High input costs still dog industry

03/31/2010 11:21:56 AM
Andy Nelson

CHELSEA, Mass. — The high cost of freight, health insurance and other inputs continue to dog wholesalers on Boston’s two terminal markets, though many fuel prices aren’t the scourge they were in the not too distant past.

Transportation costs aren’t weighing as heavily on wholesalers like Coosemans Boston Inc., Chelsea, said Maurice Crafts, a salesman for the company.

“A few years ago we were talking a lot about fuel costs and availability, but now they’ve settled down,” he said.

There’s no question that things are better than a few years ago, when stratospheric fuel costs took a toll on the transportation industry, said Yanni Alphas, president and chief executive officer of Chelsea-based The Alphas Co.

“We lost a lot of carriers when fuel went crazy,” he said.

Now there are plenty of carriers, he said. But while fuel prices haven’t returned to their formerly high levels, they are up this year, he said, and the industry is feeling it.

“Availability is no problem, it’s just paying them,” Alphas said.

Fuel costs have gotten deceptively high again, said Sam Rocco, president of BC Produce Inc.

“They’ve doubled since they bottomed out two years ago,” he said. “They’re creeping up.”

Truck availability, though, hasn’t been an issue, Rocco said.

Fuel isn’t the only input cost that’s increasing, he said. Electricity, health care and other inputs continue to place a heavy burden on distributors.

“Everything’s going up,” he said.

Even if Congress does manage to move mountains and pass health care reform, it wouldn’t likely lower health care costs for Massachusetts businesses, Rocco said.

That’s because Massachusetts already passed comprehensive health care reform on the state level under Gov. Mitt Romney. And that change didn’t affect costs significantly, Rocco said. 

Fluctuations in fuel prices don’t have much of an effect on the day-to-day business of Lisitano Produce Inc., Chelsea, said Frank Lisitano, president. Higher costs are just added to the price of the product.

“It doesn’t make too much of a difference,” he said.

Truck availability also hasn’t been a problem thus far in 2010, Lisitano said.

What is a problem, though, is higher health care costs, he said.

“It’s just awful,” he said. “The way they’re allowed to raise their prices every year. We can’t raise our prices every year. But no one’s telling them they can’t do it, so they just do it.”

Steven Piazza, a salesman for Everett-based Community-Suffolk Inc., agreed.

“Our health care costs are already astronomical, and now they’re talking about another 30% hike,” he said.

But Piazza doubts if the answer to soaring costs can be found by politicians in Washington, D.C.

“I personally am not impressed with their business skills,” he said. “I believe you should let the free market run itself. If they manipulate it, costs usually go up.”

Health costs also are weighing heavily on Mutual Produce Inc., which feels some input costs more than others because it’s one of the few union houses on the New England Produce Center, said Tom Ciovacco, co-owner.

“Insurance costs are going up by percentages that are ridiculous,” he said.

When asked for a ballpark estimate on what those increases might be, Ciovacco confesses to blissful ignorance.

“I don’t even want to find out,” he said.

Boston wholesalers will also likely have to figure out how to pass on, or absorb, the higher costs associated with retrofitting inbound trucks from California, where new requirements on refrigeration have been put in place, Piazza said.

Input costs have reached a kind of equilibrium, said Ken Cavallaro, treasurer of Chelsea-based John Cerasuolo Inc.

“They haven’t come up from last year,” he said. “Things have stabi-lized.”

Not all wholesalers think trucks have been easy to come by.

“Availability is tight,” said Peter John Condakes, president of Peter Condakes Co. Inc. “It seems like they’re always crying that they’re tight. Or they have al sorts of trucks available in places where there’s not product.”

Freight costs also are high, he said.

“Freight is historically higher than in the past, and I don’t expect it to get any better,” Condakes said.

Another input cost that continues to weigh heavily on Peter Condakes Co. Inc. is food safety, Condakes said.

Being on the cutting edge of food safety is no longer an option, he said. Customers expect it now. And it’s not enough just to take care of your own business, Condakes. Retailers and foodservice purveyors now expect distributors to make sure their suppliers also are up to speed.

“It’s not an easy task,” he said.

And the burden is felt even more by those in the industry who do their due diligence, in contrast with those who don’t, he said.

“It’s hard, when you have competitors who don’t do it,” Condakes said. “It’s amazing to me that they’re still in business.”

Ensuring good food safety practices can be difficult to accomplish in a terminal market environment, Condakes said.

And what makes it even more difficult is when customers demand stringent food safety compliance, then turn around and ask distributors to jump on the “locally grown” bandwagon, Condakes said.

Balancing those two demands can be very tricky, he said, since they often conflict.

When Condakes takes into consideration freight, food safety and all the other input costs distributors must deal with on a daily basis, there’s only one conclusion he can make regarding the future of the industry.

“At some point the cost of these things is going to be rolled into the cost of the product,” he said. “It’s the only way for companies to survive.”

That could also involve a re-thinking of the term “staple,” he said.

“At some point you wonder if our products will become luxury products,” he said.
  



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