August 27, 2008

Supply Chain Management

Vancouver Island construction companies feeling the pinch from rising B.C. Ferries costs

RICHARD GILBERT

staff writer

The construction industry on Vancouver Island is being hit hard by rapid increases in B.C. Ferries fares, while escalating costs are contributing to an increase in the cost of living in small island communities.

The construction industry on Vancouver Island depends on the ferry system and trucking companies to provide a steady flow of building materials.

“It’s (the fare increases) ridiculous,” said Russ Fanucchi, owner of Namdor Reinforcing Steel. “Along with the surcharge for gasoline, it’s unbelievable.”

Namdor ships reinforcing steel and rebar across from the mainland to Vancouver island.

“I take a maximum of 65,000 pounds of steel over in a trailer load,” he said.

“In the old days (three to four years ago) it would cost $850-900. Today’s bill is $1500, out of which the fuel surcharge is 28 per cent or about $330. On top of this there are other ferry charges, which are probably another $200.”

B.C. Ferries announced last month that the company was implementing a surcharge on fares, to help offset the rising cost of fuel.

In the last 12 months, several sharp increases in B.C. ferries rates have been absorbed by the island construction industry.

A fuel surcharge of 10.3 per cent for major routes connecting Vancouver Island to the Lower Mainland was put into effect by B.C. Ferries on Aug. 1. Minor routes were hit with smaller surcharges.

The fare increases have hit some companies hard.

“For the company I work for (Acutemp Refrigeration and Air Conditioning Ltd.) the impact of ferry price increase has been quite significant,” said Terry Siklenka, senior technical estimator.

“We have noticed an increase in costs because of the size and weight of the material we use. Everything is trucked by ferry.”

Siklenka said his company brings in large HVAC units, large bundles of copper tubing and compressors.

He receives three shipments a day from Vancouver.

The ferry price increases are passed on to Siklenka’s company through the purchase of materials from suppliers. These increases are in turn passed on to the client.

“We have seen a steady increase in our material costs and in the cost of doing business,” he said. “With the price of gas, labour and commodities, such as copper, rising it can be hard to pick up the impact of an increase in the cost of shipping. There has been very little reaction to the ferry price increases because it is buried in the overall increase in the cost of living.”

The demands of the construction industry make it difficult for contractors on Vancouver Island to find an alternative to the ferry.

“We place orders everyday and need equipment delivered right away,” Siklenka said. “So we have to use the ferry and trucking system. In our case it is not viable to use an alternative, such as the barge. The barge service is not frequent enough and we need materials delivered right to the site.”

Cost escalation is also having a an impact on small island communities.

“Being an island, we are faced with trucking and shipping everything we have,” said Greg Baynton, president of the Vancouver Island Construction Association.

“A lot of lumber, windows and drywall go by truck on the ferry to Vancouver Island. This translates into material cost increases and makes it more challenging to attract and retain people.”

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