Volume 41, Issue 8 - August 2006

Fill ’Er Up
Glass Companies Talk About the Impact of Increasing Fuel Costs
by Alan B. Goldberg

Mention the cost of fuel to anyone, let alone a fabricator or aluminum manufacturer, and the concern is universal. While the question is whether there will be an end to this rising cost, the immediate issue is determining the best way to handle it. The balancing act between how much can be absorbed and how much must be passed on to the customer varies from one company to another. After all, no two organizations are alike.

The Impact 

“Everyone had to deal with the impact (of increasing fuel costs),” says Darell Aldrich, general manager of Northwestern Industries in Seattle, who points out the number of changes his company has made.

He says, on one hand, quotations have been adjusted to reflect some of the increased cost, while on the other, the spike in fuel charges has brought about many internal changes in order to reduce operating costs and absorb some of this expense. For example, the company has divided business between its plants based on location. 

“With a start-up of a new plant (Yuma, Arizona) in January, we’ve been able to substantially reduce freight costs,” adds Aldrich.

While the following changes will not save on fuel, he says they will help in other areas. “We’re doing a better job of scheduling so that trucks leave our dock either full or close to it,” says Aldrich. “We’ve combined routes in the interest of conserving. We’re negotiating bulk rates of fuel from carriers and we’re getting the most out of competitive rates. On the plant floor, our software helps us tremendously by increasing efficiency, which translates to cost reductions.”

Tim Nass, regional sales and marketing manager for Wausau Window and Wall Systems in Wausau, Wis., says his company is following a similar course.

Nass points out that the volatility in fuel pricing not only impacts the company, but the U.S. economy, necessitating the need for change.

Rising fuel costs is a concern at Arch Aluminum and Glass Co. Inc. of Tamarac, Fla., as well. 

“We’re dealing with this issue as best we can,” says Max Perilstein, vice president of marketing. “It is our priority, and we are constantly looking for ways to keep our costs low so we do not have to pass anything to our customers.”

Surcharges have also been absorbed at Cardinal Glass in Rockford, Ill., according to Angelo Bruscato, president, but not without question. 

“To stay competitive, we have no choice but to absorb these just as we (suppliers and manufacturers) have exhausted every means of cost-cutting. But I have tried for some time to find out who or what determines the energy surcharge,” says Bruscato.

In the absence of an acceptable explanation from the industry, he has drawn his own conclusion.

“I believe the real problem is with glass manufacturers who have not been able to raise prices accordingly over such a long period of time and are using a good portion of the surcharge as a means of compensation for their loss.” 

Vitro/ACI Distribution of Memphis, Tenn., is absorbing the additional charges as well.

“This is a tough situation,” says Jim Charles, director of sales and marketing. 

“We are getting caught in the middle. We have diesel surcharges on our trucks delivering flat glass and on shipments leaving our plant so that the higher fuel costs have become significant.”

He points out that the company has no choice but to accept the surcharges as an added cost since it can not raise prices if it wants to remain competitive.

Guardian Industries of Auburn Hills, Mich., is also working with its customers to minimize additional charges. For instance, it is working to avoid unnecessary mileage as a way to control shipping costs while trying to find the means to absorb the increasing costs.

“Rising fuel costs are impacting our dollars,” says Christine Greer, corporate logistics manager. “Every time fuel increases, we see the impact in our fuel surcharge from the carriers. Carriers are demanding greater compensation for fuel because it can make up 25 percent of their total operating costs.”

Viracon, based in Owatonna, Minn., faces the same situation. “The rising fuel costs of transportation have impacted our overall cost structure,” says Christine Shaffer, marketing manager. She says all costs are considered when defining product pricing. 

“Currently we are charged an energy surcharge from our suppliers, which we do pass along as an energy surcharge to our customers.” 

Price increases for Brighton Glass of New Brighton, Pa., have been substantial, if not unreasonable, says Thomas Cole, president and owner.

“They are impacting my customers.” He explains that the number of increases have put the company in a difficult position because “we want to help our customers in every way we can and we try to absorb as much as we can, but at some point, we must pass some of the cost on.”

Colonial Glass Solutions in Brooklyn, N.Y., is making changes to minimize increases for its customers. 

“We try to split the increases (with our customer) and where possible, absorb them,” says John Rotchford, operations manager. 

He mentions that the last time there was an overall industry increase of 7 percent, the company’s increase to customers was 5 percent “and that was only on the added cost of glass.” 

Not every company is able to implement cost-savings programs to absorb the fuel costs.

“As a metal supplier that sells to glazing contractors, we have to treat the cost of shipping as part of the product,” says Clark Folsom, marketing manager for United States Aluminum in Waxahachie, Texas. 

The same is true of YKK AP America in Austell, Ga. 

“We don’t have our own fleet,” says Doug Penn, director of marketing. “We rely on our common carriers. For smaller projects, we pre-pay and add the cost of shipping to our quote as an expense. For larger projects, we get a quote from the carrier.”

With increases of 20-25 percent, Classic Glass of Alexandria, Va., has had no choice but to raise prices, says Karen Elkin, the company’s president. 

“Prices have continued to rise over the last 18 months,” explains Elkin. “At first we were absorbing these but you can only absorb so much. Unfortunately, the company had to raise prices for the first time this year due to multiple increases from suppliers.” 

Absorbing Costs

At Wausau Window and Wall Systems the goal as an organization, according to Nass, is to become more efficient and effective and that includes reducing waste and variation. He says the parent company, Apogee Enterprises, is encouraging all of its business units to drive costs down and efficiencies up. 

“While we cannot control issues like fuel costs, we strive to keep its impact on the customer to a minimum,” says Nass.

Perilstein points out that Arch Aluminum also closely monitors shipping costs and through its transportation people, is “making the most efficient use of our equipment and getting the best bang for our buck on deliveries.”

For example, according to John Martin, transportation manager for Arch Aluminum, the company is benefiting from rebates from a national carrier, on-site fueling, which reduces mileage and time, and the use of aluminum wheels on its fleet to decrease weight and increase fuel mileage. 

According to Folsom, United States Aluminum has established delivery service within a certain vicinity in the interest of helping its customers. 

Greer explains that, at Guardian, finding the right balance between price, service and available capacity is becoming more challenging and complex. The transportation planning process of matching capacity to meet customer demand is becoming more critical. Expecting transportation resources to be available without any planning just does not happen anymore with the recent Department of Transportation (DOT) changes over the last couple of years. “We will continue to keep our eye on transportation costs while working with our partner carriers to optimize our transportation resources,” says Greer.

To keep increases to a minimum, Colonial does a lot of cost-cutting based on a lean manufacturing philosophy. 

“We don’t just run one size all day,” says Rotchford. “We cut according to the order, first in, first out. The cutter cuts just enough. This [practice] lowers our cost as far as managing the shop and so far it has been successful. The proof is with our customers who are happier with on-time performance.”

Rotchford explains that glass manufacturers will increase prices on a quarterly basis via surcharges. 

“We did away with surcharges and this (change in policy) was well received by our customers,” he says. “We had a price increase but no surcharges.” 

Part of the lean manufacturing has been capitalization.

“We have grown by adding capability and enhancing our image from a ‘mom-and-pop’ operation to a significant player in the market,” adds Rotchford.

Adding Fuel To The Fire

On January 4, 2004, a new Federal regulation limiting the number of hours a driver could operate a commercial motor vehicle went into effect (see related article in the February 2004 USGlass, page 56). At the time, the Federal Motor Carrier Safety Administration (FMCSA) stated that the new rules “will save as many as 75 lives and prevent up to 1,326 fatigue-related accidents involving trucks each year.” Since then, there have been modifications, which went into effect in October 2005, that some believe are even more restrictive. 

Charles says his company has felt the impact of the trucking regulation in terms of scheduling.

“The limit on driver hours has contributed to an existing driver shortage that makes scheduling even more difficult. Once an incoming truck is unloaded with our flat glass, we can’t load it for another shipment if the driver’s time has already been committed to someone else or if he has reached his maximum driving time.”

The modified rules have tightened up parts of the regulation,” says Greer. “From our (Guardian’s) standpoint, these changes affected driver productivity and the ability to regenerate available transportation capacity.”

She explains that the revised regulation is more defined on split breaks; in other words, how much a driver can split up driving time. 

“It is even more devastating (for the entire transportation industry) than we originally thought,” she adds.

Greer’s concern is that the transportation industry did not fully understand the impact of the new restrictions. Both of the revisions to the DOT regulations have hurt the transportation market in terms of pricing and available capacity.

“We surveyed our carriers (on how the limitation on miles was going to affect them). It became apparent that they had underestimated the impact of this change—that is, until they started operating under the new rules.”

So what brought this change? Why was it necessary to modify the original regulation? 

Greer points out that the Public Citizens Group believed the regulation needed to be more stringent to achieve greater safety. The outcome has been even more litigious than when the regulation was implemented in January 2004. She says owners/operators are suing the government because their businesses are being affected. 

“Those of us who are playing by the rules are doing capacity pricing and trying to optimize our transportation resources so we can meet customer demand,” she says. 

At this point, the outcome of the revised regulation is anybody’s guess. Who’s paying the additional freight from the rising cost of fuel? Manufacturers and their customers. But many companies are attempting to absorb these costs, either in part or in total, in one way or another. 

USG
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