Editor’s Note: Welcome to “The Hidden Majority” — a recurring column from MDM authored by one of our top contributing writers, Nelson Valderrama. This series is all about providing thought leadership and industry analysis geared for small- to mid-sized distributors, which comprise the vast majority of the wholesale distribution landscape. Leveraging the latest quarterly Baird-MDM survey data, Nelson dives into the numbers and commentary to identify trends and takeaways that apply to SMBs in the industry. This column is delivered as a three-part series each quarter. This edition is the first part in the latest series, and parts 2 and 3 will be on MDM Premium.

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Ask almost any distributor how they’re handling rising costs, and you’ll hear the same response: “We raised our prices.”

That’s true. It’s also incomplete. Vendor cost increases, freight surcharges, and rebate restructures don’t arrive on the same day, through the same channel, or at the same pace. A single price increase can absorb one of those. It rarely catches all three.

The 2Q26 Baird-NAW Industrial Distribution Survey asked respondents directly how they’re responding to rising cost of goods sold. The topline answer — 91% raise prices — sounds like distributors have this handled. Look at what else they’re doing at the same time, and it isn’t that simple.

See extensive findings and analysis from the 2Q26 Survey in NAW’s latest MarketPulse Report— Premium access, Store Link

Where This Data Comes From

The 2Q26 survey — conducted in July — asked distributors what methods they use or plan to use in response to higher cost of goods sold. Respondents could select from multiple methods:

• raise prices
• add surcharges
• share costs with suppliers
• absorb a portion of the increase
• fail to anticipate a COGS increase at all

This first article in a three-part series focuses on a problem hiding in plain sight: the lag between when distributor costs change and when pricing actually catches up. The second article zeroes in on the clearest symptom — the number of days it takes to reprice after a vendor announcement. The third connects that lag to its real cost: inventory and cash.

The Headline Number Hides the Real Story

91% of distributors in MDM’s survey say their response to cost pressures is simple: raise prices. That’s usually where the analysis stops. It’s easy to see why. Costs go up, prices go up, problem solved. Case closed.

Except it isn’t. The picture gets messier when you look at what else distributors chose.

• 37% also rely on cost-sharing arrangements with suppliers
• 33% absorb at least part of the increase themselves, while
• 24% tack on surcharges separate from the base price hike

Add those up, and there’s no single, clean response. Most distributors run two or three of these methods at once — a price increase here, a surcharge there, an absorbed cost somewhere else — without tracking which cost input triggered which response, or whether any of it actually closed the gap.

One distributor’s comment captured the position most respondents are actually in:

• “Where we can’t pivot to neutralize the impact, we will pass along.” — Distributor response, MDM/Baird tariff strategy survey.

That’s not a strategy. That’s triage — and triage, repeated every time a new cost input lands, is exactly how gaps quietly pile up.

Three Inputs, Different Clocks

Here’s the mechanism at work: vendor cost increases, freight surcharges and rebate restructures each arrive on their own schedule — none of them are synced with the others.

A vendor cost increase usually arrives as a formal notice: a letter, an email, a line item in a purchase order. It’s visible. It carries a date. It’s the input every pricing process catches, because it announces itself the loudest.

Freight and logistics costs move differently. They creep. A fuel surcharge ticks up a percentage point; an LTL rate adjustment lands on an invoice with no announcement attached. No letter arrives. Nothing signals when someone should update pricing in response, so often no one does.

Rebate restructures stay the quietest of the three. A vendor shifts a rebate tier, a volume threshold moves, and the effective cost of goods changes, sometimes by a meaningful margin, without anything that looks like a “cost increase” at all. It surfaces months later, buried in a reconciliation, if anyone catches it.

Ask most distributors which of these three they track systematically, and the honest answer is usually just the first one. The vendor letter gets a response. The freight creep and the rebate shift get absorbed into “cost of doing business,” not because anyone decided that was acceptable, but because nothing in the process flags them the way a vendor letter does.

What the Commentary Reveals

When distributors describe their tariff and cost response in their own words, the language splits into two distinct groups. That split isn’t about company size. It comes down to how many of the three cost channels a given comment actually addresses.

Some respondents describe a clean, single-channel response:

• “We intend to fully pass along any supplier price increases, tariffs or surcharges as increases to our COGS and will add our margin to that new cost.” — Distributor response, MDM/Baird tariff strategy survey.

That’s a distributor with a rule. Cost goes up, price goes up, margin holds. It’s the response of 91% of the survey respondents. That 91% headline number implies everyone is running.

Other respondents describe something closer to what’s actually happening on the ground — cost pressure from multiple directions. No single rule covers it all:

• “Pushing through pricing aggressively and walking away from customers who will not accept it.” — Distributor response, MDM/Baird tariff strategy survey.

That’s not a system. Such distributors fight fires as they come up, account by account, with no visibility into which of the three cost channels drives any particular fire.

Neither group is doing anything wrong. But only one of them has actually built a process that catches all three cost inputs. The other relies on the loudest one — the vendor letter — and hopes the freight creep and the rebate shift stay small enough not to matter.

The Real Question Isn’t Whether You Raise Prices

91% of distributors say they’re raising prices in response to cost pressures. That’s not the interesting number. The interesting question is what’s happening to the other two channels while that one price increase gets all the attention.

If vendor letters trigger your pricing response, you have a system for catching one of three cost inputs: the one that happens to announce itself. Freight and rebate shifts don’t send letters. They settle into your cost of goods quietly and stay there until someone happens to notice.

This isn’t a call to raise prices more aggressively. Several respondents made clear they’re already at the edge of what customers will tolerate:

• “Options for passing the price increase are limited.” — Distributor response, MDM/Baird tariff strategy survey.

The point isn’t that distributors should push harder on the channel they’re already tracking. It’s that two other channels exist, and most pricing processes never built a mechanism to catch them. A vendor letter triggers a review. A freight surcharge or a change in rebates usually doesn’t. It just folds into next month’s landed cost, and the number absorbs it without anyone deciding it should.

That’s the actual gap. Distributors aren’t failing to respond to cost pressures; 91% clearly are. The problem is that the response calibrates to the cost input that’s easiest to see, while the other two erode margin at their own pace, on their own schedule, mostly unmeasured.

The point isn’t that distributors should push harder on the channel they’re already tracking. It’s that two other channels exist, and most pricing processes never built a mechanism to catch them. A vendor letter triggers a review. A freight surcharge or a change in rebates usually doesn’t. It just folds into next month’s landed cost, and the number absorbs it without anyone deciding it should.

That’s the actual gap. Distributors aren’t failing to respond to cost pressures; 91% clearly are. The problem is that the response calibrates to the cost input that’s easiest to see, while the other two erode margin at their own pace, on their own schedule, mostly unmeasured.

Up Next

The next article in this series zeroes in on the version of this problem that’s easiest to measure directly. It tracks how many days your pricing lags behind, once a vendor cost increase arrives on the channel distributors already respond to. It follows what happens to the SKUs that miss that window.

 

More from “The Hidden Majority”

• The Hidden Majority: Your AI Is Writing Emails. Your Competitor’s is Finding Margin – May 24
• Vendor Costs are Eating Your Margin. Your Bigger Competitors Don’t Have that Problem – May 28
• Large Distributors are Gaining Pricing Power 6X Faster than You. Here’s the Data – June 4