Racking Up The Savings

With steel prices rising, companies need to re-evaluate racking purchases.

Curry suggests companies be conservative during this time of volatile steel prices-and it's not just steel prices that are in flux, he notes. Shipping is up due to diesel prices as is the cost of labor to install the racks.

Pre-paying for racking can also help to reign in costs.

"We're finding that companies can mitigate the risk of higher steel prices by putting significant money down," says Ray Chase, executive vice president for Konstant, located in Rolling Meadows, IL.

"I can't tell them what the steel surcharge will be when they actually need the steel in six months," he adds, "but if they commit to me now and give me 60 percent of the price up front, I can buy the steel and avoid the surcharge when it comes around."

"Then they have to find a way to store it," notes Steel King's Curry. He suggests offsite storage, or having the rack made early and then shipped to the job site, where it's stored under tarps.

"Or, if the building is already under construction and the roof is on, we can put the rack in there and stage it in a corner until it's ready to be installed," says Curry.

Some experts warn caution when considering prepaying for steel. Curry says it's a gamble. The cost is tracking upward right now through 2008, but he says that it may eventually level off or even come down.

"It's like buying a tank of gas," says Dwight Beery, vice president of engineering solutions for Next Generation Logistics Inc., Inverness, IL. "If you get it today it's $3.98. If you get it next week it will be $4.25. The following week, you don't know for sure."

Precision Distribution's Bauhof suggests that another way companies can help minimize the cost of racking is to buy it directly from the manufacturer, instead of going through a distributor.

Searching for a deal when it comes to the cost of racking can result in lower quality racking.

According to Next Generation Logistics' Beery, some manufacturers shave a sixteenth of an inch off their steel in order to get a price advantage. Customers need to review the dimensions of the steel being used in their racking. They should also be aware of the volume of manufacturing the racking supplier does.

"If you have a small rack supplier who is bending his own uprights and punching his own steel, his cost per unit is going to be higher. He might reduce the thickness of the steel or not use an undercoating to compensate," says Beery.

Used Racking Considerations

Companies might want to consider buying used racking from used racking dealers, as a means to avoid the high cost of new steel. There are a number of potential issues however.

"With used racking we run into problems because the customer doesn't always have the specs and he can get into a lot of liability or safety issues because the racks are not used properly," says SSI Schaefer's Shaw. "Sometimes he'll install it in his facility and put a 5,000 pound load on it, for example, when it's only capable of holding a 4,000 pound load."

In addition to a lack of information regarding specs, buyers of used racking don't necessarily know the true condition of the racking they are purchasing. It could be rack that was bent by fork lift impacts and then straightened out-which reduces the tensile strength of the steel. Such damage can be hard to detect once the steel has been repainted.

Experts like Precision Distribution's Bauhof say that used racking can be an effective solution, though, for small installations that involve a few hundred pallet positions. However, companies need to be aware that any savings on the cost of the rack could be eaten away by shipping costs, depending upon where they are located.

"If they can find a used rack supplier in their immediate area, there might be some savings," he notes.

Roll Vs. Structural

Price changes in the types of steel used in racking-roll form and structural steel-could make companies think twice about the type of racking they decide to install. Currently, roll form, which is manufactured in sheets, slit to different lengths and rolled when it's cold, is rising in price faster than structural steel, which is a stronger type that is hot rolled into shapes. This means the real value today is in using structural steel. Companies that typically build their racking systems from rolled form steel could save some money by switching to structural.

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