Can the Middle East Affect the Midwest?

In this episode of On the Surface, Seth sits down with Brad Marotti to unpack the real-world impact of geopolitics on businesses—from tariffs and trade policies to wars, supply chain disruptions, and volatile fuel prices.

What starts as a simple question—“What is geopolitics?”—quickly turns into a practical discussion about how global events ripple through industries, affecting everything from input costs and logistics to financing and long-term planning. Seth and Brad break down the concept in plain terms, framing geopolitics as not just distant policy decisions, but everyday forces that directly shape how businesses operate.

A major focus of the conversation is how rising input costs affect operations. Using relatable examples—from lumber price spikes during COVID to current increases in fuel, steel, and asphalt—they explain how even small shifts in global supply and demand can drastically change the cost structure of a business. Through their own experience in construction materials, they illustrate how a 50% increase in fuel can translate into millions of dollars in additional annual cost.

The discussion also explores how supply chain disruptions and trade restrictions force companies to adapt. Whether it’s navigating tariffs, rerouting logistics, or dealing with limited access to key materials like semiconductors, businesses must continuously adjust to an unpredictable global environment. Seth and Brad highlight how these challenges often require quick decision-making and creative problem solving just to maintain stability.

They also dive into the broader financial implications, including how uncertainty impacts lending, investment strategies, and access to capital. As global volatility increases, companies and investors alike tend to shift toward safer, more stable options—often at the expense of growth opportunities. This shift creates ripple effects that influence everything from expansion plans to hiring decisions.

Another key theme is the role of government policy and infrastructure funding. In industries tied closely to public investment, changes in things like fuel taxes or federal funding can significantly alter the amount of available work. Seth and Brad walk through how even well-intentioned policies—like temporarily reducing fuel taxes—can create unintended consequences for businesses that rely on those funds.

Throughout the episode, they emphasize the importance of communication, adaptability, and proactive planning. From using pricing indexes to manage volatility, to staying connected with industry associations and policymakers, they outline practical ways companies can navigate uncertainty while protecting both their business and their customers.

It’s a grounded, insightful conversation that connects global headlines to day-to-day business realities—showing how geopolitics isn’t just something happening “out there,” but a constant force shaping decisions, costs, and opportunities at every level.

Thanks for listening!

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Transcript

SPEAKER_04 0:04

Welcome back to On the Surface. I'm your host, Seth Stevens, and this week I'm back with Brad to discuss the effects geopolitics, such as tariffs, wars, etc., can have on businesses. But first, let's talk about feedback. If you haven't already, please go follow, rate, and review our show on whatever listening app you're using, and share it with your friends on social media, tagging Delta Companies or any of us individually. We really want to keep growing this community and uh just get bigger. All right, let's get into the conversation. All right, Brad, we're talking about geopolitical effects on businesses today. Fun topic. Do you know uh can you even define geopolitics?

SPEAKER_03 0:55

Uh I mean the way I would define it is very simply the you know politics worldwide. The uh events, policies. Um I don't guess I can define it very well. I don't think it's it's what what's happening uh in the rest of the world and how it affects uh I don't think it's far off.

SPEAKER_04 1:27

I feel like it's one of those kind of buzzwords that people throw around, and I never really knew the definition either. I wouldn't have come up with this definition that I pulled from Google. You read the definition you got. Yeah, it's the study of how physical geography, natural resources, and demographics influence politics and internal relations. I think it's kind of just a fancier way of saying what you are saying.

SPEAKER_03 1:56

Like Well, I never say anything very well, but it's just yeah. Politics on a worldwide scale. Yeah, right. We think about politics in the US and locally, um, but but in a broader scope, the world.

SPEAKER_04 2:13

Yeah, our politics and relations operate a certain way because of where we are geographically, what we have to offer to the world through natural resources, and the way that our um economy works and like the demographics of our economy, which would be drastically different than African countries, for example.

SPEAKER_02 2:36

Mm-hmm.

SPEAKER_03 2:36

Yeah. Yeah, and it seems like something that we've been talking a lot more about lately, obviously. And not even lately, in like the last, you know, since the our the war with Iran. Not even since then, it's even the the past three or four years.

SPEAKER_02 2:50

Mm-hmm.

SPEAKER_03 2:51

I feel like we've been talking about it a lot more and hearing the word geopolitics a lot more. You think it's since COVID or maybe since COVID with the supply chain issues that we had that affected the world, you know, when the West slows down, it it affects it affects everybody in in the entire world. So maybe since COVID. But you know, growing up, I didn't pay a lot of close to I didn't pay a lot of attention to to politics growing up, but the little bit that I did, you didn't just didn't hear about uh many worldwide events that affected the way that we lived and Yeah, that's true.

SPEAKER_04 3:27

That's true. I wonder if any of that was like lack of connectivity. I mean, now there's just so much information and news like at your fingertips, which is good and bad.

SPEAKER_03 3:40

Yeah, I guess the only thing that I remember growing up is just uh, you know, how it affects fuel.

unknown 3:47

Yeah.

SPEAKER_03 3:47

You know, different different wars that have happened in the past as we were growing up. Affect the price of fuel and the availability of fuel. Yeah, that's true. That's true.

SPEAKER_04 3:56

Which it's similar now. Uh I mean, things that are going on in the world are similarly affecting fuel, which we'll get into, but kind of just as an overview of like some things that geopolitical um, I don't know, geopolit geopolitics can affect our supply chain and logistics. So um, you know, like different changes in travel requirements and access to countries can greatly affect whether you can get goods in and out of there, or if you have to like divert around certain countries or fall back to a different supplier altogether. Um, I mean, I think a lot of that is happening with like Iran and the US, and then also like the Israel stuff that was going on within the past couple of years. It just makes like it's basically creating conflict or war zones that you can't really supply through or run logistics through. So you have backup options which could increase cost.

SPEAKER_03 5:05

Right. And really it's it's been since World War II that we've really become dependent. You know, all of all of the different countries around the world have started to become dependent upon each other for resources, goods and resources, globalization is what you would call it. But since World War II, that's really when that kicked off. Yeah. Uh we started really sending sending goods and services to other countries and receiving them as well in a in a much bigger way since then. How good are you with history? Why did that happen after that? I mean, that's that's that's we shouldn't dig in too much. All right, then why did that happen? I think because people needed well, I think the United States obviously took an opportunity to uh you know send resources and make money off of it, right? But I think a lot of other countries were especially in Europe and in parts of Asia were just were devastated. Right. Oh, right. They have help rebuilding.

SPEAKER_04 6:08

Yeah. Um so And then it's a way to create like business relationships and allies and it's more efficient to produce and goods and services in certain areas. And yeah.

SPEAKER_03 6:21

Yeah, and the US established bases all over the world as part of those deals. Mm-hmm. I mean, it's it's got a lot to to do with security as well, but yeah, that's a whole nother podcast, I think.

SPEAKER_04 6:34

Agree. All right. One of the probably the most uh massive things that it just can affect is input costs in general. So like by input cost, I just mean anything that goes into your product or service that you have to buy from somewhere else, right? So input costs can drastically increase just due to like tariffs, um energy resources, uh insurance rates, the logistics still, anything like that. So um, you know, like within the past uh eight years, four to eight years or whatever, through all the the different presidential changes and stuff for the US, you know, tariffs have been a huge thing. Like increasing tariffs on all this all the imports can drastically affect what your landed cost is of your product by the time you get it to your business, right? Like um not necessarily specifically related to tariffs, but like steel prices were went up drastically, uh, which may not affect your business directly, like in your actual product line. But like for us, steel is used in like all of our facilities, not our actual products, but it makes all of our like maintenance parts and stuff a lot more expensive, which in turn makes it more expensive to make our product.

SPEAKER_03 8:07

That's right. So to so to break that down a little bit further, to I guess relate it to how it affects us, you know, we have a we manufacture asphalt, we manufacture rocks. Um we manufacture those through our plants, asphalt plants, and our uh rock crushing quarry crushing facilities, which we also call plants. But yeah, they're made of they're made of steel. And as we're running aggregate through all of all of these plants, it's wearing them down. Uh we're constantly replacing steel parts that are being worn down by the the production of aggregates and the production of asphalt. And uh that affects our costs at the end of the year, it affects what our prices have to be uh to recoup those costs. And yeah, it greatly affects our profitability whenever these types of things like such as steel prices increase.

SPEAKER_04 9:06

For sure. Well, like right after COVID, you know, lumber prices and stuff went pretty haywire. Like I was just talking to somebody last week about like sheets of plywood, and you know, prior to COVID, it was $12 to $16 a sheet or something. And at some point, uh during COVID, right after COVID, they were like $48. So three to four times more expensive than originally, right? And so that obviously drastically increases the price of building. So like if you were a construction company building houses, it's directly your input cost going into it. But kind of more of like an adjacent industry would be like insurance cost, right? So like if it costs more to build your house, that means it costs more to rebuild your house. And then like all this weather stuff that's been going on, like hurricanes in Florida, tornadoes in the Midwest, stuff like that. There's been a lot, right? A lot of incidents. And those storms and and weather may affect or destroy houses. Well, then insurance has to pay out to rebuild these houses, and the cost to rebuild is higher than it used to be.

SPEAKER_03 10:22

So then insurance cost goes up.

SPEAKER_02 10:24

Mm-hmm.

SPEAKER_03 10:24

And even insurance costs are going to go up for everyone because of the coverage that they have to have in certain states that where they're affected by storms. Yeah, right. Like Florida's terrible right now. Yeah. It's wild how it is all connected. Uh the cost of, you know, by by COVID slowing down production and being able to produce less product, it drastically increases the price of lumber, which way on down the chain, the price of insurance goes up.

SPEAKER_04 10:55

Yeah, just and the um not to get too far down that rabbit hole or tangent, but like when that was happening to insurance companies, they weren't expecting to pay out as much as they had. So a lot of insurance companies either went out of business or got bought by bigger insurance companies because they were over um extended on their liability, right? Like they basically weren't charging enough premium to cover how many incidents they would have and pay out.

SPEAKER_03 11:28

Now we have less competition in the market, which also contributes to higher pricing. Yeah. It's crazy.

SPEAKER_04 11:34

It's wild times. Um, but yeah, so there's, you know, point being there's a ton of different input costs. Anything you can pretty much imagine can directly affect the good that you're having or uh, you know, affect it at some point downstream. So like an example that I had was I happened to look at uh just look up like some Nintendo Switch 2s the other day, just what their price was. In the market for a Switch. And I happened, uh, I don't know, my wife would say no, so probably not. Um But the uh, you know, there was an article about like them releasing a price increase in September or something like that. And basically uh they have to increase the price of their product to consumers because they're struggling, like the price of semiconductors, microchips, like all the thing, all the internals that they use to build the switch are more expensive, one because of inflation, two because all these uh like data centers and whatever like eating up all of the all the chips, right?

SPEAKER_03 12:47

And then the the rare minerals that that are required to produce those chips have also been, you know, there's been a I guess been constrained a little bit with the geopolitical issues that are going on.

SPEAKER_04 13:01

Yeah, exactly. So like the cost of all of this has increased, which in turn leads them to increasing the price of their good. So it's pretty wild. Um and then currently the the most current for us is like the energy resources and the war with uh Iran is causing uh well like war and conflict always has premiums to it, basically, especially if that country is a large exporter of something.

SPEAKER_03 13:31

So um just happens to always be the country that is a large exporter of oil that's involved with any kind of conflict. Yeah, exactly.

SPEAKER_04 13:40

So this Iran US uh war is you know, oil and all the downstream products uh related to crude oil are being affected drastically. So like I had looked up crude oil pricing, just like stock pricing or general pricing across the world is up over 40% just since the beginning of March. So it's almost up like time and a half since all of this stuff started. And there's a ton of different products that come out of crude oil. So, you know, jet fuel, we get uh the bottom of crude oil barrels for our asphalt cement, but probably the most um relatable to everybody that they consume is gasoline and diesel. And that's up 50% since March, the beginning of March.

SPEAKER_03 14:35

Yeah. Filled my vehicle up yesterday. Yeah. Personal vehicle. Yeah, it's it was almost a hundred dollars. Oh my word. Yeah.

SPEAKER_04 14:45

You got a wild rig, though. I agree. Is it premium or is it unleaded?

SPEAKER_03 14:49

No, no, it's unleaded. Okay, sure. Just making sure you didn't get the six two. My vehicles are tough. Okay. We can take 87.

SPEAKER_04 14:57

Oh, okay.

SPEAKER_03 14:58

Yeah. Yeah, it's Arkansas tough. But yeah, that's uh that's a huge number, a 50% increase, and it's you know, we laugh about it, but it's not, you know, in a lot of ways it's it's not funny. It affects our part of the world. We have a lot of farming. A lot of farmers are affected by this. Um, you know, they're they're dealing with not only the call their input costs, such as diesel and fertilizer, uh, going through the roof, you know, they're dealing with that, but they're also dealing with lower market prices. So, I mean, just our part is not only our industry, but our also our geography. We're greatly affected by these fuel price increases. For sure. So much of what everyone does revolves around running equipment.

SPEAKER_04 15:46

Yeah, for sure. I mean, it's a massive uh you could probably pretty safely say that that affects every single business in the US at least. Yeah.

SPEAKER_02 15:58

Yeah, for sure.

SPEAKER_04 15:59

Even if you're like a services business, you have people driving to work. So they're using gas personally, and that's creating a strain on them potentially. Yeah, for sure. All right, so uh outside of input costs, rules and compliance can play into this. So just any like sanctions, export controls, stuff like that. Uh, I think recently, for an example, I can't think of anything off the top of my head where we said, no, absolutely not, but uh, you know, raising tariffs so high is essentially doing the same thing without saying you just can't trade with them, right? Like it's basically saying don't trade with them, or if you're going to, you're gonna pay the massive tariff. Which I guess if people don't uh really understand what a tariff is, maybe you should talk about that.

SPEAKER_03 17:00

Yeah, go ahead. It's basically just a tax on an imported good. That's right. Right. And I think, you know, not to uh turn this conversation into a political one, but I think, you know, it could be it can be a good thing for a country, especially if you haven't been getting the haven't been getting paid properly for the goods that you're that you're importing or fairly, you know, the goods that you're exporting, you're paying higher higher taxes uh on it than than the goods that you're letting other countries bring into your country. You know, I you know, I feel like equalizing that is something that we've we've tried to do. But but uh short term there is short-term pain involved for sure with tariffs. Yeah, I think a lot of people would argue that it may not just be short term, it may it may be the wrong decision long term, but I can uh I could definitely see how it can benefit a country having tariffs, uh getting increased revenues being brought in. You know, long term it should be healthier for all businesses, but you know, the short-term pain that you have to go through to get there is uh is also maybe maybe not something every business can can handle. Yeah, that's true. Yeah.

SPEAKER_04 18:18

Uh all right. Another one, another effect of geopolitics is just technology and data in general. So, you know, like I think this is more true now than ever before. Like technology is advancing, advancing so fast, it's leading to more and more cyber threats just because it's um reached a level that it never has before, like intelligence-wise and capability. So, you know, as a business, you're having to take additional um steps in protecting yourself against all of these cyber threats. Sure. And uh there's a bunch of, you know, businesses, companies, countries fighting over AI and like the fastest to get to certain things with AI and having access to all these semiconductors and microchips and um basically fighting over all the same goods and stuff. So it's it causes, you know, super high competition, but then also sometimes, you know, like conflict between countries or reasons you may or may not perform other transactions with them and stuff like that.

SPEAKER_03 19:36

It's pretty wild. Sure.

unknown 19:38

Sure.

SPEAKER_03 19:38

You're naive to think that uh countries aren't uh trying to trying to look and spy and see who's doing what and and still advancements, you know, for them for themselves. And then also you've got another whole group of people that are using this AI push to to get better at fraudulent activity. There's not a week that goes by where someone in our company doesn't receive an email from me that says, you know, can you make a payment on this?

SPEAKER_04 20:06

Yeah. And it's true. It's uh I don't know where you find the time to send so many of them, but right.

SPEAKER_02 20:12

Right.

SPEAKER_04 20:13

It's it's it's pretty uh it's pretty wild how rampant that is. Yeah. Uh all right, so that's a big one. And then um capital and currency, so just basically access to money and financing, right? So um there's just so much volatility in all of the other prices that it leads to volatility and financing costs, right? Like rates stay high and or banks and lenders need to reduce their own risk. So they may not lend to you or it may be at a high rate, which basically just means that like on top of everything else that is increasing in your business for input costs, logistics, et cetera, you're also likely paying higher financing costs for access to money if you aren't like cash heavy, basically meaning that you could pay for all of your bills out of a bank account rather than borrowing off a line of credit or uh having some sort of loan, right? Mm-hmm. And then um, you know, a lot of capital investments have moved from like emerging markets or more risky investments all around the world to like safer investments where it's more like, okay, well, I'm not gonna take the risk of losing five percent on my investment where I've typically gained eight percent in the past. Instead, I'm gonna move all that money to something that I know is gonna earn like three percent over time. I'm gonna go to a safer investment rather than take a risk. Uh Okay, so like it could get real in depth, but like small or mid-capital markets maybe let's use like a mutual fund because that's probably what people would be most familiar with. So if you're like using a financial advisor or you're I don't know, trading on Vanguard or Fidelity or something like that, you're probably buying into some sort of like mutual fund. And and you can pick your the makeup of your mutual fund if you'd like, but if you don't and you just automatically have it chosen off of your risk profile, let's say that you're high risk. So historically you would those mutual funds would be made up in like uh it changes over time, but like small cap growth or something like that. And it's basically like a fund where people way smarter than us in finance and looking at stocks are saying, hey, these companies like in the US, Europe, whatever, are all like a hundred million dollars of revenue or around that point, and they're all like doing big things. So they have high gross margin, gross profit, whatever, and they're paying larger dividends out. So we're gonna put your money in that because the reward, the possible reward is a lot higher, but they're also a smaller company, so they may not be as stable you could lose money. Right. Uh, but in times like this, it's so volatile that they may go to they may pull money out of that type of fund and put it in something like I mean, this could be totally wrong, but I think that Ford Motor Company is like relatively stable over a long period of time.

SPEAKER_03 23:49

Like it's not as big reward or risk, right? The big, big seven companies, things like that. Yeah, yeah. So they're way bigger companies.

SPEAKER_04 24:00

They're less likely to give you a massive reward where you earn over 10% or whatever, but they're very likely to be stable over a long period of time and pay uh like clockwork on you know three to five percent or whatever.

SPEAKER_02 24:16

Yeah.

SPEAKER_04 24:16

So because of everything going on in the world, people are taking their capital investments out of the more risky stuff and they're putting it in safer investments, and that just causes even more volatility and stock prices and messes up other people's financial holdings and whatever, right? So it's just like an unpredictable environment, I guess, is what I would say. Right. Okay. Anything on capital and currency? I feel like you let you just let me have that one.

SPEAKER_03 24:48

Yeah, I appreciate you taking that one. We'll better switch to something else, wake people back up.

SPEAKER_04 24:54

And then uh demand and public investment is like the last one, right? So policy-driven infrastructure and industrial policy. So, you know, basically like I would read this as infrastructure bills and funding for countries, states, et cetera. So you brought up a you didn't get into it earlier, but you brought up the other day a good point about gas.

SPEAKER_03 25:23

Yeah. Right. I mean, this is one of the one of the many ways that uh our industry in specific is affected by these types of things, are uh funding from our DOTs. You know, 80% of the work that we do and the material that we sell goes to uh Department of Transportation projects. So we're very dependent on their funding in Missouri and Arkansas. Um and just for example, Missouri and Arkansas are both of their DOT budgets are very dependent on federal tax dollars. You know, the uh the motor fuel tax, you know, with the price of diesel and gas increasing the way that it is, I think Congress is considering right now uh freezing the the federal fuel tax. And that could have drastic effects on our local states, our our local market's budget, um, affecting the number of projects that they put out for us to bid on. I know that uh Missouri and Arkansas on average, you know, of the you know, make math simple, they're doing around a billion dollars worth of work in uh infrastructure, transportation type work every year. And thirty to fifty percent of that of that budget comes from federal federal funds, which is um produced off of the federal uh gas tax.

SPEAKER_01 26:55

Mm-hmm.

SPEAKER_03 26:55

So if you freeze that freezing it means that you wouldn't pay it. Right. Okay. It could it's a temporary reduction in fuel costs for for the to help offset the price of fuel to consumers. Which is a good thing to a lot of people, a lot of consumers, a lot of other businesses. It could be a really good thing, but uh it could drastically impact our our business in a negative way, you know, just not having the number of projects to bid on that we were planning to bid on.

SPEAKER_04 27:25

Yeah.

SPEAKER_03 27:25

Um so yeah.

SPEAKER_04 27:27

Good and bad. I think the bad outweighs the good for us, but for us, yeah, yeah. So it could reduce like our fuel costs by you know, by dropping that tax off, but at the same time, it's also potentially reducing just the total amount of work that we could have to do. And it does help take the pressure off of like the general public and stuff, but I guess what you may or may not see is like you could potentially see a reduction in like infrastructure improvements and work going on.

SPEAKER_03 27:59

Right. I think, you know, and we've talked to the DOTs about it, it's not something that they haven't been thinking about and preparing for. Um, you know, the a lot of the there's a couple different buckets of types of jobs that they put out. They've got new construction, you know, projects that they're working on to make things better. Um we call new construction, and then there's preservation or maintenance type projects to maintain the system that they've already got built, you know, to fix the potholes and to make the highways that we've that that need repair uh in in better shape. You know, their their focus would go towards those pavement preservation, maintaining the existing systems that we have. Yeah. Uh which is, you know, that's good work for us. But I think what what they would put us uh a stop on or a hold on would be new construction. New construction. Yeah. Yeah. For sure.

SPEAKER_04 28:52

Um how, you know, you were kind of talking about this already, and we've hit it across a few different um areas as we've been talking through effects from geopolitics, but is there anything else you can think of that all of the like how all of this relates to our industry and our company, or you feel like we pretty much nailed it with like the input cost, the I think we talked about it.

SPEAKER_03 29:21

I can we can give some, we could kind of talk through how it uh and get a little more granular on exactly how the cost affects our business. I've threw some napkin math, some rough numbers together for for our fuel. And you know, we run like just in Missouri, we've got four aggregate facilities. Uh some are larger than others, but on average per day, you know, I'm calculating we're we're somewhere between 1,500 to 2,000 gallons of fuel is what we use of diesel is what we use a day just in our aggregate locations. 1,500 to 2,000 gallons. Gallons per day. That's a lot. Yeah, yeah. And we're talking about a a 50% increase. So, you know, if we were if we were purchasing diesel at $2, we're talking about a a $4 diesel price right now, right? And it's it's pretty close. So we can just use use rough math. $2 increase on say $2,000 gallons is $4,000 increase per day. Yeah. Is what we're doing. So so per week that's $20,000. And per month that's $80,000? Yeah. $80,000. Right.

SPEAKER_04 30:41

Yeah, I guess, yeah.

SPEAKER_03 30:43

Rough math. This does not include.

SPEAKER_04 30:49

So that's a million dollars of additional fuel if it carried through the whole year. And let's say that we produce and sell two million tons of aggregate total. Well, that's a fifty cent increase.

SPEAKER_03 31:07

It's a fifty if the fifty cent increase per ton. Yeah. Um, on on our costs. Yeah. Which with a fifty percent increase in fuel prices. Yeah. Which we would pass on to the market. You have to. Yeah, you know, every business has to pass on those types of costs to the market, uh, which affects consumers. Um in a lot of cases it slows down how much you sell because people just at some point uh decide not to spend money right now.

SPEAKER_04 31:36

Yeah.

SPEAKER_03 31:36

Yeah. But it's a real it's a it's a real cost, and and that's what I wanted to show there. That's pretty crazy. It's it adds up fast. And you know, um we have we have customers that have seen letters go out with price increases specifically for fuel. People aren't happy about that. Nobody's happy about that, but um we aren't either. Yeah, yeah, right. Yeah. Businesses all across the country have got to take steps that way to maintain uh a profitable business.

SPEAKER_02 32:11

Mm-hmm.

SPEAKER_03 32:11

Yeah. Yeah. And when things are changing so fast, it's hard to stay ahead of it. Yeah, that's true. You know, you can't you you can't cover everything. If it jumps up again, you know, we can't pass along another price increase quickly. You know, we we've every day we're quoting projects and quoting uh different uh different customers and uh that you know they sometimes won't pull that material or or do those projects for another few months. And and we have to honor the price that we gave them yesterday for sure. For sure. For sure.

SPEAKER_04 32:54

Uh I was thinking so you already talked about steel as well and how that can like affect us through parts and because of all of our plants being uh you know made from steel. I was trying to find uh what like the asphalt cement has gone up since the beginning of March, but basically um I can tell you that you know, I think the indexes indexes are what we we look at.

SPEAKER_03 33:24

Did you pull it up for March? I want to say it's gone up about $150 to $200 per ton in the last two months. I'm seeing about a $60 to $70 increase per month in liquid asphalt, which is the the black oil that is mixed into asphalt. Right. Yeah.

SPEAKER_04 33:48

Yeah, so uh in January it was five hundred fifty dollars per ton of of liquid asphalt. In March it was six hundred twenty-seven dollars and so that's already eighty dollars basically increase. And then in May Yeah, that's not that's not right.

SPEAKER_03 34:21

I mean the prices that uh that we've been getting quoted um index pricing that that we've seen is today is around six hundred bucks.

SPEAKER_04 34:35

Okay, so yeah, it basically took the spike in uh yeah, there you go. May is six hundred and seventy-eight.

SPEAKER_03 34:42

Sorry, that took a bit to So we're we're pulling this up right now and looking at it on the screen. Yeah. The DOTs publish an an index for everyone to see for each month.

SPEAKER_04 34:53

Yeah. So basically since the since January, it's gone up $130 per liquid ton, which is, you know, as a percent, that's like 20, 20, 25 percent or something like that from the January number, which um, you know, isn't as big as crude oil or gas and diesel yet, but that's another way. I mean, that's a direct cost and material that we put in our asphalt, right?

SPEAKER_03 35:22

So Yeah, I mean, if if for your asphalt, just rough numbers again, if you're selling asphalt for $70 a ton, uh 20% increase is a 14 bucks.

SPEAKER_04 35:33

Well, yeah. What's tricky, yeah.

SPEAKER_03 35:36

It's tricky because that that liquid doesn't make up the entire cost. The whole thing.

SPEAKER_04 35:40

The whole thing, but but it is um it's a it's a ten dollar increase per it is a big, yeah. It is a big input cost, and it changing that quickly is a big problem. I mean, anything that changes that quickly as like a inventory product for people is a huge issue, similar to fuel, because um you're quoting finished goods. I mean, we're quoting finished goods, including those products, and we don't know where that product price is really going to land in the future. And um, a lot of suppliers of that product don't, you know, with so much volatility and so much uncertainty, they don't feel good about guaranteeing guaranteeing us a price.

SPEAKER_03 36:27

Yeah. You know, where you know a year ago they would have given you a price that that is good for six months. Today they won't give you a price that's good for 15 days. Yeah.

SPEAKER_04 36:35

Yeah. So typically what you know businesses would do, what we would do in this situation is to tie a lot of quotes to indexes, right? So uh, you know, these are publicly published uh asphalt binder price indexes for the DOTs. And, you know, they basically say, hey, uh based on the market, we see that pricing is uh around this amount, right? And so we will the way that they handle it with their jobs is well, if you perform if you have a contract that's indexed and if you perform work within this month, we'll pay you market price for that product. And you know, when we go to the next month, it's gonna be a different price because the market's probably gonna be different.

SPEAKER_03 37:23

This requires a lot more communication on a for sure. When we're talking to customers that we're you know, you want to be fair and you wanna you wanna help them get ahead of any kind of price increases. You don't want to surprise anybody with like, hey, the price that we gave you a month ago is no good anymore and you owe us more money. Yeah, well it's frustrating for everybody. Right. So, you know, we're having to communicate this is where it's at, this is where we think it'll be, this is what we can guarantee. Uh we encourage you to talk to the owner of the projects that that you're quoting to also tell them that we may need to pass along an index increase to get indexes worked into all of these projects. Uh yeah, it just it creates a lot of of work for for us to make sure that we're doing people right. Yeah. And that's something that we definitely want to do. We don't we don't want uh people to get hurt.

SPEAKER_04 38:15

Well, I think uh I was just thinking about this. It's probably important to note that the reason that it's so difficult with like asphalt products over aggregate products is asphalt products are like a just-in-time manufacturing or like made to order, right? Like when you buy asphalt, we're not holding a ton of inventory already for asphalt. Like we can maybe hold 100 tons of liquid asphalt, and you'll go through all of that plus more in one day if we run a lot of tonnage, right? Like if we run 2,000 tons or whatever of asphalt. So like all those products are coming in daily, and it's all made to order because from the time that you make asphalt, you need it paved within three hours or whatever, right? Whereas like aggregates and rock, you know, we've got stockpiles of that, we've built it up, our costs are changing today, but we're not gonna immediately sell that product. So right, you've got to look at your average, yeah. Correct. Yeah, yeah. Which it will inflate the price in the future. It's just not happening happening immediately. Like we have a little more leeway and wiggle room on quotes and stuff like that.

SPEAKER_03 39:35

Which is the same way, these gas stations.

SPEAKER_02 39:38

Correct. Yeah.

SPEAKER_03 39:39

Like you as soon as something happens or as soon as news pops up uh that would cause oil prices to increase, you see an immediate reaction at the gas station. And you know good and well that they've got a certain number of gallons that they've already paid for at a certain price. They don't have to give you that price increase today. But they are because they know that their future products that they're getting uh could be at a higher price. So they're they're looking at it the same way. Yeah. They're having to average out the their sales price because their costs are going to to change and they're not going to be able to pass all of it along to the consumer. If that makes sense.

SPEAKER_04 40:16

I think so.

unknown 40:17

Yeah.

SPEAKER_04 40:17

I don't know how much gas or fuel gas stations can hold, but it's definitely not a year's worth. I'm sure they've made commitments to buy it. Weeks or something, yeah. I don't know. Who knows? Um so outside of like you know, being cognizant of how much it costs and what we're quoting and stuff like that, how else do we manage it or how can we manage the FX?

SPEAKER_03 40:49

I think we've talked about most of it, and again, I think it just it goes back to communication. It goes back to uh uh trying to put some sort of in index you you want to work in an option to adjust your price uh based on what's happening in the market. You're not always able to do that, it depends on the project or the customer that you're dealing with. Um but I mean, we just we have to be looking ahead and you know we our liquid suppliers, you know, we internally we have a liquid division and those guys are trying to buy, get the best deal that they can, buying in bulk, locked in at a certain price so they can secure a certain number of certain volume for a certain period of time so that we have some consistency in our business. Right. Um there's there's there's so many, there's so many different things. Um from a funding standpoint, we are you know, we're involved with a lot of associations. Um I'm on the board of Arkansas Asphalt Pavement Association, we've got folks on the board of Missouri Asphavement Association. We're constantly in contact with with DOT about how this is gonna affect um their funding and the projects that we're expecting to be able to bid in the future. If we're getting in touch with you know legislators and folks in Congress in the state to to push, you know, to solidify funding in maybe a different way so that we can maintain this work. But you know, there's there's funding mechanisms that we that we start working on. There's you know, the way that we quote and the way that communicate to customers and the indexes that we try to put in place. You know, there are some price increases that we have to pass along to to help us in the in the short time. Yeah. I mean, we're gonna have to pay truck drivers and different things, different, different folks uh more um based on fuel. So we've got to address our costs, we've got to address our revenue, those are the things, some of the things that we're doing to do that. You handled that pretty well.

SPEAKER_04 42:56

I just had as closing thoughts, uh, you know, just teeing you up before this, and then I was gonna grade you. I pulled uh a Forbes article from 2024. So this is actually before all of this latest geopolitical stuff you know happened and stuff like that. But it's basically recommendations for companies about managing geopolitical effects and how to be prepared, right? So the three main things it talked about were one regular training for board members and executives, um, just to cover and instill awareness of geopolitical insights, like how all this stuff affects it, right? So a more formalized training of saying, hey, if this happens, like it could affect this and like ways to manage that. These are the parts of your business you need to start putting action into. Yeah, exactly. Uh the second one was strengthening your public and private networks. So communication among civil, private, and social networks uh must be present to implement the Latest intelligence, so that's exactly what you're talking about, was like communicating a lot with associations, you know, for us specifically, associations, state funding, that kind of stuff. But, you know, basically keeping your network open and having good connections and communication to get all of the latest detail you possibly can. And then finally being proactive about managing risks and identifying opportunities, which is also what you talked about, which is, you know, trying to forecast out um what may or may not happen, protecting ourselves or yourself with uh different from different risks, you know, whether you can take on a risk in a quote or whether you need to index it and push that risk off to somebody else or whatever, right?

SPEAKER_03 44:50

So uh it turns out you did pretty well. Hey, how about that? Yeah. We'll see. We'll see what the numbers look like in a few months. Yeah, that's true. Hopefully, good.

SPEAKER_04 45:03

If y'all enjoyed the episode, please rate our show and leave a review on Apple Podcasts, Spotify, or wherever you listen, and check out Delta on all social media platforms at Delta Companies, and our website at Delta C O S looks like Deltacos.com. Thanks for listening, and we'll see you next week.