Precast Inc. - November/December 2008 - (Page 13) Many times the market will not allow the cost to be passed on – competition in some markets is very fierce and your competitor may choose to hold the price to get a competitive advantage. is one of them. We are in a down cycle, and even DOTs are running low on cash. The opportunity to pass higher steel prices through to owners depends on a market-by-market basis. Normally in a slow economy, there is little pricing power with less work to go around. Even in stable markets, as in Dallas, business is still off. In Houston, for example, the highway department has not bid a job of any size in more than six months. materials used in bid projects are typically purchased at the time of need. Many suppliers have shortened how long they will hold a price. We have had steel bids that have only been firm for as short as 72 hours. This inflationary environment leads to risk for the supplier. The safest way to mitigate (risks) on these longer-term projects is to buy the steel and add the cost of carrying the inventory to the bid. Hahne: In 2004, steel prices were almost as high as they are now. At Hanson, we hedge by a number of ways. One example is that we carry more inventory in order to protect our order books. We bought steel before the drawdown of supply, and we increased the types of steel we are able to use in our facilities with some equipment modifications during the previous steel crunch. These changes were made in advance, because we anticipated the current price increases. When Hanson quotes a job, we limit the time that the quotation price can be accepted – usually two to four weeks. Once an order goes out, there is a set period of time to take the finished product, or holding fees can come into play. Unfortunately, there is no procedure to protect bid prices in DOT contracts NOVEMBER/DECEMBER 2008 | WWW.PRECAST.ORG How do you handle the escalating steel prices in your business? Smith: Many contracts ask for delivery dates out into the future (for some, we have bid 18 to 24 months out). Because every precaster is limited in production and storage space, the 13 http://www.precast.org
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