Pricing pressure continues to escalate on producers
By Thomas Russell -- Furniture Today, June 15, 2008
HIGH POINT — With ongoing pricing pressure on items ranging from foam to fuel, many companies that avoided passing along price hikes during the April market say they can no longer absorb the costs.
Some have already raised prices on finished goods, while others expect to do so between now and August.
An informal poll of vendors from last week showed that prices on average have risen or are set to rise between 3% and 5%. Some could be smaller or larger depending on the product.
Several factors are driving up prices, according to manufacturers:
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Foam producers have recently requested a 20% increase, in response to higher costs of chemicals used to produce the material.
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Crude oil prices have risen from just over $90 per barrel in January to $138 in June, according to industry logistics services provider Globe Express Services. This affects the price of fuel and also of a range of items, ranging from packaging materials to finishes.
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As of May 1, ocean shipping rates from Asia were estimated to have risen $200-$250 for 40-foot containers shipped to the West Coast and $300-$350 for containers shipped to the East Coast. On top of this, ocean carriers also are adjusting “bunker” fuel charges on shipments on a monthly basis rather than quarterly as they did in the past.
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Some wood prices are rising, although not all. Prices of certain grades of red oak have actually fallen over the past year, according to Hardwood Review. But prices of two different grades of kiln-dried ash have risen from 2.68% to 9.66% since last June.
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Prices on steel components used in furniture have gone up three times this year, rising a total of nearly 50%, according to industry sources.
Randy Ford, president of Leggett & Platt's home furniture components unit, said the company has had to raise prices on sinuous wire, which is used in upholstery seating, by more than 50% since January. During that same period, prices of recliner mechanisms have gone up about 25%, he said.
The principal culprit, Ford said, is the soaring cost of steel. A year ago, the company was paying about $600 per ton for rolled steel and now is paying about $1,200, with no signs that trend will end.
“It has been an incredible run-up,” he said. “We're just passing along some of our increased costs. We've also had big increases in fuel and other delivery costs.”
He said steel prices are driven by soaring demand for scrap steel. Foreign entities increasingly are buying scrap steel on the U.S. market because the weak U.S. dollar makes it less expensive.
With retail sales slow, suppliers know it's not the best time to be passing along price increases. But they say there isn't much they can do to avoid them.
Todd Wanek, president and CEO of Ashley Furniture Inds., said this is probably the worst inflation he has witnessed in his 20 years in the industry.
“It's very inflationary right now,” he said. “It's a situation that no one has control over. We have to figure out ways to keep our costs down, of course, but this is an environment I have never seen.”
Business Editor Larry Thomas contributed to this report.
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