Volume 41, Issue 4 - April 2006

theFarnadyFiles

Fuzzy Math
Delving into Price Increases and Fuel Surcharges
by Dez Farnady

I once heard that way back when Ralph Nader was in his heyday as the leader of the consumer movement he was asked about collusion among the giants of either the automobile or the oil industry. Someone had accused them of getting together to fix prices. Nader’s reply was supposed to be something to the effect that they had no reason to get together or even talk to each other; it was a business where they all knew who was doing what anyway. Does that sound familiar?

"When someone thinks there needs to be a price increase he implements one; three 
other guys jump into the market holding the old price to pick up a little extra business. 
Of course the guy who bumped his price loses sales so his price has to roll back…
and we are back to square one again."

Everybody’s Business

It has always seemed to me that, in the glass business almost at every level from manufacturer to fabricator to distributor, everybody always seems to know what everybody else is doing. We all know the capacity of most of the float lines and who is going to shut down a line to refurbish it or who is going to build a new one in Timbuktu that is supposedly going to affect glass prices in Tierra del Fuego. Everyone seems to know the going price of everything coming from everywhere.

I suppose in the long run this has kept the market reasonably stable. There seems to be no great differences between quarter bronze from here or from there. Historically, however, this has always made it difficult to implement price increases. When someone thinks there needs to be a price increase he implements one; three other guys jump into the market holding the old price increase to pick up a little extra business. Of course, the guy who bumped his price loses sales so his price has to roll back … and we are back to square one again. 

I don’t have a problem with price increases if they are justified, but the glass business just does not seem to know how to raise them. I distinctly remember selling quarter bronze tempered as a fabricator to distributors for the ridiculous price of $2.38 a square foot and this was to big distributors—30 years ago? Would you believe that about the price of a gallon of gas?

Riding Piggy-Back

Well, I guess we needed the gas business to give a boost to the glass business. It appears that since we can’t raise prices on our own, we need to piggy-back on those who are experts at it. No one knows more about price games than the oil industry. So we discover the “fuel surcharge.” I understand that fuel prices are up, but that is not particularly big news in a world where all prices are up except glass. Why is it that we can’t just raise prices and instead have to fool around with fuel surcharges? I mean what the heck is the difference if you bump your price 5 percent or if you tack it on as a surcharge? And do we really think it is temporary? 

The nuisance has gotten to a point where my invoices from various vendors come in with surcharges that range from a reasonable 3.5 percent to a ridiculous 15 percent. This, of course, is accompanied with the glass industry presumption that I am an idiot and can’t figure out the cost of my glass. Oh yes, the guy with the 15 percent surcharge has the best price; that is until I add in his goofy surcharge. 

I still buy the glass from the right vendor who has the right product and the right service so long as price, with or without the surcharge, is competitive. I just have to do a little extra math.

Dez Farnady serves as general manager of Royalite Manufacturing Inc., a skylight manufacturer  in San Carlos, Calif.
His column appears monthly.

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