Why Does This Industry Accept Arbitrary Surcharges?
by Frank Fulton
Originally published in Glass Canada Magazine, April 2019 Issue
Corporate entities are a lot like governments when they impose a tax.
I’m sick and tired of being gouged. Administration fees, facility fees, set up fees, convenience charges, baggage fees, event service fees…call them what you will, they’re all just a means of digging into your pocket in an underhanded and unethical way.
Personally, I consider all unjustified charges of this nature to be devious and deceitful and the companies that levy them to be sniveling weasels. Where this type of behavior would have been limited to only the sleaziest of organizations in the past, the practice has become commonplace in today’s business culture, totally lacking in ethics and integrity.
There have been numerous studies done proving that fees cause widespread public displeasure, frustration, outrage and a sense of betrayal, particularly in cases where companies have unbundled their service offerings by introducing numerous fees for services that were previously provided as “free.” All of which results in increased complaints, an angry relationship with the service provider and negative word-of-mouth. The worst charges that are viewed as the most unfair and taking advantage actually breed hatred towards the provider.
The most spoken-about fees in mainstream media and most reviled by the general public are baggage and seat fees levied by the airlines. Both of these “conveniences” used to be included in your ticket price. Bringing luggage when you travel is still considered a necessity, so passengers view these as unjustified. The services cost the airlines little or nothing to provide in incremental terms, so they are simply taking advantage of travelers with no choice. In 2018, Air Canada took in $1 billion from these payments while the world’s top 10 airlines collected US$29.7 billion in ancillary fees. Profits are soaring as practically all of this goes straight to the bottom line.
This brings us around to the glass industry where the Energy Surcharge (ESC) has been a major source of angst and frustration for the past 15 years. Initially, the surcharge was introduced as the glass producers’ temporary solution to skyrocketing natural gas costs which peaked in the fall of 2005 and again in 2008. Natural gas makes up about 21 per cent of the cost of making glass. The industry didn’t react totally negatively at the time as the reason for the surcharge was understandable and it was to be only a temporary measure.
Unfortunately, corporate entities are a lot like governments when they impose a tax, even a temporary or revenue-neutral one. They fall in love with the added cash flow and revenue-neutral becomes a coffer filler. Look up B.C.’s carbon tax as an example and what began as temporary becomes permanent and institutionalized. Not only has the glass ESC become a standard practice, soon after it was introduced it was expanded to add freight to the equation. The cost of natural gas has since fallen to 25 per cent of its 2005 peak. Hands up if you’ve seen a 25-per cent reduction in your ESC.
If the objective of glass producers and glass fabricators was to instigate distrust in its clients, it couldn’t have found a better way than how they have mishandled and abused the ESC. If the charge was truly a reflection of real costs, one would expect it to be similar from all suppliers. However, the rates vary wildly from company to company and between primary producers and fabricators. The ESC added by producers ranges from around one to 6.4 per cent. This is the sector that actually incurs the bulk of the added input costs. Fabricators on the other hand have recently increased their ESC to over 10 per cent in some cases, without seemingly having to bear the incremental costs to support their charges. If there is an explanation I’m not aware of, I’d sure like to be updated so I could relay the information in the next edition of this publication.
So, why does our industry simply sit back and quietly take it? For one, everyone’s busy running their business and trying to make sense of the amounts and discrepancies in the charges from the various suppliers seems hopeless considering they don’t have enough data to reference to make an objective assessment. Secondly, the surcharges are a lot like the HST. You add it into your price and pass it on so the consumer at the end of the supply chain is really the one footing the bill. It is easy to simply pass the costs on to customers but then we end up in the same boat of mistrust and dislike.
Frank Fulton is president of Fultech Fenestration Consulting. He has been in the industry for 30 years and can be reached via email at email@example.com.