The Government can do more
July 01st 2008

Here, speaking exclusively to Air User,Kevin Prince, managing director of Atlas Copco Compressors addresses the main issues that will affect the compressed air industry into 2009 and beyond

Q: If the compressed air industry is a weather vane for manufacturing in general how do you see the current climate?

A: I wouldn’t necessarily agree with some of the opinions I have seen recently that the manufacturing industry is basically OK and that it is just the financial services industry that is really in trouble. The current climate is definitely stormy and you cannot divorce sectors of the economy and treat them as if they are not related to the wider picture. The feel-good factor, or otherwise, of the economy does have a real effect and even the so-called ‘Cinderella’ industries of the past such as the food manufacturing and processing industries are now being affected. We are all consumers, no matter where we sit in the economy.

Indeed, I believe that manufacturing in the UK is going through a tough time with price increases in raw material costs, energy costs the weak pound and an uncertain outlook for the economy in general. Interest rates and inflation are the two key factors the Monetary Policy Committee would like to have better control over right now but we have the difficult situation of the inflationary pressures plus the possibility of a recession looming.

But, I also believe that the present economic conditions present an opportunity for the compressed air industry.

Energy is a key factor and because of the need to cut operating costs we have a better chance of getting across the message of energy efficiency which in the past, with falling energy prices, had fallen on deaf ears. There is still a huge amount of old, inefficient equipment being used in the market, by getting close to customers and truly understanding their needs we can create opportunities.

Q: How will this develop into 2009?

A: I believe we are in for a bumpy ride over the next 18 months to two years. We will see more consolidation in the compressed air sector with the stronger players buying up distributors and re-sellers, a trend that has been increasingly prevalent over the last two to three years. We have also seen a number of distributors going out of business and with a tightening economy and increasing costs we will see more of this also. The reasons for this are that there is now a need for distributors to offer added value and not just trade on price as some have done in the past. In the modern era a ‘people will come’ attitude is doomed to failure, you have to go and make the enquiries and a large percentage of sales are developed from nothing. By nothing I mean, it’s not just about waiting for a breakdown, there is a much more consultative approach to a great deal of the business we do which I think is key.

Q: In what ways can equipment manufacturers help customers?

A: It is now even more vital that the leading manufacturers continue to innovate and to improve the efficiency and reliability of their products. Atlas Copco spends around 3% of annual turnover on R&D which is significantly more than other manufacturers. We have a belief that there is always a better way to do things.

It is also vital in this day and age that manufacturers offer a wide range of finance packages. These allow customers who do not have funds to invest in the immediate outright purchase of equipment to gain the benefits of reduced energy consumption, improved reliability and air quality straight away whilst financing the equipment from the savings. In many cases these finance packages can also include the maintenance of their equipment, so customers can be sure that their equipment and compressed air network are always running in the optimum condition. The industry should be concentrating on total cost of ownership, rather than just upfront cost. From my own experience I have seen the use of finance packages grow exponentially and I wouldn’t be surprised if in a few years time that 50% of all equipment sales are via the manufacturers own finance schemes. For the customer they offer ease and flexibility as assets can be kept on the balance sheet, off the balance sheet or whatever suits their particular situation at the time.

It is a strange anomaly that in manufacturing, where leasing is such an ingrained part of the equipment procurement model that, until now, compressed air equipment hasn’t featured at all. Now though, where compressor technology takes great strides forward every five years it is vital to maintain your competitive advantage and keep operating costs at a minimum to take advantage of new technology when it enters the market. Leasing allows this and we will see it becoming increasingly common.

Q: What do you think the Government/Trade Associations can do to help you?

A: If 10% of all the energy used in manufacturing goes towards compressed air generation then I would like to see the powers that be introduce a more uniform standard for testing and specifying the performance of compressed air equipment. ‘ISO1217’ is open to interpretation, a fact which confuses the end user. It allows manufacturers and distributors alike to ‘play’ with the numbers and because the poor end user finds themselves comparing eggs with bananas they cannot make an informed decision.

I would like to see a system that gives clear unambiguous data that can help customers select the right product for their application. Indeed, we at Atlas Copco would welcome a more transparent standard, something along the lines of the white goods industry with a banded energy rating system, independently assessed by a regulatory body.

Q: What can the media do to help you?

A: There is some recent evidence to suggest that the media is fed up with what has been termed as ‘Corporate Greenwash’ – the appearance of environmental responsibility without the change in behaviour. For the compressed air industry the media can help by continuing to publicise new innovations and developments. There are still many compressed air users that could be saving a lot of energy, and money, with some investment in their air system. In terms of hard facts and figures a 30% saving in energy use is not unusual these days and we have seen over 50% savings in energy consumption achieved with the latest variable speed drive compressors, integrated dryers and modifications to air networks to plug leaks.

With ever increasing electricity costs, which account for approx 80% of the total ownership costs of an air compressor, these savings are essential plus they contribute toward reducing the end user company’s carbon footprint.

Q: What single influencing factor would you like to change going forward?

A: Again, I am going to have to point a finger at the Government and say that they are simply not doing enough to help manufacturers achieve the potentially huge energy savings that could be made. Rather than punitive taxation I would like to see Government make the loans available to industry for investment in the latest energy saving technology more widespread and easier to understand and apply for. The timescale of the loan application process needs to be re-appraised as if a compressor needs replacing it must be done so as soon as possible. The fact that the loans cannot be applied for retrospectively inhibits their use and is particularly unhelpful for smaller manufacturers, the owners of the oldest, least efficient equipment, and the target for where the largest energy savings can be made.

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