Most lumber and building material dealers across the United States don’t need to read this column to see that the price of fuel is outrageously high; they feel the pain every day. For some dealers, this current spate of high fuel prices might be the last nail in an economic coffin, which has been constructed piece by piece since the financial meltdown of 2008. Many pro-dealers are struggling with high fuel costs, and not only on their profit and loss statements, but through the absolute leverage many builders assert over them in regards to free delivery. I don’t know of any builder, contractor, or remodeler in the U.S. who believes they should pay a delivery charge. Often, dealers’ announcements of fuel or delivery charges to their customer base are swiftly met with objections and overt threats to move business. Protests run the gamut of so-called concerns, but they all work to accomplish one thing: avoid paying for delivery.
XYZ Building Supply says they’ll be happy to deliver my merchandise without a delivery charge, because they really want my business.
Our company issues purchase orders, so we can’t deal with delivery charges. You just need to build your delivery charge into the price.
If you adopt a delivery charge policy, how do we manage and cost out multiple deliveries for the same scope of work in which material was changed or added? Mistakes, changes, theft and material change-outs are part of every construction project. Why should we be responsible for that?
I’ve been doing business with you a long time, and I have never before been charged for delivery or additional fuel. Are you trying to rip me off?
One can only assume that builders believe building supply dealers are immune to cost increases in fuel. And it’s hard for dealers to profit by doing business with a builder who demands the lowest price and free delivery. The crux of the issue for many dealers is that they no longer have an option to offer free delivery. When a dealer is losing money, or barely breaking even, an 85% increase in fuel cost is unsustainable, especially considering all of the other fuel-based increases along the supply chain. Pro-dealers industry-wide should stop the policy of free delivery. Why? First, nothing is ever free. Second, a dealer has no control over fuel costs. Who’s to say that in 45 days, Israel and Iran don’t exchange some large firecrackers and, as a result, that $4.14 per gallon diesel is all of a sudden $7.99 per gallon? Can you still afford to offer free delivery?
There must be a paradigm shift in how dealers view delivery charges, with the service of delivery separated from the actual price of the product. Let’s go back to the contractor objections mentioned earlier:
If a builder threatens to move his business to XYZ Building Supply because of delivery charges, then you have a business decision to make. I can’t answer that for you in this column except to say that dealers should take a lesson from the drywall and roofing manufacturers who have told the world about material and fuel surcharge price increases. Dealers, especially the larger ones, should not be squeamish in announcing delivery charges and fuel surcharge increases effective in 30 days in an effort to move the market. The large national dealers must take the lead on this issue. There is little doubt that the small independents will follow.
The “our-company-issues-purchase-orders” excuse is one that dealers used for many years with their own vendors until the vendors grew a backbone. Now, most vendors across the country have some form of minimal delivery requirement, delivery charge, or fuel surcharge on deliveries. Once again, vendors have not been bashful with delivery fee and fuel surcharge announcements because they want their competitors to follow suit.
The most important delivery paradigm due for change is the issue of multiple deliveries for the same scope of work on a project due to changes, mistakes, additions or theft. With a free delivery policy or one with it built into the price, builders have no incentive to be more efficient. In the future, for dealers to really manage delivery expenses, the supply chain must become more efficient in its delivery process by grouping loads, delivering larger loads, and even encouraging builders to pick up small items themselves. A $200 fill-in lumber order going traveling 20 miles will likely generate $50 in gross profit dollars, at best. In other words, the delivery will cost more than the order is worth in profit. Delivery charges will force some builders to change bad habits or pay a much higher price, making the supply chain more efficient.
Never having been charged for delivery before is probably the lamest objection. Maybe they’ve never been charged this much before because fuel prices have never been so high. You should ask those customers how many different bank fees they are paying today that didn’t exist 10 years ago, or if they’re feeling the pain of high gas prices when they fill up their own car’s gas tank. America, because of inflation, is being “fee-ed” to death.
Fuel inflation felt throughout the supply chain will force dealers to change their delivery models, making the supply chain more efficient. Most dealers will have to adapt or they will have no alternative but to close. Those who survive are the ones who have the will and courage to break the paradigms of an outdated delivery model. There is no such thing as free delivery—the matter is deciding who pays.
Don Magruder is CEO of Ro-Mac Lumber & Supply in Central Florida and former chairman of the Florida Building Material Association.
