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May 14, 2008

US: Supplier plans “commodity surcharge”

Travellers are now used to paying fuel surcharges on top of published air fares and now a key US auto industry supplier is taking a similar course by announcing plans to impose a “commodity surcharge” from 1 June.

Travellers are now used to paying fuel surcharges on top of published air fares and now a key US auto industry supplier is taking a similar course by announcing plans to impose a “commodity surcharge” from 1 June.

“As a result of the sudden and extraordinary surges in the price of steel, energy and other commodities, we are implementing a monthly review and adjustment process on all products,” said ArvinMeritor chairman, CEO and president Chip McClure in a statement on Wednesday.

“We have a portfolio of complex products that require varying levels of commodities. We plan to adjust the surcharge as appropriate for each product line.”

In its second-quarter earnings report issued late last month, the supplier said the unprecedented volatility in commodity markets – including a global shortage of scrap steel, and rapid rises in the price of critical raw materials such as iron ore, coking coal and metal alloys, plus higher fuel and energy costs – would “require it to take recovery actions to mitigate a significant impact to the company’s financial results”.

McClure said the company was continually trying to improve productivity and reduce costs but those efforts alone “will not be enough to offset the level of cost increases we are experiencing. Our global team has worked hard to improve the company’s financial results, and we have the responsibility to take the necessary actions to protect our bottom line”.

Arvin Meritor’s commercial vehicle systems and light vehicle systems business groups “had conducted extensive analysis to determine the magnitude of this situation and its potential effect on the business,” added McClure. “Results of that analysis clearly indicate that immediate actions are necessary.”

The company said it had begun discussions with its customers prior to implementing the surcharge.

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