Rising fuel costs eat into profits and curb fun, yet boost wealth for some
Like invisible fumes spreading across the ground and through the air, gasoline — more specifically its rising cost — is creeping into almost every aspect of financial decision-making for individuals and businesses.
As prices rise, look
for savvy businesses to link sales to consumers’ desire for help with
high gas prices, business and travel professionals say.
"I
think people are of a mind that they’re looking for ways to offset the
cost and I think they will avail themselves of opportunities like
this," said Bryan Beers, marketing and communications manager for the
Kalamazoo County Convention & Visitors Bureau.
Beginning today, regional retail giant Meijer Inc. says it will cut gas prices by 10 cents per gallon for motorists who use Meijer credit cards to buy fuel at Meijer gas stations.
The new program will run through Labor Day at the Walker-based retailer’s 165 gas stations. It includes all grades of gasoline.
Among other offers:
– Best Western hotels (as well as a slate of independent
bed-and-breakfasts) are offering $50 gas cards to visitors who stay
three nights or more at participating hotels.
– Through June 2, Chrysler is offering gas cards to buyers of some new
Chrysler, Jeep or Dodge vehicles that let them pay $2.99 per gallon for
gas over the next three years.
– On May 1, American Suzuki Motor Corp. announced its "Free Gas for Summer" sales promotion offering new-car buyers interest-free financing and three months of free gasoline. The offer runs through June 30.
Here’s a check of the waterfront, from near and far, on the effect the runup in fuel prices is having:
What’s the cost?
Gasoline prices hit a nationwide average of $3.94 per gallon on Wednesday,
according to the federal Energy Information Administration’s weekly
gasoline report.
Prices for regular unleaded gasoline in an unscientific poll conducted by the Gazette and reported Wednesday ranged from $3.98 per gallon in Three Rivers to $4.05 on South Westnedge Avenue (down from about $4.09 in some locations early in the week and a statewide average on Tuesday of $4.10 per gallon,
according to AAA Michigan).
The nationwide price of diesel was about 40 cents per gallon more than gasoline, according to Consumer Watchdog, and in California was averaging $5.12. The online consumer organization reported that some California stations were selling diesel for $5.50 per gallon.
A sampling of diesel prices Wednesday by the Gazette found them at $4.89 per gallon in South Haven and St. Joseph.
Truckers fight prices
As diesel prices skyrocket, efforts by trucking companies to get the most out of every gallon are shifting into higher gear.
Companies are using computer programs to map out the most efficient routes.
They’re buying lighter and more aerodynamic equipment. And above all,
they are encouraging their drivers to slow down.
"The
bottom line is you’ve just got to go slower; that will allow you to
maximize your fuel efficiency," said Patrick Penfield, assistant
professor of supply-chain practices at Syracuse University.
On the average, trucks move 36 billion pounds of freight a year in
America. Penfield estimates the escalating price of diesel fuel will
cost the industry an additional $6 billion this year.
From May 21, 2007, to May 19, 2008, the average cost of a gallon of diesel
increased 60 percent, from $2.80 to $4.49 per gallon, according to the
federal Energy Information Administration.
Some smaller trucking companies, the "mom and pop" outfits, may not make it, Penfield said.
Truckers paying a high toll
The soaring price of diesel fuel has stripped the profit from hauling.
"Most truckers are one major breakdown — a broken axle or a damaged engine — away from bankruptcy," said Georgia-based Jesse Hendley, owner of a seven-truck log-hauling fleet who laid off his last driver in May and
turned to independent operators to ship his logs.
The squeeze on truckers’ profits from rising fuel costs is compounded by
the slowing economy, which is reducing the amount of freight traffic.
Truckers say they find it hard to impose fuel surcharges, as some other
businesses have done, in part because their industry has suffered for
years from overcapacity since deregulation drew thousands of small
operators into trucking.
In the meantime, about 70 percent of the nation’s freight tonnage moves over the highways on trucks, much of it in the diesel-powered tractor-trailers of the nation’s 350,000 independent operators.
Gas hits the kitchen table
– The International Monetary Fund estimates biofuels accounted for almost
half the increase in consumption of major food crops in 2006-2007,
saying it has boosted prices for corn, other grains, meat, poultry and
dairy.
Others dispute that. A report last month from the Agricultural and Food Policy Center at Texas A&M University said higher corn prices have had little to do with rising food costs because other factors, such as rising energy costs, have been at least as important.
– Food prices in the United States rose about 4 percent last year, which may not sound like much, but it’s the fastest rate since 1990, according to the
Agriculture Department. Prices on some foods rose much faster. White-bread prices rose 13 percent last year; bacon, 7 percent. Peanut butter jumped 9 percent.
Farm boom times
Corn, soybean and wheat prices have been pushed to nearly record highs by a
combination of high demand and new money from hedge-fund traders who
used to show little interest in those markets. Over the past 20 years,
trading volume at the Minneapolis Grain Exchange has risen almost
sixfold, to a new record last year. The runup is because in the
frenzied trading, the same commodities are changing hands far more
often than they used to.
"Grain farmers are making a hell of a lot of money," said Peter Georgantones, president of Investment Trading Services, a commodities brokerage in Bloomington, Minn. "I got grain farmers — a ton of them — who are going to improve their net worth this year — net, now — by a half a million bucks minimum. For one year. That’s a nice gain. Not to mention their land’s worth more."
Who’s losing, who’s profiting
The steep run-ups in food prices — the steepest since 1990 — are hurting
grocery shoppers, restaurants and school cafeterias, but they’re making
others rich.
The winners in the new food economy include crop farmers selling corn and wheat for near-record highs after years of crushingly low prices. Ingredient makers-like Cargill and ADM are rife with profits. Fertilizer and tractor companies are cashing in. Hedge funds that made big bets on rising wheat, soy and corn were spectacularly correct. Oil and gas companies, too — it takes natural gas to cook those Wheaties and diesel to haul them around the country.
Private pilots hurt
Aviation fuel has reached $5 a gallon at many small airports, forcing private
pilots — at least those who fly single-engine planes for fun — to
change their habits. Many have cut back on weekend joyrides, while some
are selling their planes.
"For some people, it’s prohibitive," said Victor Johnston, former manager of Sparta’s Paul C. Miller Municipal Airport, who keeps his plane there. "There’s people who have sold their planes on account of it."
Recreational pilots flew an estimated 9.1 million hours in 2006 across the United States, down from 9.3 million hours the year before, according to the
Federal Aviation Administration. "People who might have flown every
weekend are flying once or twice a month," said Chris Dancy, spokesman
for the Aircraft Owners and Pilots Association in Frederick, Md.
Ethanol mileage woes
When ethanol began flowing into Oregon fuel tanks early this year, its
costly little secret was scarcely mentioned: It packs one-third less
explosive energy than gasoline does and so reduces vehicle fuel mileage.
Oregon requires a 10 percent blend with gasoline, known as E10, which cuts
mileage by 3 percent, according to official estimates. That costs users
an additional $73 a year at the fuel pump, based on current prices for
regular gasoline.
But many Oregonians maintain the drop is 10 percent or more, raising out-of-pocket costs much higher. It’s enough to throw into question the real cost of cleaner air from ethanol use and reduced dependence on fossil fuels.
Now, record-high gas prices have thrown the mileage gap into sharp relief.
Tapped-out consumers are scrutinizing every penny they have to shell
out at the pump, and they track any discernible upticks.
On the East Coast
As the average price of a gallon of regular gasoline in New York City hit
a record $4.20 on Wednesday, the state Bureau of Weights and Measures
gave station owners the official go-ahead to charge by the half-gallon,
provided they can prove that they have ordered new pump computers that
can handle prices up to $9.99 a gallon. The new computers cost about
$400, not including installation fees.
Experts estimate that as many as 500 stations across the state of New York,
most of them independently owned, have older pumps that are unable to
go above $3.99.
On the West Coast
As if paying $4.50 for a gallon of gas isn’t frustrating enough in Los
Angeles, now motorists have to worry about thieves stealing it right
from their tanks.
Clever videos on how to steal gas, detailing siphoning techniques and showing viewers how to post fake pump numbers at gas stations to fuel up on someone else’s dime, are proliferating on the video-sharing Web site YouTube. L.A.-area automotive stores are reporting an increase in sales of lockable gas caps, with customers complaining about their tanks being siphoned dry.
