Surcharges and What They Mean For Buyers & Sellers

One of the most common questions casting buyers have about their costs is what are the various reasons and ways surcharges are applied to the final casting price.

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Surcharges come in different configurations. In the metalcasting industry, they fall in two general categories: energy and metal. Energy surcharges are not as common as metal surcharges. Energy surcharges are usually calculated as a percentage of the price of the casting but can also be configured based on the weight of the casting. Energy surcharges have been deployed in the past to offset regional transportation or energy supply surcharges imposed upon metalcasters by local municipalities or freight companies.

The purpose of metal surcharges is to offset the fluctuating costs of metal. The standard procedure is for a base price to be agreed upon, and then a surcharge applied. Somehow, metal surcharges have become one of the least understood aspects of metalcasting business practices. The answer to why may be in the differing business viewpoints. Without metal surcharges, metalcasters would lose money (because of increases in metal pricing) and go out of business. With surcharges, buyers no longer know what the price of a casting will be on delivery, as the invoiced amounts can fluctuate. Additional complications arise when you consider there could be different policies and calculations on the part of the seller at play.

There are two sides to every surcharge: the applier of the surcharge and the payer of the surcharge. Most of us are familiar with this idea as we see it on our own utility bills and gasoline pump costs on a regular basis. However, as consumers, many of us simply pay that surcharge and accept it as the cost of getting what we want. The same can be true for casting buyers, but when you consider today’s electronic information processing in business, the picture gets a little bit cloudier. Some buyers’ accounting systems have difficulty in reconciling the price they placed on their purchase order with the invoiced amount—including surcharges—coming from the metalcaster. This type of misunderstanding can result in a delayed payment of an invoice, multiple emails and/or calls to resolve the issue, and sometimes, a weakening in the trust between buyer and seller.

To add fiscal structure to the example, this means the purchase order in the accounts payable environment for the buyer states the casting should cost $795, but the invoice coming from the metalcaster states the casting price as $835. The $835 includes the additional surcharge(s) as the metalcaster has applied it.

Through the use of modern enterprise resource planning (ERP) and invoicing practices, there are several options to help keep the purchase price and surcharge information clear for both buyer and seller. It can be as simple as typing in a line item explanation or checking a box in the software system (Fig. 1). From there, it’s a choice of invoicing type preference. Two commonly used invoice types are:
•    Invoicing casting with surcharge via line item: The invoice sent to the casting buyer will have several line items on it, one line for the casting price of $795 and another line item for the additional surcharge amount of $40. This format may allow the invoice payment to occur more smoothly, but questions may still be raised if the buyers’ Accounts Payable staff is not aware of these additional charges.
•    Invoicing surcharges separately: Some metalcasters will send the invoice for the casting at the price of $795, but “save up” all surcharges incurred over a set period of time (a quarter is common), and then send a separate invoice for those surcharges amounts.  

There is no single way that all metalcasters handle surcharges. The processes are highly varied and can even vary among multiple metalcasters supplying the same or similar castings to the same buyer, but using different practices for the charging and collecting of those funds.

To explore the issue, a poll was conducted to determine what the varied surcharge processes are (Fig. 2).

While not strictly projectable, the trends are apparent:
1.    Surcharges are used by the vast majority of metalcasters.
2.    Those surcharges are either itemized or included in the selling price, depending on the buyer’s preference.
3.    The inclusion of surcharges on invoices is a scattered process, with the definition of usage occurring either, a) during the presales effort or b) after receiving the purchase order from the casting buyer.

The poll results do not specifically indicate how the surcharges will be configured and who is setting the surcharge policy. As established, surcharges are calculated based on the weight of the casting and the type of metal used to create the casting. Online resources are available to both buyer and seller that indicate the fluctuating price of the various grades and types of metal available for use in the creation of these castings.

Seems simple enough, right? One would think so, but if the surcharge policy is not clearly defined upfront by the buyer or the seller, then subsequent accounting issues can, and usually do, arise. Currently, many ERP systems have some invoicing capabilities that allow for all of the varied processes of applying surcharges.

Yet, still, there is some amount of confusion on the part of the buyer side trying to pay for the castings they received. Perhaps it is that same old business demon—lack of communication.

Most respondents indicated they include their surcharge policy in the terms and conditions of their quote when it is sent to the casting buyer. Others send along their surcharge policy when they send an order acknowledgment form to the casting buyer accepting the buyer’s purchase order. Buyers will often send along their terms and conditions on their purchase order including their surcharge policy. Almost all of these definitions, provided by either the seller or the buyer, will indicate how the surcharge is to be calculated and billed. They can be very detailed—as specific as which metal market price tracker to be used.

The problem arises when the surcharge policy sent by the metalcasters is not in agreement with the surcharge policy sent by the casting buyer. This is where communication comes in. Care should always be taken up front to avoid any downstream negotiations. Foundries have to continue to make money, and often, the metal surcharge is the only way to assure this. Buyers may decide to go elsewhere to get that casting. What’s the answer here? It might be as simple as asking the right questions upfront.

Communication will always be the answer to managing the relationship between seller and buyer. It should never be just about the money; it’s about the future relationship and continued business prosperity. Understanding the same definitions and knowing what to ask can go a long way in making that relationship one based on mutual trust.  

Would I save a significant cost by doing this as opposed to just
buying the sheet and wire from Rio? 

Unless you always use pretty much the same gauges of sheet and wire,
so you’d only have to stock a couple sizes to keep you happy, the
answer is a very strong yes. Being able to do your own has the
downside that often your own sheet, especially, is not quite as flat
and clean as the commercial product, but the difference seldom
actually makes much difference in the finished product. Being able to
make any gauge you wish is a great freedom. Each individual piece of
jewelry can have the gauge of sheet and wire best suited to it’s
needs, both aesthetic and mechanical, rather than you being limited
by what you’ve got on hand. And being able to just grab some cut up
scraps or bits you can’t use, melt em into an ingot and roll out as
needed, means a lot less scrap sitting around, no waiting on an order
for metal, and generally a good deal more flexibility. Plus, in
addition to being more efficient in terms of having just what you
need and being able to reuse all the pieces big enough to actually
grab with tweezers, you also save money in that you then buy the
metal as casting grain, or just pure gold plus whatever alloys you
need, or just the pure gold and make your own alloys, depending on
your needs. Metal purchased this way, costs you little more than the
gold spot price. Buying sheet and wire already made up may give you
good sheet and wire, but you’re paying a good deal extra for that
service.

It all comes down to the value of your time, If time is critical and
limited, it may pay to have sheet and wire made for you (ie, buy it
that way from Rio). But even then, having the mill and some good draw
plates to reduce the stock you buy is a great increase in what you
can do to the metal in your work.

I feel like my labor is cheap and plentiful-- I am able to
concentrate on this full time, so it's really just a question of
money. 

For many, labor turns out to be the one thing that’s the MOST
expensive. You can always buy materials, but you cannot easily buy
more hours (well, you can. It’s called employees…) So if you’re
still at the stage where time is plentiful enough to still be cheap
(IS it really?), then it’s a no brainer. Get the mill etc. But even
when your time gets costly, you may find that being able to make your
own stock is a vital part of your craft. It does depend on what you
make, though. If all you use is 22 gauge silver sheet and 22 gauge
silver wire, and never need anything else, then buy it made up.
Otherwise, well, see above.

Does anyone out there make their own sheet and wire this way
exclusively? 

It depends some on which metal you’re talking about. Oddly, silver,
one of our cheapest jewelry metals, turns out to be somewhat harder
to get good sheet stock out of when doing it yourself, especially if
you need larger sizes. So I generally buy sheet silver when I need
it… But pretty much everything else, including silver wire, gold
sheet and wire, and platinum stock, I make my own. So does pretty much
everyone else I know who does custom fabricated work in gold or
platinum…

Or am I crazy to consider this as a way to save money? 

No. You’re not crazy. And as I said, it’s not just to save money.
Making your own stock means you can also buy stock and alter it’s
dimensions easily. That’s a wonderful addition to what you can do.
For example, you could still buy sheet and wire, but if you then need
thin bezel stock, you can roll it from a heavier wire or a strip cut
off of the sheet.

If you are looking for more details, kindly visit brass casting process.

Frankly, I’ve always considered a rolling mill and the basic draw
plates to be pretty much essential, basic level tools to be acquired
as soon as the budget allows in a starting craftpersons career, and
lusted after longingly before that happens.

By the way, if you use a lot of wire, consider strongly the carbide
plates you can get these days. Even the cheapest ones from China do a
decent job, and cost a lot less these days than they used to years
ago. The produce a brighter cleaner wire than steel plates, and with
somewhat less effort in drawing too. If they cost a bit more
initially, they’ll pay themselves back quickly enough in increased
quality and ease of wire drawing.

cheers
Peter Rowe

Donna,

If you are somewhat new to jewelry making I believe making your own
stock is a great way to understand the properties of metals. When I
first started out in metal arts over thirty years ago I had no
choice but to order all my stock as I did not have the knowledge of
processes or the tools to make my own ingots or stock. I now have the
skills and tools and make most of my sizing stock except for platinum
and if you do something long enough it does not take that long to do
it. I order wire in 18 gauge and draw it down if need be. I make my
own jump rings and this does not take long at all. I make them as I
need them. I had a jeweler friend from Vietnam, one of his tests to
becoming a bench jeweler was to make 3 rings out of a gram of gold.
The rings were then weighed with the filings and it all had to weigh
a gram. Did he have to do it that way from then on? No. It was an
exercise that taught him how to manipulate the metal in such a way as
to get the most out of what he had and to have a better understanding
his tools and conservation of materials that are costly. It is the
same thought with making your own stock. Will you do it all the time?
No. You might however insert parts of the experience into everyday
tasks

Regards
J Morley Goldsmith/Laserwelding

Hi Jessica,

For many, if not most of the things I do in the studioo I roll out
my own stock. The exceptions would be large sheets of sterling for
raising or fabricating large pieces-- cups, flatware,sculptural work,
etc-- and 14k 20gauge earwire which I buy by the foot. It’s straight
and clean and works great. If I need to make a piece that will have a
very fine polished surface such as a bangle bracelet, etc, I might
buy the milled material in gold or silver. I also buy copper sheet
and bronze sheet, although I pour large bronze ingots for big
forgings.

I roll my own metal to:

  -utilize scrap 
  -allow me to produce just the right gauge 
  -control or produce specific alloys. 
  -make just what I need when I need it, even after the
  suppliers are closed 

I draw most of my own tube (seamed) and doing so really lets me
control wall thickness. I began pouring and rolling stock when I had
been doing a lot of gold casting and needed just a bit of wire or
sheet. It became second nature to melt sprues and buttons or use a
bit of shot and now the only scrap I have are some filings and
compromised stock tainted with solder or whatever. I’ll even grind
off solder when it’s obvious and confined and remelt what’s been
cleaned.

I use my mill – a Durston (the third one that I’ve owned-- sold the
others)-- many times every day. It’s a great tool to have.

When we traveled in Mexico and went to the market in Merida, every
jeweler had a mill and basic tools. It struck me that what they
considered to be part of their basic tool kit was for many of us an
item that we’d only purchase later in our careers. They soldered with
gasoline foot pump torches and otherwise had very basic tools. They
did a lot of pierced, small scale gold work and used the mill to make
stock from reclaimed rings and jewelry.

Milling your own stock is, as others have said, liberating and
educational. It may lead you down paths you might not have predicted.

Hope this helps, Andy Cooperman

Jessica,

I am definately an advocate of hand-made stock. I routinely alloy my
own gold, and make my own wire and sheet with a rolling mill and
drawplates. In terms of cost, it is definately cheaper than buying
it ready made. Companies who sell commercially made sheet and wire
must mark up the price because of their labor to make it, and then
you pay for the shipping costs and insurance . You must usually buy
minimum amounts , as well.

For me, I do special order work, and need odd amounts of different
shapes of wire and sheet, and usually in different carats and
colors. For me, I feel that it would not be cost effective to buy
small amounts of wire and sheet for my projects, as I would not only
pay a premium for my metal, but I would have all kinds of scrap left
over. I find it faster, and ultimately cheaper, to alloy the amount
I need, or add to it with existing metal, and make my own custom
stock. In this way I don’t have to “settle” on standard sizes and
shapes of wire, and can create stock for my specific purpose.

I buy 24K gold by the ounce or 1/2 ounce, usually, and I have an
assortment of alloys in different colors and karats, which I use to
make what I need, when I need it. It’s quite simple and fast to do.
Even changing the carat of gold, provided it is the same color, is
not hard to do.

The rolling mill is a very creative tool, and it offers you a lot of
freedom to make what you want, for the bare cost of the metals
involved. Just add your own labor…

Jay Whaley UCSD Craft Center

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