Warehousing & Delivery

Abnormally high energy and heating costs in recent months have forced many distributors to change the way they operate their warehouses during the winter. Distributors nationwide braced for titanic-sized bills, but were still surprised by the severity. High energy bills are an inescapable cost, and this has proven to be one of the most expensive heating seasons ever.

Natural gas prices have skyrocketed for a number of reasons. The increase is blamed partly on the Organization of Petroleum Exporting Countries (OPEC) and its decision to cut back production last year after prices fell. U.S. supplies of natural gas have been declining since the mid-1990s after a falloff in production by energy firms that didn’t find it worth their while when prices were low.

The distributors that SM spoke with say that natural gas bills have at least doubled, and some have even tripled. That is a 200 to 300 percent increase — an increase that has some distributors worried.

“Our heating bills are a lot higher than last year,” says Ted Stark, president of Dalco Enterprises Inc., Minneapolis. “We have four warehouse locations. Some bills are twice what they were last winter and I have some that are three times last year’s amounts.”

Gas bills that were about $3,000 last year are now close to $9,000, says Stark. Although Stark had the highest bills, he is not alone.

It’s not easy paying gas bills, when they have more than doubled, says Mark Turner, vice president and owner of Turnmore Sanitation Inc., Calgary, Alberta. Bills that were about $400 or so last year are now $950.

Robert Janus, president and operating owner of Janus Supply Co., Port Huron, Mich., is also paying astronomical bills this winter.

“Our bills are up at least 12 to 18 percent,” he says. “Our gas bills are now $1085, when last year they were about $900.”

With such high prices for heating oil and natural gas, that don’t include operational costs, distributors are making big efforts to keep costs down.

When it comes to cost-saving methods, some distributors truly believe that every little bit of conservation helps, while others think fighting the cold is futile.

“I religiously turn the heat down to 55 degrees every evening before I go home,” says Janus. He also invested in a tubular heating system that distributes heat evenly and helps maintain temperature.

“We also have installed an insulated roof and three new doors,” he explains. He has been proactive about insulating the building, doors and caulking in drafty areas.

Doors are a major concern because they are repeatedly opened and shut during shipping and receiving activities.

“We try to minimize the time that we have doors open,” says Stark. He says they do whatever they can to keep the weather out. For instance, Dalco Enterprises has placed extra weather-stripping by windows and doors to help seal up the warehouse.

“There’s not a lot you can do,” says Turner. “We keep dock doors closed as much as possible and try to keep our windows in good shape, but we’ve got to load and empty the trucks — the work has to get done.”

Distributors are trying a variety of different ways to hold the heat inside.

“We have ceiling fans that we run during the day. Heat tends to rise, so the fans blow it back down,” Janus says.

Distributors suggest preparing early for cold winters.

“Do preventive maintenance in the summertime, including insulating your exhaust fan box, so that cold air isn’t coming in,” says Janus.

“If the building is up to par, then these just keep it running efficiently,” he says.

Stark says he is frequently looking for ways to reduce costs internally — cutbacks in other areas, so that heating bills are affordable. “Keep your eyes open wherever you can. Everyone in the company can help to save money as a whole, not just with utilities,” he says.

Employee awareness helps to cope with expensive winters.

“We keep our employees informed and they are smart about things,” says Turner. “They realize the importance of conserving heat, because when they go home, they have their own heating bills to pay.”

“Our employees close dock doors right after the truck leaves,” says Janus. Truck drivers are given clickers that open and shut the warehouse doors. This eliminates dock doors sitting open, he says.

Prices don’t appear to be going down, and when a manufacturer raises its prices, then those increases will ultimately be passed on to the end user. Some distributors think that won’t be the case.

“We don’t intend to pass on the increase to the customer. Although, it eventually might have to happen,” says Stark. Instead, he looks for ways to offset the cost.

“High heating prices cause a springboard effect,” says Janus. “When operational costs are up, then customer cost is also up. If it’s happening to the manufacturer, the end user will also pay more.”

Not all distributors share Janus’ point of view. “People overreact in situations like these and tend to charge more than need be,” says Turner.

“You can only pass on a certain margin of increase — to the extent that the market will allow,” says Stark.

“Sometimes you just can’t do much but eat the cost. And wait for spring,” he adds.

While distributors try to decide if it’s in their best interest to increase prices, they look at what their competitors are doing — many of which are in the same boat.

Sometimes, optimism is the only solace. “Sure we get nervous, but I try to keep the attitude that things will straighten out eventually. They always do,” Turner says.

“We hope that the prices will come back down. There has been some of that in recent months, but not like last year,” says Stark. “We just have to look at that and see what we can do.”

— Kari Strobel