As the price of oil continues to rise, distributors are faced with an increased cost in handling deliveries, making sales calls and operating their businesses.
With eight salespeople, three general managers and two executives, John Colgan, welding division manager, Williams Metals and Welding Alloys (Wayne, PA), spends $1,500 to $2,000 per month on gas for sales calls. That’s not including the $3,500 for diesel to run his three delivery trucks. Like many owners and presidents in our industry, Colgan is at a crossroad. Does he increase delivery charges? Does he increase product cost? Does he implement a surcharge? In an industry where deliveries, sales and service calls are essential to customer service, welding and gases distributors across the country are dealing with the increase in fuel costs. Here is what some have decided to do…
Option 1: Add a Surcharge or Delivery Charge
“Our fuel costs have doubled in the last year and a half,” says Wayne Rapine, president of G & E Welding Supply Company (New Castle, DE). Rapine, along with the rest of the industry, has been facing the reality of increasing fuel prices. “Our fuel bills are up 30-40% right now,” says Sam Bramande, president of Wilson Supply Company (Cumberland, MD). But as Rapine and Bramande admit, there is only so much a distributor can do before taking financial action. “We endured most of it,” G & E’s Rapine says, “but we couldn’t continue doing business the way we were without a delivery charge.” Six months ago, G & E implemented delivery surcharges ranging from $5 to $50; for immediate or after-hours delivery, charges are higher. A little over a year ago, Bramande also started charging customers a flat fuel surcharge of $4.70 per delivery. That was the first time in the history of Wilson Supply Company that a fee for delivery was charged.
Because customer service and commitment are so important to GAWDA members, they are doing everything they can to keep prices down, but the simple cost of getting to their customers has put a wrench in their style. Fuel bills need to be paid.
Brian Weber, vice president of Island Supply Welding Company (Grand Island, NE), tried to rationalize passing the fuel increase to customers. “If we jump from $2 to $3 a gallon for the cost of diesel and have trucks that run 3,000 miles, we have to assimilate that additional cost,” says Weber. “We can try to pass it along to the customer, but it gets difficult.” Weber increased his surcharge when diesel was at $3 a gallon and left it there through fluctuating fuel costs to spare customers the hassle of fluctuating prices. But customers were still concerned to see the rising prices. “We had to explain that it was either a surcharge or a price increase,” Weber says. “If the fuel price goes down, we will lower the surcharge.”
That’s what Tom Smith, president of DeLille Oxygen Company (Columbus, OH), was thinking too. “I removed our surcharge a year ago, before the cost of fuel rose to $3 per gallon, and then I added it right back on,” Smith says. “At some point, we are going to have to recognize how much the price per gallon is and take that surcharge off and start charging a real delivery charge.”
And that is what some companies have done to recover their costs. Even companies with a long-standing delivery charge are faced with increases and surcharges to accommodate for the increase in their fuel bills and those of their vendors, many of whom are passing the cost along. Roberts Oxygen Company (Rockville, MD) President and Chairman of the Board Bob Roberts has had a delivery charge for several years, which he increased this year. He admits, “Customers understand our need to do this, but they don’t necessarily like it.”
Norma Cristiano, president of Cristiano Welding Supply Company (Moosic, PA), has also passed along extra fuel costs by increasing her existing delivery charge from $12.50 to $15. Cristiano plans to continue to reevaluate it as fuel prices change. “We’re taking one day at a time.”
Option 2: Make Delivery Schedules More Efficient
Since travel equals money these days, distributors have also become smart about their time on the road. “We run in geographic areas and try to hit everybody in that area so we don’t have to go back,” says Richard Gibbs, president of Gibbs Welding Supply dba A-L Compressed Gases (Nashville, TN). “We minimize the amount of miles we have to drive by making sure that when our drivers leave, they have everything on the truck that they are going to need to make deliveries that day,” Gibbs says.
Attention to where they are going and how they are getting there is essential to many companies trying to make the most of their fuel. This has meant some changes. Brian Weber of Island Supply Welding Company adjusted his delivery routes. “We had a route we were running every week, and now we run it every other week,” Weber says. “We are also looking at the possibility of some customers changing packaging sizes so we can make fewer trips.”
Williams Metals and Welding Alloys’ John Colgan encourages his salespeople to be efficient in their customer management. “A lot of customers can get by with a phone call instead of a personal visit,” he says.
Changes in routes and decreases in personal visits force distributors to communicate more with their customers about how they intend to continue to do business. G & E’s Rapine says he is working with customers to fine-tune delivery times, which is different from the services he offered before the fuel cost increase. “Our business has always been very service-oriented. Call in the morning and get your delivery in the afternoon. Call in the afternoon and get your delivery in the morning. But that came with costs. We’re trying to work more with our customers about delivery times so we can run our trucks more efficiently.”
President Robert Leaman is more aware of the frequency of deliveries made by Compressed Gas Solutions (Orlando, FL). “We’re trying to be more cautious about making momentary deliveries,” Leaman says. “If somebody calls with a crisis, we try to eliminate the crisis over the phone before we go and make a delivery to them.”
It is a crisis with the quality of his delivery service that Jeff Williams Jr., treasurer and CEO of Professional Welding Supply (Houston, TX), has been trying to avoid. “We’ve had to have a tighter coordination of deliveries between our two locations and we reroute trucks differently. We’ve tried not to compromise our delivery service.” Despite his best efforts, Williams recently saw the downside of trying to reroute too much. “We normally service out of Houston, but we asked another location to service a delivery and we didn’t get the delivery done that was promised. We didn’t hand off the ball properly on the account.” Williams is confident that the mix-up won’t happen again, but acknowledges the changes the company is going through. “When you start rerouting, drivers are servicing some customers they never serviced before,” Williams says. “It’s like delivering to a new account. Bridging that gap will take a little time.”
Option 3: Aid Employees in Paying for Gas
For many employees, bridging the gap between home and work through the daily commute is taking a toll. For a few distributors, aiding employees at the pump is a part of their business expense.
G & E’s Rapine considers paying for the gas expense of valued employees as an investment. “I have two or three employees who drive a long distance to work. One drives 80 miles one way every day. When I hired him, we made an arrangement that I would pay for the expense of his fuel,” Rapine says. He is, though, surprised at how much it is now costing. “I started out paying about $100 a month for his fuel and now I pay $300. He drives a pickup. Perhaps I should buy him a Honda! But that’s our deal. He’s a good employee, and he’s worth it.”
Brian Weber of Island Supply Welding Company notes that the increase in fuel might affect recruitment of employees. “If you are looking for a certain employee and you go out of your region to find them, you might have to take fuel costs and commuting into consideration,” Weber says. On the flip side, David Melo, president of Melo’s Gas and Gear (Bakersfield, CA), says he has benefited from people not wanting to commute far to work. “Some people who work here used to commute to somewhere else. But now they work here.”
Option 4: Investigate Other Options
With fuel prices continuing to hover at near-record levels, distributors are grim about fuel-efficient vehicles becoming available to the industry any time soon. More research in fuel technology and effective use of hydrogen fuel would be promising to distributors’ bottom line, if it became a reality. “The work that’s going on now with bio fuel, sugarcane and producing ethanol from corn is long overdue. The technology has been around for a long time,” Jeff Williams Jr. of Professional Welding Supply says.
Since fuel costs have increased from $35,000 to $58,000 a year for Melo’s Gas and Gear, David Melo is considering a different combination for his company’s fleet. “We might get by with smaller vehicles and tractor trailers to be more efficient,” he says.
In the end, it comes down to getting by. After all, fuel needs to be paid for. Employees need to get to work. Deliveries need to be done. There’s no cutting corners. “We have to spend the money on fuel,” John Colgan says. “It’s just another expense, like everything else in life.”