Rising Oil Prices Affect Remodelers

As prices for energy and raw materials climb at the fastest rate in five years, remodelers' businesses feel the effects.

April 09, 2000

As prices for energy and raw materials climb at the fastest rate in five years, remodelers' businesses feel the effects.

"We have been notified of a bunch of increases in vinyl products, roofing and windows [upcoming] in the next three weeks or in the past four weeks," says Alan Hanbury, CGR, of House of Hanbury. A three-percent increase per year is typical, according to Hanbury, but his recent material increases have been between 4-6 percent.

Many manufacturers of petroleum-based products have already increased their prices once, and a second hike could be on the way. "It's not something [manufacturers] can absorb, because it's a pretty significant jump," says Mike Loughrey, public relations manager for Certainteed's roofing products division.
"The most expensive part of manufacturing is raw materials."

Some remodelers anticipated the material-price hikes that were spurred by increased oil costs.

"Since I have been through this before, we anticipated the increase in petroleum-based products--insulation, roofing, polymer components, resin paper, polyethylene," says Mike Carden, CGR, of MUI Corp. in Birmingham, Ala. "Sure enough, we got notices that their prices were going to increase as of March 1. As long as we keep a step ahead, we are ok."

Because of the oil price increase, fuel and transportation costs are rising at an alarming rate, says Norbert J. Ore, head of the National Association of Purchasing Management's survey committee. And it's in these two areas where remodelers are taking the biggest hits.

The increasing costs are affecting remodelers' gasoline costs. In parts of the East Coast, gas has gone from $.80 to $1.50 per gallon in parts of the East Coast. Other regions have experienced similar significant increases.

"When you're running a fleet of trucks it's a noticeable increase," says Tony LaPelusa, CR, LaPelusa Home Improvement Inc. in Niles, Ill. "My bills went from about $800 per month to $1,200."
In addition to an increase in their own fuel costs, remodelers are being asked to foot the bill for material delivery. "Three companies, I believe, have instituted a $5 fee per delivery," says Hanbury. "It wouldn't surprise me if more follow suit." The $5 charge per delivery adds up--each of Hanbury's three vendors are making three to five deliveries a month.

These charges have raised the ire of some. Carden, for one, is skeptical. "About five of our vendors have sent out notices that they are going to charge for shipping now to cover the increase in fuel," he says. "Let's see if they drop those charges when fuel prices go back down."

Prices should eventually come back down. On April 6, the U.S. Department of Energy revised its forecast to account for the additional oil production announced by world producers last month. The updated forecast shows the average price nationwide peaking at $1.52 a gallon this month and then declining.

Though the price per barrel of crude oil has already peaked, prices have yet to trickle down to the consumer level. Remodelers will see the effects for at least the next few months, according to Michael Carliner of the NAHB Research Center.

In the meantime, remodelers are left with little recourse. "I am sure I could fight the [delivery] fee from our preferred supplier, but the [increased] material costs are for everyone," says Hanbury. As for his increased fuel bill, Hanbury says he's fortunate that four of his current jobs are within 10 miles of his shop. Carden expressed similar sentiments. "Our corporate fuel bill has increased by about 20 percent for two months," he says. "Thank goodness our jobs, for the most part, are close by."

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