Fuel Prices Eat Up Profit: Local Firms Fight to Avoid Passing Higher Costs on to Customers

By Dave Gallagher, The Bellingham Herald, Bellingham, Wash.

Jun. 18–With fuel costs now eating up one-third of his gross pay, Tom Zender is beginning to wonder how anyone can afford to do his job.

Zender is a self-employed log hauler who lives on Mount Baker Highway. He is usually in his truck by 5:30 a.m., and he gets in at least three loads of logs a day, finishing in the late afternoon. His truck uses 50 gallons of fuel a day, so at $3 a gallon his fuel cost is $150.

“If I have three loads of logs, the money made from one load goes right into the fuel tank,” said Zender, who owns Bell Creek Contracting. “If you add in the other expenses, like insurance and maintenance, it’s getting very difficult to make the numbers work.”

Just like consumers, Whatcom County business owners are making adjustments as fuel prices stay above $3 a gallon, as well as dealing with increased energy prices in other areas, such as electricity.

For Dan Johnson, owner of Johnson’s Towing, it’s a constant battle of finding new ways to cut expenses.

“I’ve learned that when you think the belt is tight enough already, you can find a way to cinch it up another hole,” Johnson said.

Two years ago, Johnson’s fuel expenses for his tow trucks averaged about $1,600 a month. Last year, when gas prices approached $3 a gallon for the first time, his fuel expenses rose to $4,000 a month. Today his fuel expenses range from $3,700 to $4,300 a month, forcing him to become more vigilant about keeping costs down. If he hears one of his trucks idling in the company parking lot, he quickly gets out of his office to find out why.

“So far we’ve managed to not pass on the higher fuel costs to the consumer, but it’s been a challenge,” Johnson said.

“When my customers call me to have a vehicle towed, they are already having a bad enough day, so I’m trying not to add to it with higher prices.”

For Zender, hauling logs has become a very competitive business that doesn’t compensate well when fuel prices rise.

He is able to supplement his income by also running a tow service truck. He’s been self-employed for 10 years and has been involved in the logging industry his entire life.

“I know of some guys who have parked their trucks (because of rising fuel prices),” Zender said. “I don’t know how someone just starting out can make it in this business. It’s a serious problem.”

Business owners, particularly in industries that involve delivery trucks, continually debate whether to add a fuel surcharge. Curtis Dye owns Interconnect Systems, which sells and services business telephone systems. He has pondered adding a surcharge, but continues to resist it.

“We could add $2 to each (bill) and possibly break even with fuel costs, but it would create even more bad feelings with the customer,” Dye said. “I just don’t think it would be appropriate, if we can find other ways to cut costs.” INDIRECT COST INCREASES Along with the direct impact on a business owner’s bottom line, local companies are seeing indirect consequences as well.

Becky Raney, co-owner of Print & Copy Factory, said she’s recently seen varieties of paper and envelope products discontinued because mills have been shutting down. She thinks the high-energy costs are leading to these mill closures.

“We certainly have to keep a closer eye on what we have in stock and call ahead to see if something has been discontinued,” Raney said. “It makes it difficult when we have to change the paper that a company has been happy with for years.”

John Beebe has also noticed a change in the auto repair industry.

Beebe owns Bellingham Automotive, and he’s noticed some of his regular customers are putting off regular maintenance appointments.

“When money gets tight, vehicle maintenance is one of the first things that go away,” Beebe said.

It’s ironic that people react that way, he said, because regular maintenance can improve the gas mileage of the car. He understands why people are reluctant, however, especially after feeling the sting of paying $100 to fill a large gas tank.

“I love it when I do get a chance to show customers what a difference it makes to have something like getting fuel injectors cleaned,” Beebe said. “Having a smooth-running engine makes a big difference.” CONSERVATION In the past few months Beebe has been looking at how to cut his own energy expenses. The company runs two shuttles all day long to transport customers who are having work done on their vehicle.

“We’ve definitely been looking at the idea of a smaller car that gets better mileage, possibly even a hybrid,” Beebe said. “But the challenge is trying to justify the extra cost of a hybrid compared to what it saves in fuel. It is getting to the point where the hybrid is a practical option.”

The company also recently took advantage of a lighting energy retrofit program with Puget Sound Energy to install $6,000 in new lighting for the facility. He said the new lights take 50 percent less power to produce the same amount of illumination.

“To me it’s getting to the point where we need to do things that not only save money, but to conserve our resources,” said Beebe, who noted his business recently received a four-star rating (out of five) in the EnviroStars program, which certifies businesses for efforts in preventing pollution. “Conserving energy is a direction consumers are heading, and we see it each day. For example, we’ve witnessed a big jump in the number of hybrid cars coming in for maintenance. Businesses also need to be thinking about this.”

Johnson is preparing himself for the fact that fuel prices may not be going down anytime soon.

“What is important to me is to keep finding ways to save money so I don’t have to raise rates,” Johnson said. “Everyone’s budgets are taking a hit these days, so we’ll just continue to do what we can before passing the increased costs on to the customer. You used to see fuel prices go up and down, but I think we’ve reached a point where prices will stay at this level, and we just need to adjust.”

Reach Dave Gallagher at 715-2269 or dave.gallagher@bellinghamherald.com.

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Copyright (c) 2006, The Bellingham Herald, Bellingham, Wash.

Distributed by Knight Ridder/Tribune Business News.

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