From food to fuel, prices are rising in most industries
Photo by Paul Moore.
January was a rough month for Kurt Roth, owner of Avalanche Ranch Light Company.
The light-fixture industry as a whole was just starting to feel the pinch of a slumping housing market. Much of the industry is supported by the construction of new homes and the dim market for spec homes caused a 20 percent to 30 percent decline in the lighting industry this year, Roth said.
Thus, sales of the company’s rustic-style lighting were down in January and he had to eliminate two positions from his staff of 22.
By the start of the second quarter, though, business was back to normal and Roth brought back those two positions.
“Our strength comes from the fact that we sell to the custom home market,” which has remained steady in the turbulent housing market, he said.
Though sales are up and the business is on pace to grow between 12 percent and 20 percent this year, Roth said he has seen all his costs rise this year, from raw materials to the company’s health care plan.
And with the increase in transportation costs, companies around the country are rethinking their global supply chains. Manufacturing offshore and shipping back to the United States, not to mention shipping that product inland to a distributor in Colorado or Kentucky, is becoming increasingly expensive.
Many small manufacturers in Whatcom County are in a similar position. Costs are rising, the national economy is fluctuating, the U.S. dollar isn’t as strong as it used to be — all this adds up to a rather nebulous business environment.
“There’s uncertainty in the market,” Roth said. “We held off rehiring people for quite a few weeks because we didn’t know if it was just a temporary blip.”
Tightening the belt at bakeries
“It’s an interesting time to be in business,” agreed Erin Baker, owner of Erin Baker’s Wholesome Baked Goods. “Business isn’t always fat. But if you can survive these types of things, you’re better for it.”
The rise in costs this year has led Baker to carefully examine every expense, especially for grains. Now that the company is paying $40 for a bag of organic oats that eight months ago cost $15, as well as paying $27 for a bag of flour that once cost $12, there is little margin for error, Baker said.
“The challenges we’re facing are the same challenges families are facing,” she said about rising food costs. “The nice thing about food though is people will always need to eat. They just may not eat organic.”
Demand for her breakfast cookies and granola is still high, though, especially in the health-conscious Pacific Northwest, Baker said. And as the cost to transport products to retailers continues to increase, Baker said she is relying more on this regional market.
“People don’t really understand how food gets to the retailer — the burden of getting it there is on the manufacturer,” she said, adding that it costs the company 10 cents to ship one breakfast cookie. At 12 cookies per box, that can add up quickly.
Fuel efficiency sells
Rising fuel costs have been a good thing for Gary Rogers, owner of Bellingham-based Snow Removal Systems.
The company manufactures trailer-sized snow melters for use in large cities and airports. It’s a rather limited market, Rogers admits, but municipalities and ports around the country are starting explore ways to trim transportation budgets.
And for those located east of the Rocky Mountains, where snow storms can bury cities in just a few hours, snow removal is a large annual expense. Thus, the company’s snow melters are a hot item these days.
The traditional way to deal with snow in a city is to scoop it up and truck it out of town. Find a place to pile it up and let it slowly melt. But as fuel prices rise, this method is becoming too expensive. And as metropolitan areas continue to expand, storage space is becoming scarce, Rogers said.
“Think about a large municipal setting and if they get a foot of snow, they don’t have anyplace to store it or put it. So what they have to do is melt it,” Rogers said. “But by melting, we save them about 50 percent.”
Director of operations Eric Dunn explains the cost comparison like this: To clear 100 tons of snow with trucks would require a city to rent at least 12 trucks and one loader, pay people to operate them and pay for the gas to haul away the snow.
To melt that much snow would require one loader with one operator and one melting machine, which he said are quite fuel efficient and can also run on biodiesel.
Even with the numbers in their favor, it can be difficult for cities to make the initial $500,000 investment in a melter, Dunn said. And that price could continue to rise if the price of steel, the main component of the machine, continues to rise.
“Our vendors and manufacturing partners are having a hard time getting quotes from their suppliers to lock in a price for steel for more than a few days,” Dunn said.
“So we’ve had to have an adjustment in price,” Rogers added. “These things are already expensive enough as it is.”
Trading in chocolate bars
At Totally Chocolate in Blaine, owner Jeff Robinson makes engraved chocolate bars that are commonly used as corporate gifts. Sales are steady these days, he said, though he predicts that fewer customers will be splurging on chocolate bars with the company logo on it for the holidays.
As far as corporate gifts go, giving custom candy bars is fairly inexpensive, however, and that could appeal to more companies nearing the end of a tough year.
Robinson isn’t too worried about sales, though. He’s too busy watching the international currency market to find the best time to buy his chocolate.
“Our biggest challenge is that all of our chocolate comes from Belgium and we have to buy it in Euros, so our costs are way up because of the weak American dollar,” he said.
A year ago, the U.S. dollar was trading at around $0.75 Euros and fell to around $0.63 Euros in the second quarter of 2008. In recent months, the European economy has started to slip and the U.S. dollar has climbed back up to $0.68 Euros.
With such a fluctuating trade value for the US dollar, Robinson said he has changed the way he purchases supplies for the business.
“We were somewhat insulated for a while because we had a large supply of chocolate,” Robinson said. “Now we’re replacing it at a much higher cost. We used to buy a two-year supply at a time but now we’re buying it week to week. It adds a bit of gamesmanship to the business.”
Chocolate isn’t the only cost Robinson has seen go up. As with most other manufacturers, shipping and printing are more expensive and entrepreneurs are stuck trying to determine where customers draw the line on price.
“We’re selling harder to get every piece of business,” Robinson said.
And these days business across all sectors is slowing down, said Joe Giannamore, a regional labor economist for the Employment Security Department. The economy has yet to dip into a recession, which is considered two consecutive quarters of negative growth, but it is not as robust as in previous years.
As the economy slows, local unemployment has risen to 5.5 percent, almost a full percentage point more than last year, Giannamore said. Combined with price increases across the board, it could be a while before industries such as manufacturing pick up again.
“The economy is sluggish and will remain that way for another year or so,” he said.