Fueling Speculation

In this climate of staggering gas prices, businesses across all industries are struggling with both a new set of financial hardships and the crafting of an appropriate response. Most say they are trying to avoid measures that amount to panic, and are instead focused on creative solutions that will enable them to maintain client relationships — and also stay afloat until the storm passes.

Dennis Scibelli sees trouble brewing. His coffee delivery business, Break Time based in Springfield, is feeling the squeeze of gas prices that soared in the wake of Hurricane Katrina and have generally been much higher than they were a year ago. And the price of gas isn’t his only concern.

Indeed, the rising cost of fuel has contributed to hikes in prices for everything from sugar packets to paper cups. To add insult to injury, the price of coffee has climbed as well, as many warehouses and production facilities in Louisiana were decimated by the recent hurricane.

“It’s killing us,” Scibelli lamented. “We’re in the service industry, so how are we supposed to tell a customer that we just can’t deliver? We have to continue on, and we’re doing the best we can to curb our costs.”

Ed Dersarkis is owner of Deluxe Limousine, located in Agawam, Mass.

Scibelli’s plight is in many ways similar to that of business owners across virtually every sector of the economy. There is the immediate challenge of responding to the sharp spike in gas prices after Katrina and the larger issue of how the price at the pump impacts the cost of doing business. In short, everything costs more, from plywood to pizza.

This puts business owners between a rock and a hard place. They need to stay afloat and, hopefully, in the black. At the same time, however, they need to maintain clients and steady business relationships for he long-term.

This is a delicate balancing act, as Ed Dersarkis will tell you. As owner of Deluxe Limousine Service in Agawam, he’s impacted by gas prices in a number of ways, including the many pre-written corporate contracts he has, most of which were penned when gas prices were roughly half what they are currently.

Dersarkis said he plans to honor those contracts until the end of the year, at which time he said he’ll employ surcharges to help close the gap that the gas price explosion created, but will split the difference of any increases with his clients, absorbing 50%. The tactic, he said, is designed to keep prices down and to maintain a reputation of fair pricing, as well as to approach the gasoline crisis more conservatively.

“To increase prices creates the risk of pricing oneself out of the market,” he said. “And the worst thing I could do would be to increase prices across the board based on the cost of fuel. That’s a panic response and you can’t be constantly adjusting your prices to match your costs. It’s much smarter business to remain consistent.”
It’s that fine line between providing consistent service to clients and curbing costs that is undoubtedly the greatest concern for business owners in all industries, and it’s prompting many, like Dersarkis, to get creative in their business plans for the coming fiscal year.

BusinessWest looks this issue at the soaring prices at the pump impact area businesses, and how they respond.

“It’s killing us. We’re in the service industry, so how are we supposed to tell a customer that we just can’t deliver? We have to continue on, and we’re doing the best we can to curb our costs.”

Cost and Effect

Tom Demers, vice president of Finance and Supply Chain at Kleer Lumber in Westfield, a manufacturing company that produces plastic trimboard – an alternative to wood – said soaring oil prices touch every aspect of the business.

“Everything that goes out of here goes out on a flatbed truck,” he explained. “And as the price of oil goes up, so does the price of resin (used to make the plastic lumber Kleer manufactures).”

Those shifts in costs have prompted management at Kleer to look both externally and internally to reduce costs, reevaluate operations and procedures, and keep an even closer eye on competition, to ensure that any adjustments they do make to the company’s structure do not affect competitiveness in the marketplace.

“Everybody is feeling the burn,” Demers explained, noting that raising the cost of the company’s products will likely be part of the response to the gas quandary. “But it’s important to keep an eye on efficiency. We’re monitoring our costs quarterly … we don’t have a doomsday outlook, but we need to continue to examine ways to lower our cost base. That’s just the name of the game today.”

Scibelli concurred. He said small surcharges have been added to all deliveries — a necessary step — but the company’s response is much broader.

“Most people understand that we have to do that,” he said of the surcharges, which have been implemented by businesses ranging from cab fleets to golf courses. “But that doesn’t cover the whole nut. We can’t pass on the total cost, so naturally we have to absorb some, and that means we’re making less of a profit.”

To further address the problem, Scibelli has turned to reducing the number and length of ‘outs,’ or the number of times in a week that delivery trucks will make the rounds to their various customers in Western Mass., and asking clients to place larger orders less frequently in order to achieve that goal. Eventually, he suspects that he’ll also have to reduce his service radius, rather than expanding the business into new markets.

And, like all business owners, he’s being imaginative. “We’re utilizing UPS more than we ever did,” he explained. “That saves more than gas money – it saves the time the trucks are on the road, driver costs … it’s one example of how and why people need to really start to get creative out there.

“We’re doing OK,” he continued, “but it’s a day-to-day battle and a weekly concern. We’re just like the average consumer in that we’re chasing the best gas prices around Western Mass., too – I’m on the phone telling my drivers where to go every morning. You just have to.”

“To increase prices creates the risk of pricing oneself out of the market. And the worst thing I could do would be to increase prices across the board based on the cost of fuel. That’s a panic response and you can’t be constantly adjusting your prices to match your costs. It’s much smarter business to remain consistent.”

Small, delivery-oriented businesses like Break Time aren’t the only ones feeling a direct hit from costs at the pump, however. Those in the transportation industry are probably those feeling the crunch most immediately. Dan Crowley, vice president of Operations for Palmer Dedicated Logistics, which sells dedicated truck services to various businesses to meet their transportation needs, said his entire industry has undoubtedly been affected, although business has remained steady in the face of rising fuel costs.

“Diesel and unleaded fuel have both gone up in price, so that hurts us,” he said. “We’ve had to impose a fuel surcharge of about 45 to 50 cents on every mile run. If we tried to absorb those costs, we’d definitely be in the loss column.

“Consumers are paying those extra charges when they pay for nearly everything,” he continued. “It’s all being passed along. Business can always be better, but we’ve been able to cope … the entire economy is based on moving goods and services, and that’s not going to go away.”

Pumping for Information

Amid the general gloom over the gas-price issue there are some possible silver linings — and even some attempts to seize the moment. Indeed, businesses and organizations are urging local consumers to take advantage of local goods and services, in order to save on fuel costs and support the local economy as it weathers this, its most recent economic storm.

Bob Kaufman, owner of Bob’s Discount Furniture, has taken to the airwaves with his suggestion to local shoppers, in a recent commercial that asks them to avoid high gas prices and instead “Come on down to Bob’s.”

Meanwhile, area tourism leaders say the ugly numbers at the pump may prompt people to take in local attractions rather than hit the road for extended trips. Wayne McCary, president of the Eastern States Exposition, said he is hopeful that attendance will get a boost for this year’s fair, which runs through Oct. 2, as Northeast residents look for entertainment and travel options closer to home.

Dersarkis told BusinessWest that, in some ways, higher fuel costs actually promote more business for limo companies. He said he has seen early indications of continued health due to greater interest in chartered transportation for events both corporate and leisure in nature.

“People are starting to carpool to conventions and seminars or to Red Sox games, and splitting the cost to hire a car service rather than fill up their own gas tank,” he explained.

“It’s a day-to-day battle and a weekly concern. We’re just like the average consumer in that we’re chasing the best gas prices around Western Mass., too – I’m on the phone telling my drivers where to go every morning. You just have to.”

Pride Gasoline Stations, meanwhile, has chosen a unique approach to the issue of gasoline supply and prices in the nation overall. The company has made the proactive move of switching all of its stations over to a 90-10 mixture of traditional gasoline and ethanol, a corn-based bio-fuel. While that has little effect on prices, it does address the more global issues of petroleum supply, demand, and dependence on foreign oil, as well as that of the overall health of the U.S. economy.

“Ethanol is a renewable source of energy,” said Ellen Carra, director of marketing for Pride. “It reduces our dependence on foreign oil because it replaces crude oil, and gives work to U.S. farmers.

“Use of ethanol will cut the U.S. trade deficit by $34 billion by 2012,” Carra continued, noting that Pride is the first chain in the state to convert to a bio-fuel mixture, and 20 states in the nation already require it, including neighboring Connecticut and New York. “Pride has a commitment to fair pricing and responsible energy use and I think the two go hand in hand. As more suppliers begin to focus on changing their own tanks over to a blend, it’s going to create a real win-win for our economy.”

And Carra added that Pride gas stations don’t see themselves as on the other side of the fence of the current gas crisis; all but one of Pride’s stations include a retail component, she explained, and the rising costs of goods delivered to the stores, particularly those supplied by local vendors who cannot absorb costs as easily as larger, national companies, have indeed been felt.

“Those companies are having to tack on anywhere from $1 to $3.50 in surcharges for each delivery, and those costs definitely add up,” she explained. “This is something we’re dealing with on both fronts everyday.”

Crude Estimates

Coping, and waiting for the gas price fever to break, is what most businesses are doing today.

Taking a ‘this, too, shall pass’ attitude helps with the day-to-day struggle, said Scibelli, as does acknowledgement that the current crisis is not going to change how
people live or conduct business.

“People are just not going to stay in their homes and hide until these prices go down,” he said. “I’m a business owner, but I’m a consumer, too. I have an SUV … am I going to cancel my weekend plans? No, because when all is said and done we still need to strive for a quality of life here.”

“So my life really mirrors my business … I can’t increase what I’m doing right now, but I can do the best I can with what I have.”?

Jaclyn Stevenson can be reached at[email protected]