Higher Gas Costs Fuel Worries

Crude oil hit a new high of more than $75 a barrel last week, which translates into higher prices at the gas station. For small business owners whose companies use lots of fuel, it’s become impossible to ignore the added costs of doing business. Others are just beginning to feel the pinch in higher costs of materials.

“And I’ve been putting out fire with gasoline…” sang David Bowie ominously on the soundtrack to Paul Schrader’s 1982 remake of the classic movie, “Cat People.” That’s probably pretty close to how many business owners feel right now. Everywhere they turn, the cost of fuel is causing problems. And they’re worried that by increasing their own prices to offset the higher fuel costs, they might lose some business.

As usual, since small businesses are so varied and plentiful, there isn’t much objective information about how owners are reacting. It’s mainly anecdotal. For example, a business article in the Atlanta Journal-Constitution on June 30 pointed out that one Atlanta-based heating and air conditioning business now adds a $10 fuel surcharge to its bills, while a pest control business adds a fuel surcharge that it recalculates each month to account for the previous month’s gas costs. One plumbing business now leaves its gas-guzzling box trucks in the garage and sends out more fuel-efficient pick-up trucks.

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But a surcharge is usually a temporary measure. Most customers assume that a surcharge will disappear once the reason for it (in this case, higher fuel costs) disappears. As I see it, adding surcharges – or raising prices – is like asking for a raise from your boss, except that, in this case, your boss isn’t just one person. It’s each and every one of your customers. Some of them will give you that raise willingly; some will reluctantly give you the raise but hope that you can take a pay cut again soon; others will simply say no and give their business to a competitor or do without your service or product.

But just because it’s risky to raise prices doesn’t mean you can’t ever do it. Re-pricing your services and products is a basic part of doing business. The companies hit the quickest by higher gasoline prices depend on a fleet of vans, trucks or cars to make sales and service calls or to deliver products and services. They can calculate the difference between what they paid for gas per month last year and compare it with this year’s cost. For instance, the owner of the Atlanta-based heating and cooling business says that his gasoline costs went from $20,000 a month last summer to $28,000 a month this summer, a 40 percent increase.

Other small businesses feel the effects of rising fuel costs less directly – for instance, one of their suppliers may increase its prices saying it’s due to fuel costs. Sooner or later, a small business owner must calculate how much these added costs cut into profits.

Because fuel costs have become a big headache, it’s probably tempting to wait it out in the hope that prices will settle back down again. It’s always tough to know when the rules of the game have changed for good. In the case of fuel prices, first you have to decide whether you think they are going to stay up, go up higher or come back down. A couple of technical analysts I trust (my colleagues at Elliott Wave International and Richard Russell of Dow Theory Letters) have convinced me that the price of crude oil is more likely to stay up and go higher for quite awhile.

Here’s a recent comment from Russell:

“I believe that Oil is going to be a problem. Too much of the world's oil reserves are held by nations either neutral or unfriendly to the United States. Then there's the matter of China and India, both nations that are gulping down oil as fast as it can be produced. The great battle to tie up oil reserves is on, and it could easily get nasty. Oil's stubborn ability to hold above a price of 70 dollars a barrel is already surprising many analysts. And you have to ask, what happens if something unexpected occurs in the world of oil, such as the ‘bad guys’ blowing up some oil facilities?” (Dow Theory Letters, June 29, 2006)

If you buy this line of thinking, then you must already have decided how to pass on the rising cost of fuel expenditures to your customers. If, instead, you think gas prices will go down again, then you may be trying to hold the line against price increases. If you guess right, you should be able to steal customers from your competitors who do raise their prices.

None of this guesswork makes for an easy business decision. It comes down to balancing the desire to keep all your customers with the need to make a profit to stay in business. This is the time when the rubber meets the road, and it may feel much too much like you’re putting out fires with gasoline.

I’d like to take the pulse of how small business owners like you are handling the rising cost of fuel. Are you passing it on as a fuel surcharge, raising your prices, or sitting tight? I know you’re busy, but if you can steal five minutes, please e-mail me at foxsmalltalk@hotmail.com.

Let me know three things:

(1) What kind of business you own

(2) Where it’s located

(3) How you’re dealing with higher fuel costs

Put “Fuel YES” in the subject line if you've raised prices, “Fuel NO” if you haven't and, in each case, tell me why. I will be interested to hear what you all have to say.

Susan C. Walker writes a personal finance and economics column for FOXNews.com as well as this small business column. She works for Elliott Wave International, a market forecasting and technical analysis company, and has been an associate editor with Inc. magazine, a newspaper business editor, an investor relations executive for a real estate investment trust and a speechwriter for the president of the Federal Reserve Bank of Atlanta. She graduated from Stanford University.

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