U.S. knife makers grapple with rising costs

Rising raw material prices are a harsh reality for U.S. tool makers right now, and such price increases are likely to happen with increasing frequency, as Cole Carbide Industries Inc. recently encountered. In addition, it may also lead to tool makers raising prices on their products more frequently. John Cole, executive vice president of Cole, seems to be accustomed to the sharp rise in raw material prices. He recalled that before 2004, the price of cemented carbide raw materials rose by about 2% per year, and after 2004 it rose to about 5%. As such, Cole believes that as long as prices don't increase by more than 4% per year, there shouldn't be much of a problem. But it was a different story when his company faced multiple increases in raw material prices in a year. Cole's cemented carbide raw material prices rose by 3% to 4% at the beginning of 2008, and rose by 2% to 3% in June, and it is expected to rise by another 2% to 3% by the end of the year. Furthermore, cemented carbide is not the only raw material whose prices have risen more than ever. After 2004, the price of tool steel has risen by 2% to 3% every year, and the annual increase in the past two years has reached 5% to 18%. Although prices have been rising in the last 3-4 years, the real peak is in the last 18-24 months. Olaf Klutke, president of tool maker GKI Inc., said his company's tool steel raw material prices have risen about 25 percent since 2006, and the rise in raw material prices now appears to be on par with increases in oil or gold prices. 'Raw materials are now almost a commodity,' Klutke said, whose prices are very volatile compared to the past, changing almost daily. The knife manufacturer Keo Cutters (KeoCutters) mainly produces high-speed steel knives. Dirk Schadwinkel, the company's engineering and purchasing manager, said that since the first quarter of 2004, high-speed steel prices have almost tripled. In response to rising raw material prices, Cole is trying to improve its own production efficiency in order to minimize the price increase of its tool products. For example, the company has upgraded manual sharpening equipment to automated grinding machines, allowing a single worker to operate multiple pieces of equipment at the same time. The company is also introducing crafting software and equipment into its manufacturing process to increase production efficiency. However, tool makers sometimes have to raise the price of their products. For example, although GKI has absorbed the price increases of some suppliers, it still partially increases product prices. Klutke said the company is closely monitoring the prices of its competitors' products and based in part on that information to decide its own price increase strategy: 'In the tool industry, our category of products has been increasing prices by about 5% over the last year or so. ~8%.' Keo Tools' products are also rising in price faster than ever. Schadwinkel said the company used to raise prices about 2 to 3 years apart, but most of the recent increases have been done within 5 months. Of course, the cost of the tool manufacturer is not only the cost of raw materials, other costs also have a great impact on the price of the tool, and like the cost of raw materials, many costs are beyond the control of the tool manufacturer. For example, Klutke estimates that tool steel costs only account for about 15% of GKI's total expenditures, and although tool steel prices have risen significantly (25%), its impact on the company's budget is compared to other cost increases. Not the biggest. Tool production enterprises are labor-intensive enterprises that require a large number of skilled workers, and these labor costs are the part that has risen the most. Klutke estimates that GKI's labor costs have doubled in the past 10 years due to increases in worker wages, annual employee salaries and employee benefits. In addition, he specifically pointed out that the cost of health insurance for employees has also increased significantly, from last year to this year, the company's health care costs increased by 43%, as a small business, limited ability to buy insurance, also in negotiations with insurance companies. It's hard to get a better insurance policy.