Steel trap
The impact of sharply rising fuel prices on every fleet's operating cost is obvious, but there's another, far less obvious commodity that's going to take a painful bite out of your bottom line — steel.
You're paying directly for fuel, so as crude oil prices seem to set new highs every week, you take notice and wait for those increases to make their way down the pipeline to your pumps. And shippers see those cost increases, too, and are willing to accept fuel surcharges to help your offset them.
But did you know that the various types of steel products saw price increases of 74% to 105% last year? Or that the world's two major miners of iron ore have just raised their prices 71%, and scrap suppliers are falling in right behind them? Probably not, because you don't buy steel, only things made with it.
If you bought new vehicles in the last 12 months, you do know about spot shortages of various components slowing down delivery schedules. You can blame that on steel, too. Not only have prices skyrocketed, but steel makers were working at an astounding 94% capacity utilization last year, which meant companies using steel to make critical components that go into a truck or trailer sometimes couldn't get timely deliveries at any price. This year that utilization rate is expected to hit the near-impossible 100% mark around the world.
Like fuel, steel is an international commodity and prices are driven by consumption around the world. The U.S. and Canadian economies have rebounded nicely from the doldrums of 2001-2003, but if you look at steel consumption in North America for 2000 and 2004, the numbers are actually down a bit — 155.2-million tons in 2000, compared to 153.9-million tons in 2004. Forecasts for this year show a continued economic revival pushing our steel consumption to 158.4-million tons.
But a quick look at China explains the current steel situation. In 2000, China consumed 139.2-million tons, or significantly less than North America. By 2001, China surpassed North American steel consumption, and last year it used 288.4-million tons. This year that number should hit just under 320-million tons, or more than double all of North American use in just five years.
In trucking it's easy to calculate the effect of higher fuel prices on operating costs, but the impact of steel prices is far harder to identify. For one thing, truck makers have long-term supply agreements that limit price increases from their component suppliers. Also, steel cost is just one of many factors rolled into the price of manufacturing a truck, making it hard to single out in the final cost of that vehicle.
Market logic dictates, though, that truck prices will soon have to reflect those increases. Component manufacturers can't continue to absorb 100% price increases and still stay in business, so truck makers have begun negotiating some price relief. And in more and more cases, those component suppliers are really just another division of the same company, which means they're sure to get a sympathetic hearing when they plead their case for some relief.
How much will China's appetite for steel add to the price of your next trucks? I don't think anyone has that answer yet, but it will add something. Do you think shippers will swallow a fuel and steel surcharge?
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