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Real Issues. Real Answers: Managing rising fuel costs

Gas prices are near record levels, and that’s a problem for the vast majority of LBM dealers and distributors who offer jobsite delivery. That’s why this month’s survey revisits our very first Real Issues survey from 2011 (prompted by a conversation with an LBM Journal reader), when we asked how LBM companies are managing rising fuel costs.

First, we asked survey respondents if they charge a fee to deliver products to their customers. Of the nearly 120 LBM Journal readers who participated in the survey, 32% said they always charge delivery fees, 52% said they sometimes charge a delivery fee, and 13% indicated that they never charge fees for delivery. Less than 4% of respondents indicated that they do not offer deliveries. RIRA chart gas prices

The second question of our survey asked respondents how they would advise the Texas LBM dealer who originally raised the question: “Jobsite deliveries are a big part of our business, but the way gas prices are spiking is throwing a wrench into our margins. We’ve never charged for deliveries, but are thinking we may have to change that. How are other dealers navigating these spiking prices?”

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Responses from lumberyards, building material dealers, and specialty dealers/distributors:

“We have always charged for deliveries. Our building materials stores deliver by forklift or dump trucks. Our customers understand the value and cost of doing business, and charging for materials delivered is part of that business. In our market our competitors also apply delivery charges for the materials they supply. A high percentage of our competitors also charge a fuel surcharge, not to mention the vendors we do business with. Any time you change the way you operate your business it can be difficult to implement new charges, but during these tough times it’s necessary. The feedback will be negative at times but make sure you talk to your customers individually and explain why you are doing it.”

“We have always charged a $20 delivery charge on delivered materials to a contiguous county. Longer distance deliveries have a contracted delivery fee built into the contract.”

“We have always charged for deliveries and will now add fuel surcharges as well. Most customers realize there is a cost to deliveries and with the media attention now focused on these costs, now is the best time to implement a delivery charge program.”

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“Set delivery charges based on distance from your yard.”

“Implement a fuel surcharge and tie it to an index so that it can rise or fall depending on market conditions.”

“Combine as many separate deliveries in same area that you can, and also inform contractors of the possibility of fuel charges on smaller orders. Most are aware of fuel-related problems from their own businesses.”

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“We have free in-town deliveries. If it’s a small order it is held until it can be pooled with other orders going the same direction. For out-of-town deliveries we have a chart that shows the salespeople how much material it takes to get a free delivery, or how much the delivery charge is if we have less value on the truck. Shingles and drywall are excluded from this as they are way more labor intensive. We have increased the amount of material that has to be on the truck to get a free delivery with the increase in fuel prices.”

“We’re absorbing it as much as we can.” “We are looking at the possibility of a fuel surcharge which is basically a percentage of the total order. Before we go down that path, we are looking at the true impact of the rising costs and figuring out the comfort level of how long it would take before we need to do so.”

“We have a nominal fuel surcharge that normally covers moderate fuel price increases. This increase is the largest we have ever seen with no sign of relief from the oil companies or our government. We will begin to factor it into our retail pricing.”

“Leverage the circumstances for the changes to be more efficient. Consolidate trips for more productive trucks, and more stops on every trip. Ask for more time to plan and execute on consolidation of trips in return for reduced or eliminated delivery charges.”

“I don’t know of anyone who does not charge a delivery fee by now. If it costs your customer nothing to have something delivered, the stakes aren’t very high if they are wrong in what they need. You might find that when you charge even a fair rate for deliveries, your number of deliveries may go down.”

“It’s not just fuel; all expenses are up. You have to raise margins to cover. It’s as simple as that. If you lose a bid, so be it. Wages are up, insurance is up, everywhere you turn prices are up. Raise your margins.”

“Price it into your product. If you aren’t updating product pricing at least twice a week, you are probably behind the curve.”

“My business is in a small community. Normally we can drive the forklift around town to deliver product to customers, so we don’t usually charge for this. On a rare occasion we need to load a trailer to take to a jobsite out of town, which is usually less than 10 miles. As long as the customer has a way to unload the trailer, we don’t charge for this either. With the complexity of the rising costs associated with deliveries, I would understand if I were ordering anything that there may be a delivery charge. I would think that your customers would understand that with increased costs that you would need to charge for deliveries. The only other way to cover this is to raise the prices on all your products to absorb the costs related to deliveries. This makes your prices look more inflated and may disappoint more customers than just charging a delivery fee.”

“At this time, we don’t charge our main contractors who do volume buys. We’re stressing to them to try and plan their loads to minimize trips. For DIY and walk-ins, we are starting to charge a fuel charge based on distance from store.”

“Delivery is a service, and that service has value. Placing a dollar amount on each delivery will make the customer realize and appreciate that service. You will be able to cover a portion of your fuel cost but more importantly it will start to change the poor planning habits of some of your customers.”

“We charge a nominal fuel surcharge on all our deliveries. We have not had any resistance with our customers.”

“We’re thinking about charging a minimum dollar amount for deliveries, and maybe a stop charge for small loads.”

“A company I used to work for had a minimum for deliveries or there was a fee. They also had a minimum for boom/ moffet trucks. It was met with resistance at first, but it taught contractors to consolidate deliveries when possible and we made fewer trips to the same jobsite.”

“We are passing on all increased costs to the customers as a fuel surcharge. If fuel prices come down, we will reduce the surcharge. It is easier to than raising prices.”

“Just tell them because of gas prices you can no longer deliver for free. We will have to raise prices to cover our costs.”

“Approved contractor mainstays get free delivery with their classification. Other orders over $500 get free deliveries. All other orders are charged a $35 fee.”

“I think it’s important to ask yourself, ‘do I want this to be temporary? Or do I want to use this as a tool to add value and efficiency to my business?’ If you call it a fuel surcharge, customers will expect you to remove it once fuel prices go down. Once you know the answer to those questions, you can put a plan together on how you will communicate this change to your customers and employees. We liked the idea of this not being about fuel, but about adding value to the delivery portion of our business. If deliveries are free, what incentive is there for all the subcontractors to plan ahead and be efficient when they order? We all know that framer who likes to order his lumber ‘by the room’ and will run the wheels off of your trucks if you let him! One way to handle this to market it as a positive. If you are going to charge $20 for deliveries, then you tell them you will credit them $240 up front when they open the job and if they can plan the job in less than 12 deliveries, they keep what’s left of that credit. You both win!”

“We charge for most deliveries unless they are a regular, large-volume customer who we don’t charge for delivery.”

“Almost every other industry is and has been charging. This makes the conversation easier for us. We have different levels of delivery charges from zero on up. It depends on distance, size of customer, size of order, etc. It’s not exactly a hard set of rules, and it allows us to be flexible when needed.”

“We don’t see a way around not charging a fuel surcharge. We base it on the distance traveled and the current price of fuel. Everyone understands and it’s more palatable for the customer by not building it into our product costs.”

“We have a fuel surcharge of $18 for orders under $500. This will be going to $25 soon.”

“For years we have charged all non- account customers a $50 delivery fee. If the delivery is beyond our local market, we raise the fee depending on the mileage. Starting March 15, we charge every account customer a $25 fee. We are applying this verbiage at the bottom of each invoice ‘Temporary Fuel Surcharge.’ We personally contacted many of our loyal customers and most of them said they were expecting a fuel charge, because all other suppliers are charging it. They did ask that we please add it on a temporary basis only. We have agreed to charge the lowest rate possible just for good grace to our customers, and the reasonable fee should cover our true cost of the fuel increase. We did not want to appear to be greedy or to be making a profit on the delivery fee. The customers we spoke with all thought the low rate of $25 was perfect.”

“You can’t continue to build in the cost of delivery to your everyday sale prices, especially in this environment. People will nickel and dime you on sales prices but often overlook or expect a delivery charge.”

“We only charge a delivery fee if the delivery will be out of a certain delivery area such as a five-mile radius from our location. We also try to make sure all deliveries are over a $50 total before we deliver, or we try to get multiple deliveries to take at once to save on trips.”

“We charge for deliveries on all consumer sales.”

“Review and update pricing on non- price sensitive products that are commonly delivered.”

“Add a temporary fuel surcharge. Be compassionate, be fair, and share a clear answer with your team members so they have an answer for the questions that will come, and everyone’s answer will be the same but in their own words. Use a firm fuel price to institute the surcharge and when the price returns to that or less, remove the surcharge.”

“Most of our customers realize that we need to charge something for our delivery service. We do not charge nearly enough but the charge tends to cut down on some of the small deliveries and some of the same-day deliveries.”

“I think at some point you have to charge for deliveries. Setting a fee based upon a dollar amount lets customers know when it will be turned on and off. For example, you can say ‘we are going to charge a fee as long as gas is over $4 per gallon.’”

“We are in a suburb on the east side of a major city, and have one of the Great Lakes 3 miles to the north of our location, so we’re only half a market. We have charged delivery fees for non-professional customers for years. We have charged 95% of our builder customers a nominal delivery fee for years. We monitor our competition and keep our delivery charges under the box store delivery fees. For deliveries into city, south, or west side of city, there are fees based on distance. If you need to charge extra for delivery, you might call it a temporary fuel surcharge based on current business or political climate. We have just raised our delivery charges for non-major account customers recently but stayed under the competition.”

“People should understand and will still appreciate especially if you are providing a quality product and great service.”

“We are adding a $7 fuel surcharge to each delivery.”

“Our delivery fee is based on customer caliber, location of delivery, and dollar amount of the order. It’s a case-by-case basis that ranges from free to $100 charge, communicated at time the order is placed.”

“We charge a fuel charge.”

“Our current delivery fees are $85 minimum. The rates go up when delivering outside of our primary market. The majority of our deliveries are within one to 35 miles. Many customers will elect to pay more for an outside hauler if our trucks are already booked and they need a rush. Then, we pass a long whatever the direct cost is of the hauler. We are typically able to deliver within two days and always have some same day deliveries.”

“Depending on size of order and miles from location, we charge for deliveries.”

“We have a temporary fuel surcharge on delivery orders.”

“Charge for delivery. Call it a fuel surcharge and just do it.”

“We have added a fuel surcharge at a flat rate per invoice. We started at $10 but will most likely increase that to $20 soon as prices rise.”

“We have always charged delivery charges, and we may have to raise them. We do offer free delivery in some cases, but it may not be free depending on the product, distance for delivery, and if minimum order thresholds for that distance aren’t met.”

“We don’t charge a fuel charge for each invoice. Instead, we adjust our margins as if the costs of goods have increased.”

“Figure an average cost per mile and charge your customer.”

“We went from $50 to $100 delivery fees for all cash customers and installed sales and are not having many issues with that because it has been quoted that way. Some builders have balked at the $100 delivery fee, so we leave them at $50 and the larger builders we do not charge but have built it into the margins. The salespeople have the leeway to help make the decision on certain accounts. When we get the opportunity, we explain the $5 per gallon fuel, insurance increases, and the fuel surcharges the company pays on almost every freight bill or order. Sometimes it helps, sometimes it doesn’t. We are just being firm about it.”

“We charge a $50 delivery fee within a 30-mile radius and an additional $1/mile beyond 30 miles.”

“We have always had delivery charges of modest amounts, enough so we group as many deliveries together as we can to cover our fuel costs. We believe this method costs our customers less than it would to add margin and not charge for delivery.”

“Don’t be the first to act on this. Customers with a fleet of trucks will soon decide to hold their project managers accountable for planning and advise them to use your gas instead of theirs. That is when you can charge a delivery fee for all orders under $550 to $1,000. Customers will not like it but will understand and will then begin to become more efficient for both parties. Important to wait until others have reacted and then bring it down when things start to look normal. You will build solid business relationships by keeping your sales staff informed throughout.”

“We have always offered everyone free delivery, but are considering charging consumers and possibly setting a minimum dollar value for contractors.”

“When was the last time you got a pizza delivered for free? Why should lumber and building materials be a free delivery with a $250,000 truck and Moffett and a $35 an hour CDL driver? I would like to know when, where, and who in our industry chased down this incredible service to a zero cost for the customer just to earn their business? Time to catch up with reality where the industry is no longer driven by low price, but by product availability and quality service.”

“We raised our prices to cover costs. Fuel and labor are overhead costs, so we raised our margins. We had no choice.”

“We have upped our fee by $25 and are looking to update again.”

“We are considering it but have been evaluating what our vendors are going to do with deliveries to us to substantiate charges to our customers. So far, we have not seen anything yet from our vendors. We’re also waiting to see what competitors are doing.”

“We have always increased our sales prices to cover the increased costs in fuel or any of our other costs. We don’t like to add surcharges to our invoices. Our insurance doubled a few years ago and we didn’t add an insurance surcharge. It’s all just part of doing business.”

“We’ve had this discussion this week in our company. We have always had such pushback and so much discontent from our customers that we decided we just need to raise margins enough to cover the additional costs. We all hate to see fuel surcharges from our suppliers, it’s a pain to handle costs and accounts payable on these, and we question why they never go away, even when fuel costs do go back down. Our customers ask the same questions, plus we waste time and money as they try to figure out why there’s a surcharge on an invoice when they know ‘we were already in the neighborhood’ and surely that load paid for the fuel whether it was for them or a different customer. There are dozens of other complaints, and it’s just not worth the effort and the pain. We could also rationalize that at $80 a sheet for a piece of OSB, do we really need to worry about the cost of fuel?”

Responses from wholesale distributors, manufacturers, and service providers

“With costs rising as fast as they are I don’t see where you have a choice. Your customers are facing the same issues so even if they balk at paying, they also understand that costs are rising beyond your ability to absorb them.”

“Everyone pays for gas and knows it is an issue. Either raise prices or charge delivery fee, but do not make it optional for salesperson.”

“You have to charge more to cover the delivery costs in one way or another. The costs are spiking too fast to eat it.”

“We have increased our fees to match the current gasoline costs that are rising. It’s not excessive but it’s enough to cover costs until $6.50 a gallon. Once gas rises beyond that, we will reevaluate how much to increase costs to cover expenses.”

“Just like many builders have included an escalation clause in their purchase agreements due to the rising cost of material, you could add a ‘fuel escalation’ line to the bottom of each invoice. Be sure and note that this is a temporary (we hope) measure to offset the extreme cost increases you are experiencing in direct-to-the-customer fuel costs. Then be fair about it. Only add the actual fuel increase, not an added profit over and above the actual increase. You’ll keep more customers that way.”

“We’re adding a fuel surcharge fee to a delivery fee.”

“At the moment it hurts, and we are contemplating a fuel surcharge. However, we have never in the past done it and we are sorting out how not to offend our customers. The fuel prices are gouging our bottom line as well as everyone else who delivers or provides services with anything with tires. We have a ‘do nothing for the people’ administration who are only looking out for their interests and not those of our country. Lord help us all to hang on.”

“Good time to change. It’s a real cost, and customers understand it. Charge them something. In the long run they’ll value the service more as long as you satisfy their needs.”

“Review your standard margins based on the value you provide your customers then set a minimum order and impose a temporary fuel surcharge to balance your selling, general, and administrative expenses for delivery. Communicate with your team on how to explain the cost increase during these current market conditions. Call your key customers (to keep a personal touch) and bast email and snail mail all customers as well.”

“Add a fuel surcharge of $50 until the price of gas comes down.”

“Nowadays you have to charge a delivery fee or raise the prices on materials to offset fuel cost.”

“Rates should be quoted based on actual cost per mile. We’ve started reviewing our costs and adjusting our rates on a weekly basis. There is a minimum fee.”

“Fuel surcharge.”

“Either add a delivery surcharge that is tied to diesel prices and state upfront that you are only doing it because of spiraling high prices. Let them know you’ll only do this until gas is back down to a certain amount. This lets your customers know exactly when the charge will come off. The other thing you could do is raise your prices on branded specialty products (not the price-sensitive commodities) to cover the increased fuel cost. You should have little-to-no pushback on either of the two methods as everyone has become numb to the increases we are getting daily.”

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