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Shred Companies Sound Off Over Cut-Rate Shredding Services

Document destruction companies have been doing more than shredding papers in recent years. They have also been shredding their prices in an effort to attract new customers and keep existing business, hoping to make up the revenue shortfall with the resale value of the paper they collect.

“We actually have people bidding to do the shredding free, with only the value of the recycled paper as revenue,” says Ray Linzy, chief financial officer at Absolute Secured Shredding near Sacramento, Calif.

In one case, he reports, a document destruction company won a state contract in California by actually offering to pay the agency for its shredded paper.

“This is obviously a foolish strategy when paper prices are so volatile,” Linzy warns. “They seem to ignore the fact that it is easy to lower prices but difficult to raise them back to profitable levels as paper loses value.”

Both large national document destruction companies and small local shredding businesses come in for criticism by some in the industry for driving down prices to near unsustainable levels.

Such moves are driven by a variety of factors including growing competition by national and local firms, high paper prices and a tough economy where document destruction companies are struggling to survive and their customers are looking for rock-bottom prices. As soon as one shredding company cuts its prices, others tend to follow, slashing prices even further to remain competitive and to get work.

“You can go broke for a lot of reasons, and having your trucks sit idle because you never get any work would be the biggest one,” says Linzy, who admits that prices at his company have dropped 25 percent to 30 percent in some cases but adds, “We’ve never done a job for free and we‘re not going to.”

“Some document destruction companies in my opinion are irresponsible,” he says, noting that they fail to take a long-term view of the industry. “They’re all short-term oriented. It makes it real tough. It’s easy to push prices down but it’s going to be hard to get the prices back up.”

“Our problem has been major companies offering free service for paper, rebates for market share and small owners at 50 cents a box to stay alive,” says Dale Kasel, director of sales and marketing for ASDD Document Destruction in Tempe, Ariz. “Metro markets have become saturated with providers and basic scheduled service fees have been cut by 50 percent.”

Not everyone, however, is willing to go the low-cost route.

“I am in business to make money, not lose it,” says John E. Miller, president and chief executive officer of WesTex Document in Lubbock, Texas.

Miller tells his staff to concentrate on good paying customers and let the competition have the rest.

“Concentrate on density of route to reduce operating costs and we will be more profitable than chasing every contract,” he recommends.

Burley J. Pellerin, regional manager for On-Site Document Destruction in Louisiana (a division of 3GS LLC in Knoxville, Tenn., which provides document destruction services in nine states), readily admits that he is, by far, “the most expensive provider in my market.

“I don’t hide it,” he says.

Instead, Pellerin works to educate potential customers about the services he provides. When they telephone shopping around for prices, he’ll tell them to call other shred companies and ask their questions. He also tells them that he’ll be happy to answer their questions but advises them: “I’m telling you right now I’m not the cheapest and I don’t want to be the cheapest. I’ll be happy to compete if and where I can.

“One thing you‘re going to find is I know more about what you need than most other people,” he tells callers. “Ask me the questions, ask me about the certifications and the insurance coverage and the experience I have and so on and so forth and if any of that matters to you, then it will put me back at the top of your list even though my price might have been higher than somebody else.

“Cheap ain’t good and good ain’t cheap,” Pellerin is fond of saying.

Pellerin is even willing to help potential customers understand — or as he puts it “to dissect” — a best price quote from another vendor to ensure it’s really a good value.

“It’s not always what it seems,” he says of some rock-bottom quotes. “If they’re telling you $3 a box, does it really mean $3 a box? Or is there a $200 up-front fee no matter what, plus $3 a box plus a fuel surcharge plus an average daily rate of four hours with anything over that billed at $100 an hour.

“What I’m trying to do is give people information in a good sense without necessarily changing my prices,” he explains.

“We’re a service industry,” Pellerin says. “We‘re dealing with sensitive material and people who are concerned about that need to know the provider that they are using has that first and foremost. The bottom line is I can’t do it cheaper and not sacrifice some of those safeguards that are in place.

“I tell people the reason why we charge what we charge is because the truck that’s parked outside the door here is a quarter of a million dollars. It’s designed to do what you’re asking me to do in the most efficient, most effective and most secure and confidential way possible. It’s not a $30,000 truck that I jimmy-rigged. It’s a truck designed to do what you asked me to do,” he adds. “The guy I have operating the truck is well instructed, well educated and looks professional, acts professional, talks professional. He can come into an attorney’s office and converse with you and your staff and then go on and do a warehouse job down at the dock. He’s that flexible. In order to be able to do that, I have to pay him right and have to be able to pay for that truck.”

Linzy says Absolute Secured Shredding, which is run by his two sons, also strives to show potential customers what sets the company apart from the competition.

“What you try to do is differentiate yourself with the quality of the work and the quality of the service,” he says.

WesTex Document follows a similar path.

“Most people who choose a shredding company are not aware that there are major differences between companies in terms of information security, price and customer service,” it says on its website.

Both Linzy and Pellerin agree that pegging shredding prices to paper prices makes bad business sense. That’s especially true when locking in a multi-year contract based on paper prices which can fluctuate widely.

“That would be foolish,” Pellerin says. “I’ve seen many companies come and go because of that.

“I am, first and foremost, a paper shredding company,” he adds. “We do on-site document destruction. It’s not on-site paper recycling. It’s not on-site paper sellers. It’s not ‘have paper will travel.’ Unfortunately, many businesses have come into the fray simply to become paper movers.”

Linzy suggests that some smaller document destruction companies may be using high paper prices and low shredding fees to land new contracts as a way to lure potential buyers.

“This would seem a poor strategy with any astute buyer,” he says. “While the big players, especially those with storage facilities, imaging, uniforms or other services to prop up their shredding business, seem to be attempting to use lower pricing to put smaller shredding businesses out of business or in a position to become motivated to sell.

“As a result of these strategies, as well as the failure of many companies to take a long-term look at the future of the industry, we are shredding paper for rates much lower than necessary or that would be indicated by the capital cost required to get into business and operate with a high standard of customer service,” Linzy says. “The only answer that I can come up with is for owners and managers of shredding companies to become more responsible by taking a logical long-term view of where they want the industry to be in the future.”

Pellerin‘s answer is for shredding companies to better understand the competition in the market they serve and to stop severely undercutting one another on price. He questions why one company can charge $30 and be successful, while a competitor may charge only $10.

“Why would anybody want to offer the service for $10 and leave $20 on the table,” he asks. “If they want to be cheaper, do it for $28. Or do it for $29.50. You can still say you’re the cheapest in town. You’ll still get all those people who are shopping for price.”

Miller of WesTex Document also questions the way the way the industry has moved, describing it as “madness.” And he notes that the cost to destroy documents is a tiny fraction of the fines companies could face if that information was accidentally disclosed. “Many women pay more for a hairdo and manicure than they want to pay to have a box of vital records destroyed,” he says. “The medical industry is wanting us to assume more and more of their risk due to new HIPAA/HITECH (Health Insurance Portability and Accountability Act/Health Information Technology for Economic and Clinical Health Act) rules and at the same time for us to lower their costs for destruction of this material.

“This industry is in the security business and yet as business owners keep offering ‘blue light’ K-mart specials on our work,” he laments. “It is a recipe for failure.

“We spent so much time and effort building this industry and getting the state and federal regulations on our side only to price our work to the point [where] we are doing more for less and not having the income to keep the heavy demand on our personnel and equipment up and serviceable. Madness. . .”

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