HUMAN RESOURCES

As Oil Hits New High, Businesses Continue to Struggle

Increased fuel costs have forced companies to raise their own prices and provide new commuting options for employees.
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Amid escalating violence in the Middle East, renewed tensions with North Korea and Iran, and continued hurricane fears, U.S. fuel prices  have reached a season high of $2.96 a gallon -- forcing businesses to charge customers more, while allowing more of their employees to work from home.

Californians now pay an average of $3.257 a gallon for regular unleaded gasoline, the nation's highest price at the pump, while residents of South Carolina pay the lowest, at $2.752 a gallon, according to the AAA Daily Fuel Gauge Report. The highest recorded national average hit $3.057 on Sept. 5, 2005, just days after Hurricane Katrina slammed into the Gulf Coast.

Crude oil prices also hit a new high this week -- approaching nearly $77 a barrel at the close of trading on the New York Mercantile Exchange on Thursday, following news of military clashes between Israel and Lebanon.
 
"Prices aren't going to come down anytime soon," said Mantill Williams, AAA's national director of public affairs. In addition to the recent surge in tensions around the globe, Williams also cited refinery shutdowns and the busy summer driving season as factors -- all of which he said could push gas prices beyond last year's record.

For many business owners, simply absorbing the added costs is no longer an option. Brendan Phillips, CEO of Smart Carpet located in Manasquan, N.J., said that he's had no choice but to raise his own prices.

Over the past two years, Smart Carpet has passed an increase of 20% to 30% on to customers. "High prices are driving lower-income [customers] out of the market," Phillips said.

John Eagleton, CEO of Northstar Aerospace, a Duluth, Minn., manufacturer of small plane parts, hasn't raised prices yet, but is mulling the option. A couple of years ago, fuel surcharges used to make up 2% to 4% of his vendors' invoices -- today that number is as high as 24%.

"I just can't keep paying the escalating fuel surcharges without passing that on to our customers," Eagleton said. Luckily for Northstar, its largest customer is located nearby, allowing the company to save money by using its own delivery trucks. But with business growing and new large aviation customers nationwide on his client list, Eagleton said he expects his transportation costs to grow as well.

Companies are also being forced to deal with employees that are breaking the bank just to drive to work. That's led some to subsidize mass-transit passes, allow employees to telecommute from home or work four longer days a week instead of five shorter ones, and even provide incentives for hybrids.

"For many people there's a limited degree of flexibility to how much gas they can use," said Sean Comey, a spokesman for AAA of Northern California. "We're seeing a greater degree of enthusiasm from the business community to these alternative solutions than we have in the past. For some people, being physically present in the office is just not that necessary anymore."

Some entrepreneurs, however, have seen business surge as a direct result of high gas prices, including Edge Products, which designs and manufacturers performance-enhancing products for diesel and gas trucks, as well as SUVs.

"We are a growing company on the rise," said Paul Lehman, CEO of the Ogden, Utah-based company, whose core business comes from contractors who own large pickup trucks. "Those guys don't have the option to switch to a Toyota Prius."

With little relief at the pump in sight, Lehman is optimistic about his company's long-term prospects. "We have the ability to tune the engine for mileage and power," he said.

Last updated: Jul 13, 2006




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