As gas prices fluctuate because of insecurity in oil-producing regions, local businesses are coping with increased fuel costs of 32 percent or more.
Crude oil prices are trading at $66 a barrel, the highest since Hurricane Katrina disrupted oil production in the Gulf Coast region.
While some businesses are rearranging routes to increase fuel efficiency, others are passing fuel costs along to their customers. Some are struggling to maintain a market share in an increasingly competitive environment.
“We haven’t passed on the costs to our customers,” said Christina Elmore of Total Office Solutions in Colorado Springs. “We have come up with ways to try to keep fuel costs down – we certainly have to be very efficient when we map our routes.”
The key to efficiency, Elmore said, is pre-planning the routes before the drivers leave.
“We spend a lot of money on gas,” she said. “And we certainly don’t want them driving in circles. We’ll send more than one delivery, if it’s in the same area. It’s certainly something we keep a close eye on.”
While gas prices dropped in December from Katrina-related highs of more than $2.91 a gallon for regular unleaded in October, they are rising sharply in the first month of 2006. The average price for gasoline in Colorado is $2.27 a gallon, an increase from $1.78 in Jan. 2005, up from $2.04 in December, according to AAA.
The travel association predicts that prices in Colorado could reach $2.40 by the end of the month.
AAA blames the rising fuel costs on security issues in Iran – some analysts say even a brief interruption in Iranian oil shipments could push the cost of oil to record highs, beyond the $70 a gallon set last year after Hurricane Katrina.
During the past year, Bestway Disposal has seen its fuel costs increase 32 percent – the largest increase in more than 55 years in business. With that increase, came a fuel surcharge for the business’s waste disposal customers.
“It’s a big expense – just getting the truck to the homes and businesses,” Vice President Tom Kiemel said. “The fuel costs from 2004 to 2005 were just a huge increase. It’s one we haven’t seen before. Gas prices were static for so long.”
Bestway operates 50 trucks a day in El Paso County. The company has avoided price increases, but added a surcharge to help offset rising fuel prices.
“It’s really the only thing we’re doing,” Kiemel said. “Changing the routes, sending out fewer trucks is really a double-edged sword. If we send out fewer trucks, then we’re paying overtime costs. We really think we’re running the routes as efficiently as we can – we’re running the number of trucks we need to cover El Paso County.”
Bestway charges residential customers 77 cents a month for fuel expenses. Business customers are charged 5 percent of their total service bill, which depends on the pick-up frequency and number of dumpsters.
In order to increase its efficiency, Bestway has its fuel delivered by Chief Petroleum. The fuel truck arrives each morning to fill the trucks. But buying fuel by the tanker does not mean Bestway pays better prices for each gallon of diesel.
“We don’t use the gas stations; it takes too much time to fill up,” Kiemel said. “The truck arrives each morning with a ‘wet line’ to fill up each truck before it goes out.”
While Kiemel is able to pass on some fuel costs, one industry does not have that option. Independent truck drivers have faced months of record-high diesel prices, and many drivers are earning smaller salaries as a result.
“The surcharges were arranged in the 1980s, at the beginning of deregulation. Gas prices were $1.10,” said Larry Daniel, spokesman for America’s Independent Trucking Association. “Now, the owner-operator is paying an average of 25 cents a mile out of his own pocket. At the mileage rate for the big trucks, he’s paying about $17.50 an hour.”
Larger truck companies can demand higher fuel surcharges from their clients, Daniel said. Because companies, such as Dart or J.B. Hunt, handle thousands of shipments a day, they are able to negotiate higher rates.
“But the shipper does not have to pay that for the independent owner-operator, who might only handle a couple of shipments a week,” he said. “And so what happens? The big fish eats the little fish.”
Congress considered mandating fuel surcharges for the trucking industry, Daniel said, but lobbyists representing larger companies blocked the move, and independent truck drivers are left feeling the pinch.
“Before fuel costs went up so high, an efficient truck driver could make $80,000 a year, pre-tax,” he said. “Now, he can only make about $55,000. That’s drastic. It’s a big deal to them. More and more, the trucking industry is going to be affected. There’s going to be fewer cows licking at the salt block. It’s just harmful to the entire industry.”
Fewer independent haulers mean higher prices, Daniel said. The goods that crisscross the United States each year will be carried by a few large companies – eventually leading to higher consumer prices.
AAA estimates that rising gasoline prices in 2005 added more than $7.8 billion to consumers’ bills across the nation, or about $58 per passenger car. Those prices leave less money for other spending.