Ecolab will add 8% to 12% surcharges to offset rising energy costs

Ecolab has offset the rising prices of logistics and raw materials in the last year through productivity measures and by expanding its supplier base.

But now the St. Paul-based provider of water, hygiene and infection prevention products and services has announced temporary 8% to 12% surcharges to offset the spike in global oil prices due partly to economic sanctions against Russia's energy industry.

"We now also need to implement this temporary energy surcharge to mitigate the dramatic rise in oil and gas costs and its impact on raw material and logistics inflation to ensure we can continue to provide reliable product supply," said Christophe Beck, Ecolab's chief executive, in a news release.

Companies in other industries, primarily airlines such as Malaysian Airlines, Japan Airlines Emirates and others, have announced fuel surcharges recently while other global airlines have used hedging strategies to smooth out their fuel costs.

Ride hailing services Uber and Lyft are planning on adding fuel surcharges on their platforms as well.

Ecolab's surcharges will go into effect April 1 on new orders. Ecolab will continue to monitor the oil and gas prices and a basket of other raw materials to see when the pricing situation stabilizes and they can remove the surcharges.

"We are confident that this measure will ensure our ability to continue to provide the products and services our customers rely on as well as provide the leading technologies, solutions and services to help our customers reduce their usage of natural resources and their impact on the environment while improving their total cost of operation," Beck said.

Almost one-third of Ecolab's raw materials are petroleum-based, said spokesman Mike Monahan.

Because of that, the company already was dealing with price hikes and supply chain issues due to last year's deep freeze in Texas that impacted the oil and gas industry in southern states, said Justin Miller, vice president and investment manager with Mairs and Power, a St. Paul-based investment firm that has been a long-time holder of Ecolab stock.

"The surcharges speak to the pressure that a lot of these businesses are under when it comes to raw material inflation." Miller said. Ecolab has been "under steady pressure for the better part of a year-plus to try and increase prices."

The company has seen cost increases in more areas, though, Monahan said.

"Regarding the surcharge it may be unusual for us," Monahan said. "But it's not uncommon. In fact we are seeing more of these roll through from other competitors."

Ecolab typically raises prices 1% to 2% annually, Miller said. But last year the company pushed through 4% price increases, and in Ecolab's conference call to discuss fourth quarter results earlier this year, the company said it was planning 5% to 6% increases in 2022.

"The fact that they are putting on this additional 8% to 12% just speaks to the huge amount of pressure they are feeling to protect their margins," Miller said.

Shares of Ecolab closed at $167.82 a share, up 1.7% Tuesday, while the S&P 500 Index was up 2.1%. Shares of Ecolab have traded between $154.85 and $238.93 a share over the last 52 weeks.