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Business

Businesses must absorb higher fuel costs or raise their prices

| Saturday, March 3, 2012

Jim Ludwig's Blumengarten in the Strip District can deliver flower orders to more than 90 ZIP codes in Western Pennsylvania.

But as gasoline prices rise, owner Jim Ludwig is thankful his delivery truck only has to cover four of those ZIP codes.

"As florists, we've done a good job of reducing miles," Ludwig said. "Our biggest cost is the driver and the vehicle and insurance, not gas."

Ludwig and more than 30 other florists in the region are managing gas costs through a delivery cooperative, Flowers Inc., also based in the Strip District. Drivers from each shop meet daily at the co-op's warehouse on Liberty Avenue and divvy up the day's deliveries by region.

The co-op is one example of how businesses are dealing with higher gas prices. Others are raising prices, adding fuel surcharges or simply eating the extra cost.

"At some point, companies can no longer absorb it, and they have to pass along the cost," said Gregg Laskoski, a petroleum analyst with GasBuddy.com.

The florists formed their cooperative in the early 1970s when the price of gas jumped to 50 cents a gallon, up from 30 cents, said Cheryl Bakin, the co-op's administrative manager and the owner of Parkway Florists.

"We're not just taking one delivery to one place. We're efficient like UPS or FedEx," Ludwig said.

Experts say gas prices affect grocery stores, restaurants, retailers and other merchants that have goods shipped to them or deliver to customers.

The small business community is still struggling to recover from the recession, said Jean Card, spokeswoman for the National Federation of Independent Business, a Washington trade group.

Rapidly rising gas prices are "definitely insult to injury," she said.

Even if prices don't directly affect a business, they are still a concern, said Bill Dunkelberg, chief economist for the federation.

"Gas prices have gone up more than 30 cents in the past month. That means consumers are spending billions of dollars on filling their gas tanks instead of on local goods and services," Dunkelberg said.

Some businesses find that customers can be understanding.

"The consumer's always paying for it," said Michael Staab, secretary/treasurer of Staab & Sons Inc., an Overbrook plumbing, heating and air-conditioning contractor. Staab & Sons has a fleet of 12 trucks on the road every day.

Several years ago, the contractor implemented a fuel surcharge that slides from $3 to $8 for its service calls, which helps offset rising gas prices, Staab said. The surcharge allows the company to hold service rates steady and be transparent with customers, he said.

"I think people understand," Staab said. "When we get deliveries from our suppliers, they do the same thing to us."

The average price for regular gas in Western Pennsylvania is up 38 cents a gallon since the start of the year, according to AAA East Central. At $3.75 a gallon this week, the price has jumped 11 percent in two months. It was $3.22 a gallon a year ago.

The national average is $3.72 this week.

Analysts expect prices nationally to peak in the next several months between $3.75 and $4.25 a gallon, said Tom Kloza, chief oil analyst for Oil Price Information Service, a Gaithersburg, Md., company that tracks oil and fuel prices.

The perception that demand for oil is increasing dramatically is pushing crude prices higher, he said.

"I can't dispute the notion that there is very big money in the markets that is driving prices higher," he said.

Taxi drivers hurt financially when prices rise quickly, said Jamie Campolongo, CEO of Pittsburgh Transportation Group, which owns Yellow Cab Co. The independent drivers must pay for gas out of their pockets. Fares include a surcharge, but the state Public Utility Commission sets that once a month.

"They get stuck with the higher costs and can't pass it along," Campolongo said.

Pittsburgh Transportation Group also runs limousine, airport shuttle and charter bus services and has an easier time adding surcharges to offset changing gas prices, Campolongo said.

"As much as it sounds like companies are really struggling with rising fuel costs, I think you'll find the consumer is really paying the freight," he said.

Larry Lint would disagree. The owner of Larry J. Lint Floor & Wall Covering is eating higher gas prices because he's worried about losing business. The company's estimators and installation crews burn as much as 5,000 gallons of gasoline a month driving to customers' homes.

"That's right off the bottom line," Lint said.

"You can't raise prices because customers are very difficult to get," he said. "The more expensive things get, the less customers buy. They just live with what they have."

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