Firms feel the pinch
ESCALATING energy and raw material costs are forcing Teesside companies to impose higher surcharges on their products and services.
Firms said cost-saving initiatives were not enough to fully absorb spiraling energy, fuel and raw materials. But they also claimed efficiency-saving programmes and an investment in skills and technology were alleviating some of the pressure.
Teesside-based pigments division of Huntsman Corporation recently announced that it would impose surcharges on tioxide titanium dioxide pigments following the “unprecedented escalation of energy-related costs impacting the entire chemical industry.”
Initially, the surcharge will be set at 50 euros per tonne in Europe and USD $75 per tonne for all sales into Latin America, Middle East, Africa, Asia Pacific, and $0.03 per pound for all sales in North America.
Simon Turner, senior vice president of Huntsman Pigments, said the firm’s energy bill had increased so substantially that the division’s existing programme to aggressively reduce costs was simply insufficient to absorb the magnitude of this increase.
The surcharge had been imposed to offset the increased costs of raw materials and services and ensure “long-term returns” that could be re-invested back into the business, the company said. The increase is likely to have a knock on effect on factory gate prices across a range of sectors.
Other firms are also being affected. Teesside Cast Products - part of steel giant Corus - estimated that raw materials and energy costs would rise 80% beyond its prediction last year.
Managing director Jon Bolton said: “We expect the next year to be more difficult but we’re still confident of a strong set of results.”
He said an investment in skills would help boost productivity and alleviate some of the burden of those costs.
“We took on seven graduates this year and we’re taking on another nine this year,” he said. “The products we make are technically challenging and we need the right level of skill to maintain a competitive advantage.”
For one of Teesside’s most successful companies, Stillington-based Darchem Engineering, the rising costs of exotic materials were proving harder to cope with than the fuel price boom.
Managing director Jon Gagg said that although the firm was having to pass on a proportion of these costs to customers, a commitment to lean manufacturing and investment in front-end ERP (enterprise resource planning) systems was allowing more “elasticity” within the business.
He said: “Historically, we’ve had to pass on cost rises but most of our contracts are long-term. A key concern for us will be inflation and pressure on wages.”
Smaller companies are also feeling the pinch. Chris Howitt, owner of CMH Joinery in Darlington, said he was offsetting increases in the cost of lead, timber and copper by using cheaper equivalents, but the real concern for him was fuel.
He said: “We’re being sucker-punched by the fuel prices. The taxes are phenomenal.
“Last year, the cost of filling up a van was around £55, now it’s £76.”
Elsewhere, falling sales and cost pressures are forcing layoffs. Motor dealership Pendragon, which bought the North-east forecourt company Reg Vardy in 2006 and also owns Evans Halshaw, said it would lose 500 staff, while engineering firm Tanfield Group said 130 jobs were under threat.
