Businesses suffer when prices at pumps go up

Published 9:18 am Tuesday, January 25, 2011

Editor’s note: This is the last in a three-part series about rising gasoline prices.

Kara Walser drives about 30 miles to her job in Albert Lea from Minnesota Lake.

She’s grateful to live with her parents at this point in time, because rising gas prices eat into the cash she has leftover for bills and play. She’s also grateful for her car, a Toyota Camry, which gets pretty good mileage, 25 to 30 miles per gallon.

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“I always try to work longer shifts, to make the drive worthwhile,” she said.

Rising gasoline prices, and fuel prices in general, don’t just affect consumers, but also local businesses across the board.

“I’ve been in the business for 39 years and seen a lot of different cycles in the economy come and go, but fuel seems to hit home most because everyone uses it,” said Warren Amundson, president of VFS, a trucking company in Albert Lea. “Not just for fuel in cars and trucks, it’s consumed to make products you use, from a hairbrush to a toothbrush.”

Fuel runs about 35 to 40 percent of the total operating costs at VFS, Amundson said. In the past business quarter alone, diesel fuel prices have jumped about 14.1 percent, with the national average as of Jan. 10 at $3.33.

“The economics of it is by far the largest impact, and it’s a mindset beyond that,” he said.

He said VFS has various programs with fuel suppliers that as the volume of fuel they purchase rises, the trucking company receives discounts, which generally range from three to five cents per gallon, maybe 10 cents as most.

“But as fuel prices rise, the base goes up with the retail,” he said. “It’s an evil cycle.”

Amundson put it into perspective, explaining that a fuel surcharge is built into the contracts with the shipping community, which is predicated on the national average fuel price put out by the government.

“That’s passed along to the shipper and, in turn, built into the cost of the product, and the end result is higher prices to the consumer,” he said.

He also pointed out that rising fuel prices trigger more than just an economic impact at VFS. A peripheral effect of rising fuel prices, in time, could result in fewer over-the-road drivers. Independent contractors are responsible for paying for their own fuel, and then they are compensated for that in their contracts. If continually rising fuel prices run drivers out of the industry, the driver pool goes down.

It’s not so different in the business of pizza delivery.

Albert Lea Pizza Hut manager Amy Peterson said that pizza delivery employees use their own cars and pay for gas out of their own pockets, up front. Although drivers are reimbursed afterward, Peterson said it’s harder to get drivers on board from the get-go.

“They know they have to pay for the gas, and when gas prices are high, it’s just not very profitable for them,” she said.

It takes even more off the bottom line as the company raises reimbursement rates to their drivers when gas prices hike, as Peterson said the company tries not to pass those costs onto customers. And all while they’re also trying to battle the rising cost of natural gas to heat their ovens.

Light at the end of the tunnel

According to Gail Weinholzer, director of public affairs with AAA Minnesota/Iowa, there may be light at the end of the tunnel — at least for the travel industry — as travel across the region is back on the upswing.

She said AAA measured a significant decline in travelers on each of the five major holidays in 2008 and 2009. On Thanksgiving 2010, however, AAA measured a 12 percent increase in travel over the prior year. She attributed this to the beginning of a recovering economy, and the fact that people who may have normally traveled hadn’t in quite some time.

The 2010 Fourth of July holiday also saw increases over 2008.

She said the effects of rising fuel prices stem all the way back to Hurricane Katrina in 2005.

Richard Polley, manager at Albert Lea Bus Co., said they are doing their best to not pass along added fuel expenses to customers. In fact, that just might be the reason they have seen an increase in the number of bus tours being booked.

“Airline prices over the past few years have had an increase, and we’ve had an increase in our business,” he said. “It seems like we’ve booked more tours in the last four years than previously, so I’m assuming this may be related.”