Fuel costs felt across supply chain

Staff -- Industrial Distribution, 10/1/2005

Long before the tragic aftermath of Hurricane Katrina, distributors nationwide were facing rising fuel costs and trying to combat the impact those costs had—and will continue to have—on their bottom line.

What to do? Raise prices? Pass along fuel surcharges to customers? All this will continue to be among the prime topics for discussion for virtually everyone involved with the overall supply chain.

"[Fuel] is all logistics and supply chain folks have on their minds—and the impact it's had on supply chain management," said Dave Ross, education group manager at Intentia Americas, a supplier of ERP software, based in Chicago.

Fuel tops what Ross characterizes as a number of "confluences of cost" that distributors and manufacturers have been facing this year.

John Beaudoin, director of sales and marketing at Production Tool Supply, has seen fuel surcharges come his company's way from their main transportation provider, UPS. Production Tool is a master distributor based in Warren, Mich.

"UPS is our primary source for shipping goods, so what are you going to do?" he said. "They're our primary delivery vehicle. Yes, it's a concern for all across the country."

Fuel costs initially impact transportation, of course, but distributors are quick to add that other fuel-related costs are also making their presence felt.

Richard Pratt, Sr., president of Prospect Fastener in Wauconda, Ill., said his company has already seen signs of this, with some fastener makers adding on a fuel-related surcharge. Fuel is a key component in making and treating certain fastener rings.

"Last year, we were dealing with the steel surcharge," said Pratt, "but while that has leveled off, now we have the fuel issue. And, what some manufacturers are afraid of is that the cost of fuel may indirectly raise the price of steel again."

It led Prospect to institute a price hike Oct. 1—its first in several years, Pratt said.

Getting products "from here to there," is foremost among the concerns at Precision Industries, in Omaha, Neb.

Precision Industries is getting some surcharges from its carriers, president Chris Circo explained, referring to UPS or FedEx, and has been passing on those charges to customers when appropriate. But some of Precision's contracts don't allow freight to be charged at all, he said.

"In that case, where you can't charge freight [costs], you are eating it," he said. "And that can add up."

As passing along increases has become more problematic, Precision has strived to, "improve our processes and methods in getting product from one place to another and provide our clients with options, [such as] other products that might be more competitively priced," Circo said.