The hot potato

16 December 2004

Several months have now passed since Columbus McKinnon announced that it would start applying a surcharge, mainly to chains and forgings, to account for the present high price of steel.

The surcharge is a clever way to get out of a nasty bind. On the one hand, suppliers are raising the price of raw materials; on the other, price competition tends to lower it. The surcharge allows the company to have it both ways by having two prices. The price including the surcharge is what customers actually pay, and covers CM’s supply problems. The second is a lower, idealised price that looks better on an ad and compared with the competition.

In mid-October, CM said that the strategy seems to be working. Its customers are accepting the surcharges. CM has managed to pass the hot potato.

The question is how well the smaller companies are passing on the raised costs of these surcharged products. What works for powerful companies like CM may not work so well for the local crane builder. Customer demand, again, will determine how many companies are fighting for orders, and the likelihood that one of them will make a below-cost offer that will undercut a perfectly reasonable offer with surcharges included.