goldsnow,tick,tick,tick; inflation time bomb; Part II
November 19, 1999ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Small Firms' Fuel Bills Jump
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ But Are Hard to Pass Along
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ By DAN MORSE and JOSHUA HARRIS PRAGERÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Staff Reporters of THE WALL STREET JOURNAL
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ The oil-price squeeze is on -- and some small businesses
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ are feeling the pinch.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Small firms say they are paying 25% more for fuel in the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ past two months, primarily because of rapidly escalating
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ crude-oil prices. But they lament that their customers,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ spoiled by several years of stagnant inflation, are
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ balking at price boosts that would let the companies pass
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ along the rise.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Freddie Wilson of F.D. Wilson Trucking Co. of Vernon,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Ala., winced over the past few months as his company
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ began to pay $1.21 a gallon for diesel fuel, up from
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ around $1. So, he tried to impose a three-cent-per-mile
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ surcharge on what customers pay for their trucking costs.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ But "a lot of customers won't let us do that," says Mr.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Wilson. And they can be stubborn. "If they won't pay,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ there's no need to bill it. We're stuck between a rock and
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ a hard place."
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ The result, not surprisingly, is a direct hit on the bottom
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ line. At another trucker in the same town, Vernon Milling
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Inc., vice president Henry Smith says the 125-truck
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ company is paying $16,000 to $18,000 more in fuel each
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ week. "When you're running on a 2%, 3%, 4% profit to
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ begin with, it eats you up," he says. "Right now, we're
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ just trying to hold our own. We keep hoping this [price
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ increases] is a short-term effect."
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ While truckers are taking a major hit, the rise in
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ crude-oil prices, which are nearing a nine-year peak, is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ slamming companies across the transportation industry.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Watching Effect on Business
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Not surprisingly, some are nervously raising prices,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ always watchful of pushback from consumers. Sam
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Lavasani, president of Nationwide Limousine Service in
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ San Francisco, says that when gas prices jumped a few
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ months ago, the gas fee his clients must pay jumped as
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ well to 2% from 1%. Depending on how much higher
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ gas prices rise, he expects to increase the fee to as much
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ as 3% in the next few weeks. Yet, he worries about how
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ that may affect business. "They might start looking
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ around for someone else," says Mr. Lavasani.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Indeed, that fear is keeping prices tamped down at Dav
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ El Chauffeured Transportation Network, a limousine
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ service in Chelsea, Mass. Bob Stankus, chief financial
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ officer, says that even as gas prices have risen roughly
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 20% since the summer, costing Dav El several
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ hundred-thousand dollars, the company's $49 fixed
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ hourly rate for Lincoln Towncars or $63 for limousines
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ has remained steady.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Instead, a few months ago, Mr. Stankus contacted the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ company's general managers and told them to instruct
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ their drivers not to idle as they wait for passengers. If
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ gas prices continue to rise, Mr. Stankus says that he may
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ consider instructing his drivers to drive at 55
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ miles-per-hour, more fuel-efficient than the 65 mph
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ speed limit. He also is considering ways to reduce
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ insurance and telecommunications costs. "It's kind of a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ balancing act constantly," he says.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Opportunity for Some
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Of course, for some, the escalation in gas prices can be a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ business opportunity. Some in the traveling-billboard
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ industry, for example, say that trucking fleets will be
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ eager to offset increasing gas costs and so will be more
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ likely to display advertisements on their vehicles.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ "It's just one more sales pitch that we can use," says
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cecil Lander, president of Mobile Billboard Advertising
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ International LLC in Parkland, Fla. "We'll certainly be
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ using that in our approach."
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Despite such strategies, most small-business owners are
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ simply left to take the hit. That's because they often can't
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ use the type of price-control mechanisms -- futures
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ contracts and the like -- that their larger counterparts
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ can.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Double Whammy
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ In Tallahassee, Fla., Bill McCray, a franchisee for
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Snap-on Tools Co., has endured the double-whammy of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ higher gasoline prices and a longer sales route; together,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ they have raised his fuel costs by $400 a month. But
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ increasing his tool prices to customers would be a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ hassle, because he would have to go into the computer
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ on his truck and individually raise the price of thousands
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ of items. (A Snap-on spokesman confirms that computers
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ in franchisees' vehicles make it difficult to perform price
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ increases "across the product line.")
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Increased fuel prices may seem invisible for those
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ shopping on the Web, and food deliverer Peapod Inc. is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ trying to keep it that way. The Skokie, Ill., company,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ which takes food orders from customers over the Web
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ and delivers food to their houses, says it will make sure
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ its route structure is in order. "We're preparing for the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ higher prices by making sure we have more stops on our
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ routes and that we have more density," says John
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Caltagirone, chief logistics and operations officer for
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Peapod.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Others aren't as flexible. In Atlanta, Steve Porter, an
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ owner of A Tow Inc., a tow-truck company, says A Tow
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ is spending about $480 extra a week in fuel.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ But he can't touch the prices for about 70% of his
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ business. That's because it is tied up in contracts with the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ city of Atlanta, among others, and A Tow must charge a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ set rate. "It comes out of our back pocket," Mr. Porter
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ says. "You got to eat it; that's what it boils down to." |
