Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from Jason Brenner - RBC Capital Markets.
Jason Brenner - RBC Capital Markets
First, what are you assuming in your guidance for commodity prices in 2009? Is it just flat from these lower levels than we’ve seen? Second, can you talk a little bit more about what products exactly are coming out of the new surplus contract and can you quantify that at all? What was its contribution last year?
James M. Rallo
I’ll take the first question which is on the scrap contract. We have basically assumed flat commodity pricing from where we are today. Again remember our scrap business is 100% delivery business meaning we don’t have speculators in our market place. Our prices have seen a significant drop, not in line with I would say the overall commodities drop but certainly a significant percentage. So we’re basing our assumptions on really what we’re seeing in recent months.
As far as your second question I’m going to turn that over to Bill.
William P. Angrick III
With regard to the new surplus contract, the policy position for some time now has been to review carefully property that moves through the supply chain. To the degree that items have a dual use application to support certain military equipment, whether or not that military equipment is somewhat innocuous such as a truck or marine equipment, even material handling equipment, that dual use application would be deemed a characteristic to remove the item. This would represent about 20% of the volume that we’ve historically sold.
Having said that, it’s important for us to recognize that under the new terms of this contract we LSI bear the cost of receiving, transporting and storing items as they’re brought to the public market place. So in some cases the items that are removed relieve us of certain processing, handling and storage costs which we’ve also factored into our guidance.
Operator
Our next question comes from Colin Sebastian - Lazard Capital Markets.
Colin Sebastian - Lazard Capital Markets
Perhaps you can quantify the incremental costs of making the upgrades and changes to the commercial market place for 2009 and whether this is the primary change from your prior guidance. Secondly, on the commercial side I was wondering if you could clarify a bit what the trends are in that market place. You mentioned obviously a little bit of a headwind right now but given the retail environment, maybe how that plays out over the course of the year in the March quarter as retailers sort through excess merchandise?
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