Energy crunch hits home as power outages loom beyond California
Suddenly, your power shuts off in the middle of this frenzy. Your conveyors shut down. Your computers come to a halt and lose valuable information. In addition, some employees are left suspended on reach trucks, unable to see the controls to lower themselves.
For those in the industry, it almost sounds like something out of a horror movie, doesn't it? In California, unfortunately, this scenario has become a reality. And as they cope with rolling blackouts brought on by an energy shortage, the rest of the country must examine its readiness for such a situation.
A power shortage isn't the only utility issue facing California and the nation. Natural gas rates, which are at their highest in 15 years, are also having an impact on companies' ability to function at optimum levels. Not only are fleets more expensive to operate, but warehouses are also costing more to heat.
Gary Fisher, manager of business development at Weber Distribution Services, San Diego, Calif., knows first-hand the problems of dealing with this modern-day energy crunch. "The black-outs can definitely cause safety concerns, not to mention the pricing issues we have to deal with," he says. For instance, operating a typical DC in California used to cost about 4 to 5 cents per square foot. Now the price as doubled to 8 to 10 cents per square foot, according to Fisher. Unfortunately, the only way to make up for such rising costs is to pass them on to the customer.
The same scenario holds true for fuel costs. "We've had to pass along fuel surcharges to our customers because we're paying more to keep our trucks on the road," says Fisher. But the customer can only be patient for so long. "The fear in California is that a lot of companies may leave the state and start doing business elsewhere," he says.
Getting out?Companies in California are left to ponder whether their businesses could be run more cost effectively elsewhere. The warehousing industry stands to be particularly hard hit if such a scenario were to develop. Many companies operate DCs in this state because of its optimal West Coast location. But plenty of neighboring states would be happy to pick up the revenue generated by an influx of DCs.
For some companies, the energy crisis in California hasn't hit an unacceptable level yet. Advanced Packaging and Distribution Specialists, Inc., based in Lathrop, Calif., is one such company. According to Ray Wilkinson, business development, the company's San Francisco DC recently dealt with the rolling blackouts without much of an impact.
"We only had a two-hour outage," he says. "And since it occurred at lunchtime, we didn't have much of a disruption to our operations."
Watching California suffer through rolling blackouts has left many companies wondering if it could happen to their company or in their state. The answer, unfortunately, is probably yes.
What went wrong with California's utility system is a matter of poor electricity deregulation and a failure to keep up with power plant construction. As the population boomed in California, no new power plants have gone up over the past 10 years. California failed to secure adequate power supplies while dismantling its private power-generating industry.
When it comes to fuel price increases, every state is feeling the effects. Keeping trucks on the road is costing shippers more. An unusually cold winter also hurt businesses since heating costs have sky-rocketed. Few companies have been immune to the sting, and the solution for the warehousing industry has often come in the form of price increases to customers.
(From the Warehousing Education and Research Council: http://www. werc.org.)