A recent survey by New York-based consulting firm PricewaterhouseCoopers found that rising oil prices are significantly hampering the growth of U.S. industrial manufacturers.
According to the company’s most recent Manufacturing Barometer survey, nearly half of the executives it polled – some 47% – cited rising energy prices as a potential barrier to growth over the next twelve months. A majority of these manufacturers – 59% – said they are passing through price increases, yet 41% of them report shrinking gross margins during the most recent quarter despite price increases to cover the high cost of oil.
“Higher oil prices affect industrial manufacturers on multiple fronts,” Jorge Milo, the head PricewaterhouseCoopers’ industrial manufacturing practice. “Raw material prices go up, energy costs increase to operate their facilities, and distribution costs rise to transport their products to their customers.”
Other data gleaned from the report found that: 71% of companies describing themselves as oil-vulnerable in the survey reported rising costs in the prior quarter, compared to 44% those who did not describe themselves as oil-vulnerable; 59% of oil-vulnerable companies raised their prices, versus 39% of the others; and 41% of oil-vulnerable companies saw their margins decrease, versus 23% of the others.
Overall, large industrial manufacturers have lowered their revenue expectations to 6.5% for the next 12 months, from their prior estimate of 7.8%, largely due to the higher cost of oil, said Milo.
“Manufacturers must decide how much, if any, of these rising costs to pass onto their customers,” he added. “Many are attempting to do so, but tightening margins indicate that end markets will only absorb so much. It’s a delicate balancing act.”