dumping margin. Unless the conduct falls within the legal definition of dumping as specified in U.S. law, a foreign producer selling imports at prices below those of American producers is not necessarily dumping."

With any product, dumping primarily occurs when a country and/or company seeks to gain global control of the market for that product. If successful, they would then be able to control global pricing of that product.

On Dec. 13, the DOC announced its affirmative preliminary determinations in the anti-dumping duty investigations on imports of chlorinated isocyanurates from Spain and China. The DOC preliminarily determined that producers/exporters have sold the isos in the U.S. market at less than fair value, with a margin of 12.13 percent for Spain and margins ranging from 125.97 to 179.48 percent for China. In short, the DOC preliminarily determined China and Spain have been dumping isos in the U.S. market.

At the same time the DOC has been investigating the charges of dumping, the U.S. International Trade Commission (ITC) has been determining whether the foreign producers have materially injured domestic producers. Their preliminary decision was that, yes, foreign producers are injuring the domestic industry.

Beyond preliminary determinations, there is something else that makes many believe a tariff on chlorine is imminent. "Since the time of the Commerce Department's preliminary dumping determination," says Hand, "importers of chlorinated isos from China and Spain have had to deposit estimated dumping duties (typically in the form of bonds) with customs to cover the possible later imposition of dumping duties. The amount of the estimated duties has been based on the dumping margins found by Commerce in its preliminary determination."

The DOC will make its final decisions early this month. According to a DOC Fact Sheet, "If the DOC makes final determinations that imports were sold below fair value, and the U.S. ITC makes a final affirmative determination that imports are materially injuring, or threatening to materially injure, the domestic industry, the DOC will issue anti-dumping duty orders, and instruct U.S. Customs and Border Protection to collect cash deposits for anti-dumping duties at specified rates." In other words, there will most likely be a tariff on imported isos after the DOC and ITC make their final determinations in May and June, respectively.

"We know how much it costs to manufacture these materials," says Hand. "And all we want is fair competition where they reflect the same costs as us, and if they don't do that for whatever reasons, that's got to be addressed so it's actually fair competition on a fair, level playing field. We will then stake our efficiencies and everything else against anybody in the world and that's just where we want it to be restored to."

Randy Hitchens, vice president of the water products business for Arch Chemicals, an importer of trichor and dichlor, says, "The company was disappointed by the decision, but we remain hopeful about the final outcome. It's really too early to tell the impact, but it's our belief that the imports are fairly traded and have not caused any material damage to the U.S. chlorinated iso producers."

Hand points to the global impact of imported isos. "The Mexican manufacturer alleged dumping against the Chinese and had a dumping margin put in last year because their business was so materially damaged. The European manufacturers have alleged dumping against the Chinese because their business was being injured so materially and the Chinese are up to 55 percent market share in Europe. And the U.S. has alleged the same thing, because globally, all the manufacturers of chlorinated isocyanurates have been so severely impacted by these Chinese imports below fair market value that we cease to be viable businesses unless something is done to make a level playing field."

When the dust settles, and in some cases even beforehand, chlorine will be more expensive — so why is it so critical that domestic suppliers stay afloat. Moore says Advantis chooses to buy from Clearon because it's a "supplier that has proven consistency in quality products and service, which we provide to our customers." Plus, Moore says buying domestically gives Advantis the "ability to respond to market and specific customer needs faster. And it supports jobs in America."

Fair Warning

It's hard to dispute those reasons, and most dealers recognize the logic therein, but they're still left wondering: "How do I deal with this."

Everyone who can will pass the cost on to pool owners, who will ultimately pay the higher prices, but won't enjoy doing so. To make this transition smoother, then, there are a few strategies dealers and service companies can use, like educating employees and consumers and promoting alternative sources of chlorine.

Chad Perrine, director of marketing and retail operations at the Year Round Pool Company in Bluffton, S.C., says his company planned ahead. "We actually got some additional warehouse space and purchased an entire year's worth of chemicals based on last year's demand prior to the change taking effect, so that it wouldn't affect our customers right away."

However, once this supply runs out, YRPC will raise its prices, and Perrine says the company has a plan for communicating that to customers as well. "The next step," he says, "is we're having a training day with the BioGuard representative where he is going to follow me around to each of our three retail locations and basically spend an hour with each person discussing the ways you can communicate to the consumer about the rise in cost so that people do understand. Then everyone will have an intelligent response. It won't be: 'I don't know, I don't own the store, I don't set the prices.' It won't be that kind of response."

Newton agrees: "If all dealer personnel are singing from the same hymnal it makes a better hymn."

Beyond responding to customers' concerns with a consistent, informed message, Perrine says, "Another good thing is when you're invoicing customers, you can do a stuffer in with the invoice to explain and let them know what's going on and when the price change is going to take effect. I think if we give people fair warning, and let them know that it's not something specific to our company or our stores, and we just don't blindside them when they come up to the counter, then I think they're going to be pretty understanding."

Perrine also points out that "there are alternative sanitizing methods now that weren't in place 10 years ago. So when somebody is building a pool they can say, 'OK, it's going to cost me x amount of dollars more to put this Mineral Springs-type unit on my pool, but throughout the life of the pool, I'm going to save x amount.' And typically, you look at a two to three year turnaround on that type of investment."

Dave White, director of business development for Westport Pools in Maryland Heights, Mo., also offers a variety of methods for sanitizing. "With our residential business, we're trying to push the salt generator for homeowners. It's so much cheaper [than added chlorine] to operate, and we're starting to sell quite a few of those. Our estimated guess is you could recoup the cost of the generator in two to three years or less if the price [of chlorine] keeps jumping."

For those clients who want to stick with traditional chlorine, White says, "We'll put a letter in with their statement and do a little explanation, and also follow up with some articles talking about the cost going up to inform them, because it helps break the ice a little bit."

The Service Side

Harry Downes, owner of AAA Full Line Pool Service in Northbrook, Ill., will also eventually contact his customers to explain why the price of chlorine is going up, but he won't have to do this until later this year. "We bought a lot of our chlorine back in December so we avoided the price increase for this year, for a majority of it. But after we run out of this stock, then it's going to affect our prices."

Downes hopes that with the recent price increases, places like Home Depot and Costco will have to raise their prices so they will be more in line with those of a service company like his. "They were buying at a better price than we could buy it at, so some people were going online and to places like Home Depot to purchase their chlorine rather than buying it from the smaller service man." Yet these customers still wanted Downes to test and treat their water. So Downes is hoping that after everyone increases their prices, the amount customers could save by buying chemicals from alternative sources would be so nominal that they would buy from Downes. "This might end up being better for the service man in the long-run."

Once Downes runs out of the chemicals he bought last December and once he sees the price increase reflected across the marketplace, he will then call all his clients before sending a letter to explain. "This is my way of keeping in touch with them, because you're trying to build a relationship with the customer. I have a valid reason here to be calling them, not just to be soliciting. So first I'll tell them a short version of what's going on. I'll tell them: 'We've got this situation with chlorine, and I'm just passing on what they're charging me as an increase. And then, by the way, are you interested in a salt generator? Are you interested in a Nature2 or an ozonator? Or an automatic cover to put on your pool so you're using less chlorine?'"

Down South

Robert Katon, president of Total Pool Care in Miami-Dade County, is very concerned about service professionals in his area. "In the last couple of decades, stuff has gone down a little bit, gone up a little bit — it's been a very static industry. But now the increases across the board, without exception, are massive. We were paying 59 cents a gallon for liquid chlorine. Now we're paying 83 cents a gallon. We were paying $56 for 50 pounds of pool tablets. Now it's $84. So, it is a massive increase.

"And, yes, it will be a problem because a lot of people are so mentally geared up for very small, incremental changes, not something this big."

Nevertheless, it seems logical that Katon and other service professionals could simply raise their prices to re.ect the higher cost of the goods they purchase. Unfortunately, it's not that simple. "You have these guys who are called gypsies: no license, no insurance. Our worker's comp is massive. It's set by the state because we're considered a construction trade. But a guy working from the left pocket to the right pocket pays no income tax, has unmarked trucks, and why should he raise his prices because his costs are only for his truck, his gas, his truck insurance and whatever he pays his supplier."

So it becomes difficult for licensed and insured professionals to raise their prices significantly when their competition does not have the same overhead. "And the worst of it is unlicensed people may do substandard work," Katon adds. He estimates there are more unlicensed than there are licensed people in Dade County.

And that's just residential service. When it comes to servicing commercial pools, "if you notify them that you're going to raise prices, the property managers go out and take bids so they can be heroes," says Katon. Granted, commercial facilities do need to employ licensed service professionals, but, Katon adds, if you charge more than the newest guy on the block, then you may lose the account.

Katon says Total Pool Care will attempt to recoup the higher costs by trying to get more for repair work and pool service; and, as he's done in the past, he'll raise the price of service on existing residential accounts 97 cents a week. "Usually, people will not drop service for 97 cents a week. It seems nominal, but we do it every year."

Moving On

"The price increases are definitely a challenge," says Perrine. "But I think they can be overcome by educating your salespeople and trying to educate consumers in your marketing efforts, too."

Downes also has a positive outlook. "I've been in the pool business for 40 years, and when I was building pools, we had a cement shortage when there was a big flood on the Mississippi. Well, we could have gone out of business because there was no cement to make pools, but we got cement from New York in a boxcar and we got enough cement to make it through. We've also gone through a natural gas shortage where you couldn't put a heater on a pool. Well, we got through that and this is the next bump in the road, but we'll get through this, too."

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