With crude oil and gas prices reaching all-time highs, small businesses that use a lot of fuel are beginning to suffer from the added costs of doing business.
By Carol Johnson
Many business owners, large and small, have been feeling the pressure of mounting gasoline prices over the past year. Crude oil has hit a new high of more than $75 a barrel, and that increase translates into higher prices at the gas station, which translates to higher costs of doing business. For small business owners that depend on gasoline to run their business, it is becoming impossible to ignore the increased costs associated with running their day-to-day activities.
To counteract the impact on profits, some businesses have chosen to increase the prices of either their services or goods. But doing so is risky, because if customers rebel, it may spell doom for them. An article in the Atlanta Journal-Constitution, described how a heating and air conditioning company in Atlanta, now adds a $10 fuel surcharge to its bills. One plumbing company now sends out fuel-efficient pickup trucks on service calls, rather than sending out its gas-guzzling box trucks. Some companies are adding fuel surcharges, that are recalculated each month, to account for the previous month’s gasoline costs.
Small businesses are the backbone of America, and the nature of these independent businesses is varied and plentiful. For that reason, there isn’t a lot of information available about how the high costs of fuel are impacting small businesses in general. But customers are beginning to see more and more surcharges and price increases. Although customers may assume that the surcharge will disappear if fuel costs begin to decrease, that may not happen. Eventually, they may look elsewhere to find a company, that will provide the same service, without a fuel surcharge.
The companies that have been hit the hardest by higher fuel costs are those that depend on service trucks, vans, delivery vehicles, hauling and moving companies, and businesses responsible for delivering products or services to consumers. Some businesses have calculated jumps as high as 40% from last year’s gasoline costs to this summer’s costs. If those businesses in turn have to pay their own fuel surcharges to other companies higher up the delivery chain, then the costs will certainly be funneled down to the end consumer somehow. Sooner or later, a small business owner has to face the music, and calculate how much his own cost increases are cutting into his profits, and figure out the best way to manage those costs without losing customers.
Richard Russell of Dow Theory Letters believes the price of crude oil is likely to stay up, and continue to climb for quite a while. “I believe that oil is going to be a problem,” Russell says. “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 the nations 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 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?”
It is tempting for many small business owners to simply try to wait it out, and hope for oil prices to reduce so that they can slowly slip back into reasonable limits. But even if that happens, business owners must not react by lowering their prices dramatically to please customers or entice new ones. It is a balancing act filled with guesswork and theorizing, but careful reasoning is essential to protecting profitability and staying in business. If that balancing act is a successful one, then small business owners should be able to keep most or all of their existing customers, possibly steal a few customers from competitors who raise their prices too high, and also retain their profitability, while hoping that prices settle back down again.
It’s always tough to play a wait-and-see game, and even tougher to play a guessing game, when the variables are changing daily. While American consumers watch and fret about rising gasoline prices impacting their vacation plans, American small business owners are sweating it out even more. They are trying to figure out, how to keep their businesses afloat without passing along too much of the rising costs to customers. Sooner or later, owners of the backbone of America will have to make some hard decisions, so that the consumers stop worrying about paying higher prices at least at the gas pump.