ENERGY When fuel costs are on fire, profits pivot on distance

Sep 01, 2007 | 01:57 PM |

Soaring gasoline prices are driving West Coast service centers off the road and steadily isolating the Northwest market

The world has been shrinking ever since people started using something other than foot power to get around, and has become ever more smaller with the development of technologies that can instantly take you to the far reaches of the virtual globe.

But for some steel distributors in one corner of the United States, things appear to be just the opposite. Soaring energy costs, for fuel in particular, are driving West Coast markets to become increasingly isolated.

"The map may say we're only 1,500 miles from L.A., but we're getting further and further away," said Roger Parr, sales manager at Seattle-based Seaport Steel, and local markets are becoming isolated from each other. There's a silver lining to the trend, however, since competitors in Los Angeles, Utah and other locations now find it more expensive to divert tonnage to Seattle when surpluses develop in their own markets.

Parr noted that freight costs from a major wide-flange beam source east of the Rockies have jumped to $3.50 per hundredweight from $2, while freight rates to Seattle from Los Angeles, formerly as low as $1,000 per 24-ton truckload, now costs as much as $2,500.

Perhaps no service center better illustrates the impact that higher fuel costs have had on the West Coast than TPL Metals Inc., Lake Forest, Calif. Earlier this year, the flat-rolled house established TPL Metals Northwest in Portland, Ore., after earlier serving the Northwest from California. "We're convinced that the price of fuel is not going to go down," said Tom Lawrence, TPL's president. Rising fuel costs have reached the point where material can't be shipped economically to Portland, he said, and it's becoming increasingly necessary for service centers to be within 200 to 300 miles of their customers.....

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