Volume 37, Issue 9, September 2002
Two Weeks Notice!
Glazing Industry Feels Effects of Energy Surcharge
By Andrew Gum
In late June of this year I took a week’s vacation with my family and when I returned to the office it was pretty much business as usual. Our sales department was busy rounding up contract work for next year, project managers were working hard controlling their project budgets and schedules and our front office was administrating the operations of our business.
After providing my friends in the office with the gory details of vacationing with our seven-month-old, I leaned into my voice and e-mail. Next came my mail, which contained the usual items such as computer catalogues, seminar promotions, thank-you notes from employees for giving them such a great place to work and, of course, the multiple letters from our general contractors thanking us for helping them overcome their deficiencies.
As I worked my way to the bottom of the pile, I came across a letter from one of our glass fabricators stating that the energy surcharge from the primary glass manufacturers was being re-implemented. Since I am very active in our industry and had not been aware that re-implementation was imminent, I read the first paragraph curiously. It stated the reasons for the surcharge and explained how the charge would be based on the NYMEX quarterly energy indices and that the cost of electricity, gasoline and diesel fuel were also contributing to increased energy costs.
I jumped quickly to the second paragraph and was absolutely flabbergasted at what I read. “As a consequence of the actions of the primary glass manufacturers, effective Monday, July 1, 2002, we will be adding an energy surcharge of 2 percent of the value of every invoice to cover these increased costs for a period through September 30, 2002.”
Wait a minute … today is July 1 … this letter is dated June 24 … it was received in our office on June 27. According to this letter we’re going to be charged an additional 2 percent for all of our orders invoiced after today! What about all of the work that we have under fixed contract? What about the purchase orders we’ve already placed? What about the letters of intent that we’ve already issued to our suppliers? There must be some kind of mistake! I quickly rummaged to the bottom of my pile searching for additional notices. Sure enough, there were more. One was dated June 26 and was received on June 28. The next two were dated June 24.
Looking for Answers
I scrambled to my phone book to find the number of my old friend Bill Stone of Louisville Plate Glass Co. to explain why we were being provided zero notice on the surcharge. Bill explained to me that United Glass Corp. had received notification on June 11 and that it took them two weeks to decide how they were going to manage it. Bill said he was unaware that the surcharge was being re-implemented until he was notified formally on June 11. Although we both agreed that recovering the cost of the increased energy charges was necessary, we both expressed frustration in the way the charge was being handled and the position that it put both of our companies in. As a result, I did a little research on natural gas prices.
A Wealth of Information
Within about 30 seconds of logging onto the Internet and performing a search for Henry Hub Natural Gas, I was presented with several sites with information on the natural-gas futures market. I was amazed by the amount of information that was so readily available. I was able to find future gas prices for the next two years, charts showing me rolling averages as well as current and six-month trends. I found it most interesting that the current trend since March was pushing downward and that I was so easily able to find a barometer of gas prices for the next quarter.
After researching the subject, I was left with the nagging question of why our industry was not provided with reasonable notice that the surcharge was being re-implemented when futures information is so readily available? This is a question to which I have yet to find an answer. There seems to be an attitude in our industry that glazing contractors should be including the surcharge in their pricing even when it is not in effect. We have a saying in our office that we use regularly, “Who owns the problem?” We sure don’t own it, but we’re being asked to pay for it.
It would seem to me that as long as energy prices remain volatile, it would be in the best interests of our industry if the primary glass manufacturers would start making a statement quarterly that projects their estimated surcharge three and six months out. This would give the middle and end users of raw glass products the information they need to anticipate their job costs. Providing two weeks notice of additional charges to the fabricating community is unacceptable and irresponsible to our industry.
We’re all in the business together. The concept of managing business costs is nothing new. If excessive costs are managed properly, we can minimize the pain at all levels of our industry. Communication is the key and has to start at the top for our industry to be successful.
Andrew T. Gum is president of Thomas Glass Co. in Columbus, Ohio.
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