November 2006
Fuel Factor
Coping with rising fuel costs an ongoing battle for area businesses
By Andrea McGovern

Kurt Kluznik is president of Yardmaster, a landscaping firm in Painesville. The company's gas cost for its more than 200 trucks and lawnmowers doubled last season. Photo by Toby Shingleton

Increases in fuel prices are on the minds of every executive whose business includes transportation – and what business doesn’t?

Although there is currently a seasonal drop in prices, analysts such as Trilby Lundberg, publisher of the national Lundberg Survey, predict the cost of fuel at the pump will begin to rise again as production facilities switch over from gasoline to home heating oil.

The general trend has been a steady increase in gasoline prices, from below $1.80 a gallon in May, 2004 to the current average hovering around $2 in the Cleveland area, with spikes to over $3 a gallon in the summers of 2005 and 2006.

Diesel fuel currently costs $2.55 a gallon, about the same as during the previous two winters, but sharply down from spring and summer highs of over $3.

These price fluctuations have businesses scurrying to cope with a cost that is largely out of their control, relatively unpredictable, and can even seem arbitrary at times. But rather than wringing their hands, area business people are sharpening their pencils and employing the strategies of adjusting, assessing or absorbing in response to this financial “curve ball.”

Guaranteed cost

Andy Altenweg is operations manager for Laketran, which purchases fuel for the system’s fleet from multi-state consortiums that guarantee the cost on a yearly basis. In 2005 the transit agency spent $1.38 per gallon for diesel fuel, which it uses at a rate of 420,000 gallons per year.

The price in 2006 was $1.90, an increase in fuel cost of nearly 38 percent, or $219,000. Of even greater concern to Altenweg is the fact that the agency has not yet buttoned down its 2007 fuel cost.

“We began looking in late June or early July,” he said. “But we’ve been unable so far to find a program that meets all our needs. There are stipulations on these contracts that you have to watch. We don’t have an agreement in place yet for next year.”

On the plus side for Laketran, consumers, also feeling the fuel cost crunch, have increased their ridership, especially on the express routes to Cleveland.

“Everything went up,” Altenweg said.

Change of habit

Almost 900 people ride the express buses on a daily basis, at a cost of $2.50 each way. Weekly or monthly passes offer discounts on the fare.

“We had already planned to add a couple of buses to park ’n ride routes, so this was happening at the right time,” Altenweg said. “But still, the increase in ridership doesn’t offset the fuel cost increase. Every penny increase in the price of fuel means $4,200 to us over the course of a year. When you’re putting together your budget, and you have no clue what you will pay for fuel, you have to use estimates. All you can do is stay on top of the game and do the best you can.”

By the time the 2007 budget is finalized, Laketran will have an agreement that locks in the per gallon fuel cost for the year. For-profit concerns aren’t likely to have that luxury.

Kurt Kluznik is president of Yardmaster, a large commercial and residential landscaping firm with more than 250 employees and offices in Painesville, Garfield Heights, Columbus, Erie, Pennsylvania and Detroit.

The company does landscape design for both residential and commercial properties and commercial property maintenance. It also provides snow removal for its contracted customers.

“We work at hundreds of sites,” Kluznik said. “The majority of our work is maintaining properties, so we are at the sites every week, mowing grass, fertilizing, planting seasonal plants for color.”

He said the company has nearly 100 trucks and more than 100 lawnmowers, as well as string trimmers, blowers and edgers. And they all use gas.

“For much of the past season, gas was double what we had been paying,” he said. “We spend 6-7 percent of our volume on gas, so when it doubles, there’s a huge impact.”

Kluznik said his company has many commercial contracts that lock in the cost for one to three years.

“Yardmaster ends up absorbing most of the cost of fuel increases, although we did assess a minor fuel surcharge that offset it somewhat,” he said. “Nobody liked it but people do understand. Most of our commercial clients are used to this sort of thing and accept it. They deal with contractors and suppliers, and see this as just part of doing business. It’s a non-issue.”

Beyond that, he said, his managers look for other ways to find efficiencies.

“When you are managing crews and projects, there are always going to be ways to economize a bit,” he said.

Things like getting the trucks out of the yard quicker and better routing so trucks are not sitting in traffic help.

“If we can we’ll send one truck instead of two. These are the same things you should do whether gas prices are high or low,” he said. “Just as in your household, when you experience fuel prices going up, you have to cut in some other place, so maybe you decrease some luxuries.”

Kluznik said the landscaping industry has begun to produce more fuel-efficient tools, so that’s an economy they implement as they replace equipment. Another option is switching to some diesel equipment.

“But overall there’s not a whole lot you can do,” he said.

New appreciation

Kluznik does appreciate the current price trough.

“I hope prices continue in the current trend,” he said. “It feels like a bargain to buy gas at $2 a gallon!”

Some businesses feel the pressure of increasing fuel prices on the receiving end, in the form of increased freight costs for the products they receive. Mike Bartosik, president of Euclid Fish, a seafood distributor whose customers throughout Northeast Ohio include country clubs, hotels, mid- to upscale restaurants and specialty retailers, receives shipments of fresh products by truck from Miami, Boston and Vancouver, as well as frozen products shipped from Los Angeles.

“We’ve been paying as much as 28 percent in fuel surcharge,” he said. “On a $1,000 freight bill, that translates to an additional $280.”

One way his company offsets fuel surcharges is to pass them on to customers.

“We’ll assess surcharges on outgoing products, depending on the size of an order and where we are going. Our big, long-term customers, people who do a lot of business with us, will get more of a break. We don’t consider this to be a sales tool, it’s a form of encouragement for our best customers,” he said.

“This is the kind of financial curve ball that really erodes your bottom line,” he said. “You try initially to set foot and get a hold of the extra expenses, and one way to do it is a fuel surcharge, but it’s a tough thing to get going, especially if other companies aren’t doing it yet.” He said most of his customers do accept the surcharge but others will cross it off each bill and “bicker with the salespeople.”

“In any business, you try to recoup as much of your increased expenses as you can while remaining competitive,” he said. “You can’t just absorb them. Our customers also make business decisions every day. Of course they would like us to absorb the cost, but they understand - unless the price of fuel goes down and you still have your surcharge at 28 percent.”

Andrea McGovern is a Mentor freelance writer.