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High gas prices force companies to consider passing it on

07:27 AM PDT on Monday, March 24, 2008

By GREG BOLT, The (Eugene) Register-Guard

EUGENE, Ore. -- If you order a pizza tonight, don't be surprised if the delivery person hands you the bill and there's a charge for an extra ingredient: fuel.

Fuel surcharges, delivery fees and other add-on charges are popping up all over as local businesses look for ways to shore up their bottom lines against the spiraling cost of gas and diesel.

"It's taking a big bite out of profits, and it's hurting," said Chuck Buster, the owner and now sole employee of Sunshine Delivery Service in Springfield. "I'm down to a one-person operation now. It's a situation where if I was having to hire the work done, I couldn't charge enough to make it possible."

A few years ago Buster had the equivalent of four or five full-time employees, but the run-up in gas prices has forced him to cut all those jobs. He said that today 25 cents of every dollar he earns gets poured into the gas tank.

"That doesn't leave you a lot left over to pay everyone else," he said. "That's why I've made some adjustments to the point where I just do everything myself."

Not all businesses have it as rough. For some, gas is a relatively small part of the overall cost of doing business or can be spread out less painfully. But it's the rare small business that isn't feeling some effect from oil's steady rise.

Marie Dodd, AAA's Oregon spokeswoman, said recent gas prices are records, beating the sticker-price highs set last May as well as the inflation-adjusted highs from the early 1980s. And it's only going to get worse; Dodd said prices nationally are expected to rise as high as $3.50 to $3.90 a gallon within the next month or so.

With Oregon typically at the higher end of the range, that's bound to have wide-ranging effects, she said.

"Every $1 you have to spend on gas is $1 you don't have to spend on food, on education, on taking your kids out for pizza," Dodd said.

Many businesses have tried to absorb as much of the price increase as possible. Darrick Ritter of All Seasons Landscape Maintenance said many of his clients are older people on fixed incomes, customers he's afraid he'll lose if he passes the full cost of fuel hikes on.

But with gas costing him $1,000 a month more than it did a few years ago he said he doesn't expect to be able to hold out much longer.

"Right now we're eating it, but we're considering a price increase," Ritter said. "If diesel hits $4 a gallon, there'll be a price increase."

At Track Town Pizza on River Road, the $1.50 fuel surcharge per delivery that was added less than two years ago recently had to be bumped to $2. The shop had free delivery for 15 years, but manager Kenny Slagle said that, because drivers use their own cars and pay for gas out of their own pockets, the surcharge was the only way to make delivery jobs worthwhile.

"It's just trickle down," he said. "The drivers just weren't making out."

As fuel prices have gone up, more and more businesses have started looking for ways to reduce their fuel costs or at least get more bang per gas buck. Mark Durbin, owner of Emerald Water Supply, hopes to restructure his business to make deliveries more efficient.

Right now, Durbin's bulk water-hauling service works mostly on call -- when a customer needs water he fills up his 3,000-gallon stainless steel tanker and drives out to fill the cistern or water tank. That means driving 100 to 200 miles a day because he usually can service only one customer per trip.

He's already boosted his basic charge by $10 and added a 10 percent fuel surcharge -- 18 percent if he has to go more than 20 miles. He said he doesn't get to keep any of that money; it all goes to pay the diesel bill.

But he's hoping to change his business model from a call service to one using regular routes and schedules, similar to how garbage haulers operate. That way he can plan out his deliveries and drive fewer miles.

"If I had a group of people that would dedicate to 12 months of deliveries, I could schedule things, be in a certain area at one time, and figure out the most cost-effective way to cut mileage down to where I could make it more cost-effective to them," Durbin said.

"I can add fuel surcharges all week long but what we need is a way to make it more efficient."

As with all shifts in the business landscape, however, there are those who can find an upside.

As gas prices rise, some people may change their own behavior or business models in ways that boost revenue for other businesses.

Clayton Thompson, co-owner of Bolt Delivery Services, said he's had to raise prices already and is considering adding a fuel surcharge if prices go higher. But so far it hasn't hurt business.

"We haven't seen a downturn," he said. "If anything we've been busier than ever."

He said that could be because gas has reached a point that it's cheaper for some businesses to hire out deliveries rather than maintain vehicles for what may be a relatively small volume of work.

"As a general rule, one man's loss is another man's gain," said Glen Waddell, an economics professor at the University of Oregon who has studied gas prices.

On the other hand, Waddell pointed out that people seem to pay an unusual amount of attention to gas prices compared to other commodities that might have similar effects on prices.

For example, the shift to corn by farmers cashing in on the ethanol boom is raising the price of everything from soft drinks to tortillas. China is buying so much wheat for flour it's affecting the price of bread and other baked goods. And pizza people are being squeezed from every direction as prices for flour, cheese and meat all rise.

"Certainly gas is political. I get phone calls every time the price of gas goes way up; I get the same phone calls every time the prices go way down," Waddell said. "We've built a society in this corner of the world to be quite dependent on vehicles, and until we spend as much energy as we do complaining about gas prices on actually building fuel-efficient or alternative-fuel vehicles, that's the way it's going to be."

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