Hurricane Extortionists: Blaming it on Katrina

In the past couple of months at Spend Matters, we've spent a good deal of time covering the impact of Hurricane Katrina on commodity prices and Spend Management in general. You can read some of our past thoughts on Katrina here, here, here and here.

Certainly, Katrina's impact on commodities ranging from steel to petroleum derivatives (e.g., foam) was significant. But in the past few weeks, we've heard multiple stories about suppliers across industry blaming inflationary pricing on Katrina when in fact they are using the Hurricane merely as a short-term vehicle to pad their margins. One particular example came from a procurement manager at a Fortune 100 manufacturer who purchases significant steel scrap. In this case, the procurement manager's suppliers have continually tried to pass on price increases in recent weeks without fully justifying why the prices were increasing other than "blaming it on Katrina". The buyer pointed out that their steel scrap spend -- which is not floated up the Mississippi, and is not touched by the impacted ports -- should not have moved as a result of the hurricanes (as an aside, perhaps the metals scrap market in general will become more favorable to buyers as a surplus from our inner-city streets floods the market.)

This highway robbery is not limited to the metals markets -- or the streets of Baltimore. It seems that a broad range of suppliers are trying to take advantage of the situation as long as possible. In the past couple of weeks, I've heard from other procurement executives who continue to hear sob stories from suppliers -- while also receiving larger invoices than normal -- across the transportation sector (even as prices for crude drop by the day). Whether it's rail, FTL, LTL, or barge, the transportation mode does not matter. In fact, we’ve heard about multiple carriers (some giant ones in fact) who are refusing to honor existing contracts and have threatened to let cargo sit unless shippers pay a significant surcharge.

Clearly, the Katrina backlash has begun. But the "blame it on Katrina" supplier inflationary tactics won't last for ever. I would encourage all buyers who have no other options at the moment to stand ready to pull out their aresenal of competitive negotiation tools and tactics as soon as the markets tilt in their favor. Ready, aim ...

-Jason Busch

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