Fueling Debate
With Rising Fuel Costs, New Budgets and New Ideas
by Michael Dang | Published in June 2006 Focus on Transportation
A few weeks ago, Jacques Rosas faced a problem he normally didn’t have to deal with: A trucking company had left his employees sitting on a dock for three hours, demanding a tip as well as an additional surcharge for fuel costs. For Rosas, the rising cost of fuel was a budgeting wildcard he didn’t need.
Later, Rosas sat in his office and crunched some numbers to figure out exactly how much the current rise in fuel costs would affect the transportation budgets for the events his company would be producing that month. What he discovered was surprising. “The events that we are shipping [goods] for now were budgeted three months ago and earlier,” says Rosas, president of Shop Studios, an art and multimedia production, direction design and rental facility located in New York. “We have a backlog of transportation budgets that will now cost us 25 to 45 percent more than we had anticipated. We produce a dozen or so productions a month, so I am talking about a lot of loss revenue.”
Who’s Paying?
In the past few months, oil prices have been rising at a steady rate — significantly affecting the amount the average American spends when pumping at the gas station. According to the Energy Information Administration, oil prices are edging toward $70 a barrel. This is daunting news considering oil prices were at about $44 a barrel around the same time last year. Typically, transportation companies use a motor carrier’s index to calculate the fuel surcharge for their client. The index is published on a weekly basis and as oil prices rise, so do the surcharges.
This means that with the increase in fuel prices, planners and their clients are the ones who swallow the rising costs, not the companies providing transportation services. “It all gets written down in the costs of doing business,” says Dan Spiegel of Shaker Group Inc., which provides freight transportation services domestically and internationally. “We’re currently doing a road tour for one company that’s going to eight different cities. You may be adding as much as $500 to $600 for each move, so if you’re doing a multi-city tour, that could add up quickly.”
David Lewis agrees. “We pass it right on to the client,” says Lewis, president of Trade Show Transportation. “If the fuel prices go up and fluctuate, you still have to go to the trade shows. It might affect the smaller companies since they have smaller budgets to work with. I think the larger companies and the ones that have been going every year will continue and that’s just part of the trade shows.”
International shipping costs are even higher. “If you take a look at the prices from a year ago, the prices have risen about a third,” says Spiegel, who has shipped to London, Italy and Spain.
“The prices are going to be what they are and you’re going to have to pay,” says Lewis, whose clients are mostly in the U.S. “We have to bite the bullet just like everybody else.”
Planes, Trains and Automobiles
Rising fuel prices don’t just affect the budget for transporting goods, they also affect the budget for transporting people.
“Our regulars understand the situation,” says Greg Hutchings, a general partner for the Limousine Club Northern California. “They’re paying a little bit more and they don’t have a problem with it. Fuel is 8 percent of the cost that we charge our clients. Some of the charges such as airport runs, where you have to drive the whole time, are going to be more expensive. Smaller runs are really not a big factor.”
“For right now, people are saying it is the cost of doing business,” says Jay Ellenby, president and CEO of Safe Harbors Travel Group, which provides travel management services. “They expect that if they have to pay for more fuel costs, they’ll just have to increase their budgets.” Yet, according to Ellenby, most of the airline fares have remained the same despite the rise in fuel costs. In order to stay competitive, airlines are always hesitant to be the first to increase fares or add a fuel surcharge.
Fueling New Solutions
To keep ahead of the game, event planners like Russell Harris are facing the fuel costs head on.
“We always try to do analysis reports on all areas that the fuel costs would affect,” says Harris, president of Russell Harris Event Group. “I think that it’s our job as planners to offer any options to help ensure that our client still receives the value without going over budget. Being that every client is on budget, fuel costs do affect the bottom line on each job.”
Fortunately for Harris, the media has been rigorously covering the rise in fuel costs so that when clients see the final budget costs, they are more accepting of additional fuel surcharges. “We recently had a client from Argentina come to Los Angeles for a weeklong meeting and when figuring out transportation, they were very understanding when we gave them the costs.”
Kohler Event Services recently added a GPS feature to all its generators. This allows fleet managers to collect, transmit and manage equipment hours and fuel levels. “By utilizing our GPS we can monitor our generators’ run time to ensure they aren’t operating unnecessarily,” says Mike Nasif, director of logistics and operations for Kohler. “If the customer is budgeted to only run the unit during the day and we see that the equipment is running at night online, we can quickly notify the customer to shut it off so as not to waste fuel.”
Of course, event planners and transportation companies are always looking for ways to ease the financial burden for clients who have to pinch their pockets to make their budget work.
Spiegel suggests renting locally. “Rather than renting from your supplier in New York if you’re going to Ft. Lauderdale, you should rent from a supplier in Ft. Lauderdale,” says Spiegel. “I think that what it will come down to is that planners will decide to ship less or they will decide to scale their meetings back because of the substantial increase in costs.” For example, attendees will receive fewer promotional items or giveaways at incentive meetings because planners will decide to cut back on shipping, he says.
Ellenby suggests modifying travel policies to create more options. “Make sure your travelers are aware of what is out there, and loosen up your schedule a little so they can create additional options when traveling.”
As a former campaign director for Greenpeace, Rosas knows that fuel efficiency is not only good business, but also good for the community. He recently did a show for The Home Depot, and it was not cost-efficient to ship the product back to the warehouses. The product was instead donated to Housing Works, an organization that helps homeless people living with AIDS and HIV.