It's not just oil. Prices for steel, copper, zinc, lead, lumber, and glass have shot up worldwide and show no signs of dropping anytime soon.
One sector that's been particularly hard hit is material handling equipment manufacturing. Equipment makers say they're struggling to hold the line on costs and, despite the odds, have largely succeeded. "One of the things that amazes me is how long many companies in our industry have been able to hold prices to end-users in the face of rising costs of raw materials," says Edward Ray, general manager of international business development for Daifuku Co. Ltd. in Salt Lake City. But he notes that the situation has forced suppliers to focus on reducing costs and "to be more creative with value-added solutions."
John Hayes, a Charlotte, N.C.-based sales manager for HK Systems, says cost control has been the first line of defense for his company as well. "With continuous improvement practices in place, we have been able to ... keep the prices to the customer as reasonable as possible," he reports.
But manufacturers can't do it all on their own, he warns. "We are an industry that relies heavily on steel and battery costs, and those costs have escalated quickly. So our second line of defense has been to make tighter bonds with our vendors and search for new ways to stem the rising costs, but this can only go so far."
Jungheinrich Lift Truck Corp. of Richmond, Va., has taken a similar tack. It has worked out an arrangement with a battery manufacturer that allows customers to purchase the battery and charger as part of a package at a lower overall price than they would pay if they purchased those items separately.
At the same time, the company has been taking steps to boost efficiency. John Sneddon, president of Jungheinrich, reports that his company recently invested more than $60 million in upgrades to its manufacturing plant in Hamburg, Germany. Part of a four-year improvement plan, the upgrades have enabled faster build throughput, less inventory holding, and a reduction in waste."This was able to offset the higher cost of raw material to some extent," Sneddon says.
But no matter how hard they work to avoid it, manufacturers may have no choice but to pass along some of the cost increases to customers. "Iron ore costs went up 65 percent in one year, and the coal used in steel making has tripled," says David S. Olson, national sales manager for North East, Pa.-based Ridg-U-Rak. "[The price of] steel has nearly doubled in the last six months, and we've had to pass that on to our customers."
Olson's company is using a surcharge system to recover its costs, and he says customers generally accept the additional expense."Some are reluctant, but most are pretty ... accepting," he says. "Like it or not, it's reality today."
Things could be worse. As Olson and others point out, the weakness in the automotive market has helped to mitigate the effects of swiftly rising commodity costs and lessened the risk of shortages.
Still, the sharp rise in costs shows no sign of abating, and manufacturers hope customers understand the difficult position they are in. As Daifuku's Ray puts it, "The problem now is that the speed at which costs are increasing and the sheer amount of the increase is simply more than even the most agile and well-managed companies can absorb."